Fundamentals of Stock Market

Multidisciplinary course

Study material

UNIT I- PRIMARY MARKET

Indian Securities Market

The securities market provides an institutional framework for efficient flow of capital in the
economy. Capital markets converts saving into investments for the investor and it converts
business pedigree into funding for the businesses. This basic arrangement in the securities
markets enables flow of capital from households to business, in a regulated institutionalised
framework.

The securities market include equities, index futures, index options, stock futures, stock
options, long term bonds, medium term bonds, short term bonds, money market securities,
equity funds, debt funds, hybrid funds, structured products, REITS, INVITs etc. Security
markets are an important for raising money for corporates and institutions and also for
investors to allocate their money.

The place where the exchange of securities like stocks and bonds occurs by considering the
demand and supply as the basis of trade is known as the securities market. These markets
regulate the cost and are open to both types of buyers and sellers: professionals and non-
professionals. The securities markets are responsible for providing a regulated body for the
systematic flow of capital i.e. equity and debt from investors to businesses in the financial
market sector. Securities markets in fiscal terms are represented as IOUs which means ‘I
owe you and more importantly this market deals with financial assets. The central or state
government, business firms, and the corporate sector are responsible for issuing the securities
and the public sector undertakings also issue the same. These issued securities provide
financial support for investments and expenditures. These markets play a vital role as a
platform that allocates savings to investments. Securities markets are very capable and have a
lot of potential as they can channel the savings of government, households, and business
firms to provide funds for capital needs concerning a business enterprise.
Most of the trading in the Indian stock market takes place on its two stock exchanges:
the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE has
been in existence since 1875. The NSE, on the other hand, was founded in 1992 and started
trading in 1994; however, both exchanges follow the same trading mechanism, trading hours,
and settlement process.

As of June 2023, the BSE had 5,657 listed firms, whereas the rival NSE had 2,137 as of
March 31, 2023.45

Almost all the significant firms of India are listed on both exchanges. The BSE is the older
stock market but the NSE is the largest stock market, in terms of volume. Both exchanges
compete for the order flow that leads to reduced costs, market efficiency, and innovation. The
presence of arbitrageurs keeps the prices on the two stock exchanges within a very tight
range.

 Trading at both exchanges takes place through an open electronic limit order book in
which order matching is done by the trading computer.
 Both indexes share the same trading hours, trading mechanisms, and settlement
processes, and are regulated by the Securities Exchange Board of India (SEBI).
 Two popular indexes based on the Indian markets are the Sensex and Nifty.

All trading on stock exchanges takes place between 9:15 a.m. and 3:30 p.m., Indian Standard
Time (+ 5.5 hours GMT), Monday through Friday. Delivery of shares must be made in
dematerialized form, and each exchange has its own clearing house, which assumes
all settlement risk by serving as a central counterparty.

The overall responsibility for the development, regulation, and supervision of the stock
market rests with the Securities and Exchange Board of India (SEBI), which was formed in
1992 as an independent authority. Since then, SEBI has consistently tried to lay down market
rules in line with the best market practices. It enjoys vast powers of imposing penalties on
market participants, in case of a breach.

Primary Market
In a Primary Market, securities are created for the first time for investors to purchase. New
securities are issued in this market through a stock exchange, enabling the government as
well as companies to raise capital.

For a transaction taking place in this market, there are three entities involved. It would
include a company, investors, and an underwriter. A company issues security in a primary
market as an initial public offering (IPO), and the sale price of such a new issue is determined
by a concerned underwriter, which may or may not be a financial institution.

An underwriter also facilitates and monitors the new issue offering. Investors purchase the
newly issued securities in the primary market. Such a market is regulated by the Securities
and Exchange Board of India (SEBI).

The entity which issues securities may be looking to expand its operations, fund other
business targets or increase its physical presence among others. Primary market example of
securities issued include notes, bills, government bonds or corporate bonds as well as stocks
of companies.

Functions of Primary Market

The functions of such a market are manifold –

 New Issue Offer

The primary market organises offer of a new issue which had not been traded on any other
exchange earlier. Due to this reason, it is also called a New Issue Market.

Organising new issue offers involves a detailed assessment of project viability, among other
factors. The financial arrangements for the purpose include considerations of promoters’
equity, liquidity ratio, debt-equity ratio and requirement of foreign exchange.

 Underwriting Services
Underwriting is an essential aspect while offering a new issue. An underwriter’s role in a
primary marketplace includes purchasing unsold shares if it cannot manage to sell the
required number of shares to the public. A financial institution may act as an underwriter,
earning a commission on underwriting.

Investors rely on underwriters for determining whether undertaking the risk would be worth
its returns. It may so happen that an underwriter ends up buying all the IPO issue, and
subsequently selling it to investors.

 Distribution of New Issue

A new issue is also distributed in a primary marketing sphere. Such distribution is initiated
with a new prospectus issue. It invites the public at large to buy a new issue and provides
detailed information on the company, issue, and involved underwriters.

Methods of Floating New Issues in Primary Market

It is an important aspect of the primary and secondary markets, mainly because it holds the
stability of the financial market. Now, what is flotation? It is the method of making shares
available to public investors. It is when a company decides to go public for its shares. So
much so that the public investors can invest in the same. The shares are open for issuing and
selling. The floatation of a company gives it a firm grip in the primary and secondary market.
It can raise more money for its company and aim towards more development. It aids in the
expansion of the business and makes more room for research and development in the primary
market.

(i) Public Issue

As the name suggests, this method allows anyone belonging to any part of India to subscribe
for the securities or invest in the particular company’s stocks. When an offer is made by the
company so that more and more people become a part of the shareholder’s family, it is
known as a public issue.

Public Issue is further divided into:

Initial Public Offer (IPO)

Through Initial Public Offer or IPO, only a certain amount of the securities that the company
has fixed is made public. The specific securities are available for subscription to the public
for the very first time. The Initial Public Offering had many methods making it public,
including fixed price method, book building method, or an amalgamation of both.

Further Public Offer (FPO)

It also goes by the name, Seasoned or Subsequent Public Offer. Through this, an Indian
company makes a fresh set of securities available to the public for subscription. It is also
termed as “Follow On Public Offer”.

(ii) Offer through Sale

As against offer through prospectus, under the offer through sale method, the company does
not issue securities directly to the public rather they are issued through intermediaries such as
brokers, issuing houses, etc. That is, under offer through sale, securities are issued in two
steps, first the company sells its securities to the intermediaries at the face value and later the
intermediaries resell the securities to the investing public at a higher price than the face value
to earn profit.

(iii) Private Placement

Under this method, the securities are sold only to some selected individuals and big
institutional investors rather than to the public. The companies either allot the securities
themselves or they sell the securities to intermediaries who in turn sell them to selected
clients. This method saves the company from various mandatory or non-mandatory expenses
such as cost of manager fees, commission, underwriter fees, etc. Thus, the companies which
cannot afford the huge expenses related to public issue often go for private placement.

(iv) Rights Issue

Under the Companies Act 1956, it is the right of the existing share holders of a company to
subscribe to the new shares issued by it. The existing share holders are offered subscription of
new shares of the company in proportion to the number of shares possessed by them.
INTERMEDIARIES IN NEW ISSUE MARKET/ PRIMARY MARKET

Merchant Bankers:

He is the person who ✓ Is engaged in the business of issue management or ✓Acts as a

manager, advisor or consultant in relation to issue management. Activities: ✓In the business
of issue management o Preparation of prospectus o Preparation of other information
regarding issue o Tie-up with financiers o Final allotment and refund of application money
✓Manager, advisor, consultant, underwriter and portfolio manage

In modern times, importance of merchant banker is very much, because it the key
intermediary between the company and issue of capital. Main activities of the merchant
bankers are – determining the composition of the capital structure, drafting of prospectus and
application forms, compliance with procedural formalities, appointment of registrars to deal
with the share application and transfer, listing of securities, arrangement of underwriting /
subunderwriting, placing of issues, selection of brokers, bankers to the issue, publicity and
advertising agents, printers and so on. Due to overwhelming importance of merchant banker,
it is now mandatory that merchant banker functioning as lead manager should manage all
public issues

Underwriters:

➢Underwriting is an agreement between underwriter and the company stating that the
underwriter would subscribe, with or without conditions, to the securities of the company,
when existing shareholders or public doesn’t subscribe for the securities offered to them. ➢
Underwriter is a person who engages in the business of underwriting an issue of securities of
a company. Banks, Financial institutions, merchant bankers, etc do the work of underwriting.

Another important intermediary in the new issue/ primary market is the underwriters to issue
of capital who agree to take up securities which are not fully subscribed. They make a
commitment to get the issue subscribed either by others or by themselves. Though
underwriting is not mandatory after April 1995, its organization is an important element of
primary market. Underwriters are appointed by the issuing companies in consultation with
the lead managers / merchant bankers to the issues.

Every underwriter has to enter into an agreement with the issuing company. The agreement,
among others, provides for the period during which the agreement is in force, the amount of
underwriting obligations, the period within which the underwriter has to subscribe to the
issue after being intimated by/on behalf of the issuer, the amount of commission/brokerage,
and details of arrangements, if any, made by the underwriter for fulfilling the underwriting
obligations

Bankers to an Issue:

Bankers to an issue means any scheduled bank which ✓Accepts application money ✓
Accepts allotment and call money ✓ Refunds the application money ✓ Pays the dividend /
interest

The bankers to an issue are engaged in activities such as acceptance of applications along
with application money from the investor in respect of capital and refund of application
money

When required, a banker to an issue has to furnish to the SEBI the following information : (a)
the number of issues for which he was engaged as banker to an issue (b) the number of
applications / details of the applications money received (c) the dates on which applications
from investors were forwarded to the issuing company / registrar to an issue (d) the dates /
amount of refund to the investors.

Brokers to the Issue:

Stock broker is a person registered with SEBI, as a member, to help both seller and buyer of
securities to enter into a transaction. This means he acts as a communication channel between
company and the investor

Brokers are persons mainly concerned with the procurement of subscription to the issue from
the prospective investors. The appointment of brokers is not compulsory and the companies
are free to appoint any number of brokers. The managers to the issue and the official brokers
organize the preliminary distribution of securities and procure direct subscription from as
large or as wide a circle of investors as possible. A copy of the consent letter from all the
brokers to the issue, should be filed with the prospectus to the ROC

Registrars to an Issue and Share Transfer Agents: The registrars to an issue, as an

intermediary in the primary market, carry on activities such as collecting applications from
the investors, keeping a proper record of applications and money received from the investors
or paid to the sellers of securities and assisting companies in determining the basis of
allotment of securities in consultation with the stock exchanges, finalizing the allotment of
securities and processing / dispatching allotment letters, refund orders, certificates and other
related documents in respect of the issue of capital.

Debenture Trustees:

A debenture trustee is a trustee for a trust deed needed for securing any issue of debentures
by a company. To act as a debenture trustee, a certificate from the SEBI is necessary. Only
scheduled commercial banks, PFIs, Insurance companies and companies are entitled to act as
a debenture trustees. The certificate of registration is granted to suitable applicants with
adequate infrastructure, qualified manpower and requisite funds.

Before the issue of debentures for subscription, the consent in writing to the issuing company
to act as a debenture trustee is obligatory. He has to accept the trust deed which contains
matters pertaining to the different aspects of the debenture issue. Duties: The main duties of a
debenture trustee include the following:

Take possession of trust property, in accordance with the provisions of the trust deed.

Enforce security in the interest of the debenture holders.

Carry out all the necessary acts for the protection of the debenture holders and to the needful
to resolve their grievances.

Ensure refund of money in accordance with the Companies Act and the stock exchange
listing agreement.

Exercise due diligence to ascertain the availability of the assets of the company by way of
security as well as their adequacy / sufficiency to discharge claims when they become due.

Take appropriate measure to protect the interest of the debenture holders as soon as any
breach of trust deed/ law comes to notice.

Ascertain the conversion / redemption of debentures in accordance with the provisions /

conditions under which they were offered to the holders.

Challenges in new issue market

The activities in the new issue market relate to underwriting and marketing of new issues.
Financial institutions and brokers are actively engaged in these activities. Recently, banks
have started their own division of merchant banking or their subsidiaries for undertaking
activities in the new issue market. They are well versed in the requirements of Companies
Act and the Securities Contracts (Regulation) Act, and listing requirements with regard to
new issue market.

Despite the role of financial institutions, which competently handle all the issues relating to
the new issue market, the new issue market suffers from certain problems. The problems can
be summarized as follows:

1. Ineffective mobilization of savings

It is felt that the new issue market has not fared well in the recent past. Particularly, the new
issue market could not mobilize adequate savings from the public. Hardly about 5% of
financial savings of the household sector is mobilized for investment in shares and
debentures. A larger portion of domestic savings goes to the private market or to the financial
institutions.

2. Functional and institutional gap

The new instruments in the new issue market do not appeal to the investing public. The
reason is that the merchant banking which is the major player in the new issue market is still
in its infancy in India.

In fact, the merchant bankers are not playing any developmental role and they do not pay
adequate attention to the preparation of project reports, though it is their responsibility to do
so. As a result, the small investors are often deceived by the tall claims of the companies and
they do not find the new issues attractive.

3. Risk aversion

Underwriters and financial institutions subscribe more for preference shares and debentures
than for equity shares. The reason is that debentures, being fixed income bearing securities
are more attractive to the investing public. So, they prefer debentures to equity shares.

Understandably, they hesitate to invest in equity shares as they do not fetch any fixed income.
So, the companies themselves have shifted from equity financing to debt financing.

4. In ordinate delay in the allotment process

The average investor in semi urban and rural areas has to send the application form for shares
to the centres where banks accept it. He has to incur some expenditure on securing a bank
draft and postal charges for mailing it. Till the shares are allotted, he suffers loss of interest. If
shares are not allotted, he has to pay collection charges in getting the refund of application
money.

Moreover, even if shares are allotted, there are inordinate delays in receiving allotment
letters, share certificates and also in effecting transfer of shares. Again, dividend warrants,
refund orders interest payments etc,, are not enchashable at par in all cases.

All these problems cause hardships to the small investors, especially in the rural areas and the
rural investors get discouraged and refrain from applying for new issues.

5. Problems of the company

The issuing companies also suffer from certain problems. They are often tempted to present a
rosy picture about the projected figures of turnover, profits, dividends, etc., for the future,
which can be avoided.

Secondly, some companies make exaggerated claims about their prospects to the public.
Thirdly, their claims about over-subscription are often false. Apart from these, there are no
fixed norms for appraisal of the projects prepared by the companies.

Initial Public Offering (IPO) is a process by which a company raises capital by offering its
shares to the public for the first time. In the Indian stock market, the IPO process is regulated
by the Securities and Exchange Board of India (SEBI).

The IPO process is regulated by SEBI, which ensures transparency, fairness, and investor
protection in the issuance of new shares.

Companies seeking to go public in India must meet specific eligibility criteria, including a
minimum track record of profitability and net worth.

The company must draft a prospectus, which provides detailed information about the
company, its business operations, financials, risk factors, and objectives of the IPO.

Companies appoint lead managers (investment banks) to oversee the IPO process. These lead
managers are responsible for structuring the offering and marketing the IPO to investors.
The price of the IPO shares is determined through a book-building process or a fixed price
method. In book-building, investors bid for shares within a price range, and the final price is
determined based on demand.

After the IPO subscription period, shares are allotted to investors based on the allotment
criteria specified in the prospectus. The allotment process can be oversubscribed, and shares
are distributed accordingly.

The company must specify how it intends to use the funds raised through the IPO, such as for
business expansion, debt reduction, or working capital.

After the IPO, shares are available for trading in the secondary market, providing liquidity to
investors who can buy and sell these shares.

IPOs offer companies a means to raise capital for growth and expansion, and they provide
investors with an opportunity to invest in newly listed companies
UNIT II- SECONDARY MARKET

Secondary Market

The secondary market, often referred to as the secondary or aftermarket, is a financial market
where existing securities that have previously been issued in the primary market (e.g.,
through an initial public offering or IPO) are bought and sold among investors. In the
secondary market, securities such as stocks, bonds, and other financial instruments are traded
after their initial issuance by the company or government that issued them. This market
allows investors to buy and sell securities to other investors, rather than directly from the
issuer.

Functions of secondary market

Maintain Active Trading:

The secondary market provides a platform for continuous and active trading of existing
securities. It allows investors to buy and sell shares, bonds, and other financial instruments
after the initial issuance. This liquidity ensures that investors can enter or exit positions at
their convenience, fostering a dynamic market environment.

Help Fix Share Prices:

Share prices in the secondary market are determined through the forces of supply and
demand. As buyers and sellers interact, market prices are established. This price discovery
mechanism ensures that securities are traded at fair and transparent values, reflecting the
collective wisdom of market participants.

Ensure Safe and Fair Dealing:

The secondary market is regulated to maintain the integrity of trading. Regulatory bodies,
such as the Securities and Exchange Board of India (SEBI), oversee market operations and
ensure that trading is conducted in a safe and fair manner. Rules and regulations are in place
to protect investors from fraudulent activities.
Aid in Financing the Industry:

Companies that are already publicly listed can access the secondary market to raise additional
capital through follow-on offerings. This allows them to finance new projects, expansion, or
debt reduction. It also provides an avenue for funding ongoing operations and strategic
initiatives.

Disseminate Information:

The secondary market acts as a platform for disseminating financial and corporate
information to investors. Publicly traded companies are required to disclose their financial
statements, annual reports, and other key information, enabling investors to make informed
decisions.

Act as a Performance Inducer:

Public companies listed on the secondary market are subject to scrutiny by analysts,
investors, and regulatory bodies. This scrutiny acts as a performance inducer, encouraging
companies to maintain high standards of corporate governance, financial transparency, and
operational efficiency.

Facilitate Self-Regulation:

Stock exchanges and self-regulatory organizations play a significant role in maintaining

market integrity. They establish and enforce trading rules, monitor market activities, and
provide mechanisms for dispute resolution. Self-regulation complements external regulatory
oversight.

Regulatory framework for stock exchanges in India

The Indian stock markets are efficiently regulated and tracked by The Securities and
Exchange Board of India (SEBI), The Reserve Bank of India, and the Ministry of Finance.
The Ministry of Finance operates via the Department of Economic Affairs (Capital Markets
Division).

The Ministry formulates rules and regulations required for the functioning of the capital
markets. It also develops laws necessary for safeguarding the interests of the investors in the
stock market.
Securities Contracts (Regulation) Act, 1956 (SCRA)

SCRA is an Act of the Parliament of India enacted to prevent undesirable exchanges in

securities and to control the working of the stock exchange in India

It provides the legal framework for the regulation of securities contracts in India.

It also covers the listing and trading of securities, the registration and regulation of
stockbrokers and sub-brokers, and the prohibition of insider trading.

Securities and Exchange Board of India Act, 1992 (SEBI Act)

The Capital Markets Division of the Department of Economic Affairs sees to the
administration of rules made within the bounds of the SEBI Act of 1992.

This is the act that established the Securities and Exchange Board of India, or SEBI, the main
authorized regulatory body that regulates Indian stock exchanges.

The key function of SEBI is to keep the interest of investors/traders protected.

While trading in the Indian stock market, investors and traders have to execute trades while
abiding by rules, to promote fairness. SEBI monitors the rules.

Depositories Act, 1996

The Depositories Act, of 1996 regulates the depositories of securities in India.

It sets out the procedures for the dematerialization and transfer of securities held in electronic
form.

Companies Act, 2013

This act regulates the incorporation of a company, responsibilities of a company, directors,

and dissolution of a company.

The act enabled companies to be formed by registration, set out the responsibilities of the
companies, their executive director, and secretaries, and also provides for the procedures for
its winding.
The amendment to the act was passed in 2020. Ministry of Corporate affairs governs this act.

It also sets out the rules for the issue and transfer of securities by companies.

Insider Trading Regulations, 2015:

These regulations prohibit insider trading in securities listed on Indian stock exchanges. They
prescribe the code of conduct for insiders, the procedures for disclosures, and the penalties
for violations.

Defects in working of Indian stock exchanges

Despite the rapid growth of the capital market in the 1980s, a number of abuses existed such
as insider trading, price rigging, inadequate, vague, and misleading prospectuses of
companies, delays in share allocation and issuing refund orders, and manipulation of prices in
stock exchanges.

Despite the reforms, there are many defects or problems in the working of the Indian capital
market which re-discussed as under:

Defective Operations of Stock Exchanges

They do not have proper infrastructure. They lack adequate space for the stockbrokers to
operate efficiently. They do not possess adequate telecommunication and computerization
facilities. Old trading practices are still followed. All these defects deter trading or listed
shares in the majority of stock exchanges in India.

This has led to a great rush at the Bombay Stock Exchange with its consequent delays in
transaction deliveries and payments.

Inadequate Protection to Investors

The protections given to clients in case of default by brokers and sub-broker are inadequate.

The protection is given to individual shareholders under the consumers’ protection fund set
up at each stock exchange s limited to 40000 in case of a defaulting broker.

This limit is very low because it may be the cost of one lot of a high-priced share.

Lacks Transparency
Trading transactions in stock exchanges still lack transparency.

Buyers and sellers of scrips are at the mercy of brokers and sub-brokers who often quote the
lowest traded rate of a script to the sellers and the highest top buyers.

Thus, they pocket the maximum fraudulent gain on both the transaction maintain proper
accounts, and manipulate them.

Stockbroking System Defective

The system of stockbroking continues to be defective.

The brokers have their sub-brokers and sub-broker, in turn, have their own sub-brokers who
manipulate prices and cheat the sellers and buyers of shares and debentures in the secondary
market.

Vague Prospectus

Despite SEBIs guidelines, the prospectuses issued by individual companies do not contain all
the information and are vague.

Free pricing norms laid down by the SEBI are not strictly followed. Premium fixing is also
not fair.

As a result, many companies dupe investors outright and close down without any trace.

Existence of Grey Market

The unofficial unregulated market before the listing of shares called the grey market, attract
and misleads gullible in their analysis. They often mislead investors at the instance of
companies. Consequently, small investors suffer the most.

Stockinvest not Popular

The stock investment instrument has been virtually cornered by big investors.

The non-availability of stockiest of small denominations, procedural difficulties, and high

bank charges have kept the small investors away from his instrument.
Inefficient Banking and Postal Services

Banking and postal service are inefficient which adds to the woes of the small investors.

Refunds, dividend warrants, and interest payments are sent by companies to the small clients
by ordinary posts which often do not reach them.

Some dishonest postal and bank employees often collaborate and pocket such cheques
throughs fraudulent means and dupe the small investors.

Inadequate market Instruments

The capital market instruments in India have been confined primarily to shares and
debentures which are inadequate for the proper functioning of a capital market.

The newly introduced warrants, zero-coupon bonds, etc are not yet popular with investors.

Insider Trading

The Indian capital market has been plagued with fluctuations due to insider trading.

Persons working inside a company often buy or sell shares on the basis of the expected
profitability or losses of the company.

This brings about price fluctuations in the scrips of the company thereby adversely affecting
the interests of the small investors.

Some big industrial houses also resort to transactions in the shares of group companies
thereby accentuating this problem of insider trading to the detriment of ordinary shareholders.

Poor Liquidity

The Indian capital market does not possess sufficient liquidity.

A recent study shows that only 20% of the scraps are traded everyday arid that too of group
A. Another 20A% are traded 2 to 3 times a week and 10 % once in a fortnight.

Thus 50% of scraps listed on the Bombay stock exchange, the biggest in the country, have
very poor liquidity. At other stock exchanges two, theirs of the scrips listed are not traded at
all.
SEBI measures for Secondary Market

SEBI has introduced a wide range of reforms in the secondary market. These can be
discussed under the headings, namely, Governing Body of the stock exchange. Infrastructure
Development of the stock exchange, Settlement and Clearing, Debt Market Segment, Price
Stabilization, Delisting, Brokers; and insider trading.

Governing Body of the stock exchange

1. The Board of directors of stock exchange has to be reconstituted so as to include non-

members, public representatives, government representatives to the extent of 50% of total
number of members.

2. Capital adequacy norms should be complied with regard to members of various stock
exchanges on the basis of their turnover of trade.

3. Working hours of stock exchanges should be from 12 noon to 3 p.m.

4. All recognized stock exchanges should report about their transactions within 24 hours.

Infrastructure Development of Stock Exchange

Sufficient infrastructure should be available in any stock exchange to facilitate trade. For
example, National Stock Exchange, (NSE) was set up with sophisticated screen-based
trading.

SEBI will grant recognition only to those new stock exchanges which have online screen-
based trading facility.

Settlement and Clearing

SEBI has withdrawn carry forward transactions and introduced certain modified regulations.
All stock exchanges should follow the practice of weekly settlement.

Apart from this, SEBI has instructed all stock exchanges to set up clearing houses, clearing
corporations or settlement guarantee fund for ensuring prompt settlement of the transactions.

SEBI has allowed institutional investors, foreign investments, stock brokers to avail the
facility of warehousing of trade.

Debt Market Segment

NSE has a wholesale debt market segment to enable the traders to trade in debt instruments.
SEBI has allowed the listing of debt instruments of those companies which have not even
listed their equity shares previously. Foreign institutional investors have been permitted to
invest up to 100 percent of the funds in debt instruments of Indian companies.

Price Stabilization

SEBI keeps a constant watch over the unusual fluctuations in prices. It has instructed the
stock exchanges to monitor the prices of newly listed securities. When there is an abnormal
price variation in newly listed securities, SEBI would impose additional margin on purchase
of such securities. SEBI has also introduced adequate measures to prevent price rigging and
circular trading.

Delisting

SEBI has streamlined the norms for delisting of securities from stock exchanges. In case of
voluntary delisting from regional stock exchanges, the company would offer to buy the shares
from shareholders of the region. Moreover, it also stipulates that the listing fee for three years
be paid by the company concerned at the time of delisting.

Brokers

SEBI has regulated the functioning of brokers through the following measures.

1. Each broker and sub-broker should get their names registered with the stock exchange.

2. Capital adequacy norms have been fixed for the brokers in order to ensure their
professional competence, financial solvency, etc.

3. A code of conduct has been laid down for their discharge of duties, resulting in the

1. execution of orders,
2. issue of contract note,
3. breach of trust,
4. being fair to clients; and
5. rendering investment advice.

4. Audit of the books of brokers and filing of audit report with SEBI have been made
compulsory.

5. Brokers should preserve the books of accounts and other records for a minimum period of
five years. SEBI has the right to inspect the books, records and documents of the brokers.
6. Brokers should disclose transaction price and brokerage separately in the contract notes
issued to their clients to ensure transparency in the broker-client relationship.

7. Brokers cannot underwrite more than 5% of public issue.

Insider Trading

SEBI has also devised various regulatory measures to control Insider trading. To prevent
insider. trading, SEBI has introduced SEBI Insider Trading Regulation Act, 1992.

Listing of Securities
For trading in the stock market, a company has to list its securities in the stock exchange. It
means that the name of the company is registered in the stock exchange. The company has to
fulfill certain conditions according to Companies Act. The company has to offer its shares
or debentures to the public for subscription. Only then, the company will be allowed to list its
security in the stock exchange.

Listing means the admission of securities of a company to trading on a stock exchange.

Listing is not compulsory under the Companies Act. It becomes necessary when a public
limited company desires to issue shares or debentures to the public. When securities are listed
in a stock exchange, the company has to comply with the requirements of the exchange.

Merits

 Raise Funds

The primary goal of the listing is to raise funds. The company can issue fresh share capital to
raise funds for growth and expansion. Upon share subscription, there is a considerable inflow
of funds from the market. This gives the company the means to meet a sizable part of its
financial needs.

The funds can also be used to reduce the debt of the company. Thus, listing of
securities allows companies to tap into investor funds that can be used for business expansion
purposes.

 Liquidity and Marketability of Shares

When the shares of a company are listed on the stock exchange, they can be easily traded.
The stock exchange is a hotbed of buying and selling of securities and listing allows the
company’s shares to participate in their trading frenzy. The shares, thus, become easily
marketable and liquid which motivates investors to own a stake in the company.

 Increased Trust of Stakeholders

When the company is listed, it has to comply with the rules and regulations of the market
regulator, SEBI. It keeps a tight control over the company’s financial disclosures, trading
activities and corporate practices. There is little room for malpractice or fraud. This boosts
the confidence of the company’s stakeholders in its operations and management.

 Enhanced Visibility

Another advantage of listing is that it creates brand awareness. How many companies did you
know before you heard of their IPOs?

Through listing, companies can get the attention of investors and analysts who study its
fundamental and technical aspects. This creates a public profile for the company and can also
play a crucial role in enhancing its goodwill and reputation in the market.

 Prospects for Expansion and Growth:

Listing on a stock market might lead to prospects for expansion and development. Mergers,
acquisitions, and strategic alliances can be made more accessible due to expanded access to
finance, higher liquidity, and raised visibility. A company’s shareholder base can grow as a
result of being listed on a stock exchange since it attracts institutional investors and analysts
who actively look for investment possibilities in listed companies.

 Transparency

Transparency, refers to the open and accessible disclosure of a company's financial and
operational information to investors and regulators. It fosters investor confidence, enables
informed investment decisions, and ensures that market prices are fairly determined.
Transparency helps investors assess risks and rewards, promotes regulatory compliance, and
makes a company more appealing to potential investors and lenders.
Demerits of listing

1. Volatility:

Listing on a stock exchange can expose a company's shares to increased price volatility.
Market sentiment, economic conditions, and external events can lead to rapid and
unpredictable price fluctuations. This volatility may deter some investors who prefer more
stable investments.

2. Risk:

Publicly listed companies are subject to market and regulatory risks. Market risk arises from
the possibility of share prices declining due to various factors beyond the company's control.
Regulatory risk involves the need to comply with numerous reporting and disclosure
requirements, which can be complex and costly.

3. Fraud:

The openness of public markets can attract unscrupulous individuals and entities seeking to
perpetrate fraud. Companies may face the risk of fraudulent activities, such as insider trading,
accounting irregularities, or market manipulation, which can harm investors and erode trust in
the financial system.

4. Time-Consuming:

Compliance with listing requirements and regulatory obligations can be time-consuming and
resource-intensive for companies. Preparing financial reports, dealing with regulatory filings,
and responding to shareholder inquiries demand significant management attention and
resources.

5. Emotional Investing:

The listing of securities can lead to emotional investing behavior. Investors may react
emotionally to market movements, leading to impulsive buying or selling decisions. This
emotional investing can result in suboptimal outcomes and losses.

Delisting
the process by which a publicly listed company removes its shares from a stock exchange,
making them no longer available for trading on that exchange. Delisting can be initiated
voluntarily by the company itself or involuntarily due to regulatory or compliance issues.

Delisting is a significant corporate action and is subject to regulatory scrutiny to ensure the
interests of minority shareholders are protected. The process is designed to be transparent and
fair, with an emphasis on equitable price discovery. Companies considering delisting must
carefully evaluate the regulatory requirements and engage with shareholders in a transparent
and responsible manner.

Voluntary Delisting:

Meaning of Voluntary Delisting:

Voluntary delisting refers to the process by which a publicly listed company, with the
approval of its shareholders, decides to remove its shares from a stock exchange and make
them no longer available for trading on that exchange. This decision is initiated by the
company itself, often for strategic or financial reasons.

Companies may choose to voluntarily delist for various reasons, including:

Regaining control: Promoters may want to increase their ownership stake and gain full
control of the company.

Cost savings: Compliance with regulatory and listing requirements can be expensive, and
delisting can reduce these costs.

Strategic flexibility: Delisting provides flexibility to implement strategic decisions or

structural changes that may be easier in a private company.

Involuntary Delisting:

Meaning of Involuntary Delisting:

Involuntary delisting occurs when a company's shares are removed from a stock exchange
without its consent, typically due to non-compliance with regulatory or listing requirements.
This can happen when a company consistently fails to meet financial reporting obligations,
corporate governance norms, or minimum public shareholding requirements.
Causes of Involuntary Delisting:

A company may face involuntary delisting for various reasons, such as:

Failure to adhere to continuous disclosure requirements, including timely financial reporting

and disclosures.

Breach of corporate governance norms or other regulatory violations.

Inability to maintain the minimum required public shareholding percentage.

Severe financial distress or insolvency.

Impact of Involuntary Delisting:

Involuntary delisting can have adverse consequences for the company and its shareholders.
The company's shares may become illiquid, making it challenging for investors to buy or sell
them. Shareholders could experience a loss in the value of their holdings, and corporate
governance issues may undermine investor confidence.

Companies can get delisted from the BSE and NSE for various reasons, including voluntary
delisting, regulatory actions, or financial distress. Here are a few examples of Indian
companies that have been delisted from both exchanges:

Kingfisher Airlines: Kingfisher Airlines, owned by the now-defunct Kingfisher Group, was
once listed on both the BSE and NSE. Due to severe financial troubles and the grounding of
its fleet, the company was eventually delisted.

Satyam Computer Services: Satyam Computer Services, one of the largest IT companies in
India, faced a major corporate scandal in 2009 when its founder, B. Ramalinga Raju,
admitted to massive accounting fraud. As a result, the company was delisted from the
exchanges.

Era Infra Engineering Ltd: Era Infra Engineering Ltd, a construction and infrastructure
company, faced financial difficulties and was subsequently delisted from the exchanges. The
company's troubles were attributed to its inability to service debt and other financial
irregularities.
UNIT III- CLEARING AND SETTLEMENT

BSE (Bombay Stock Exchange) and NSE (National Stock Exchange) are the two primary
stock exchanges in India. These stock exchanges play a pivotal role in the country's financial
markets.

1. BSE (Bombay Stock Exchange):

BSE is one of the oldest stock exchanges in Asia and was established in 1875. It is often
referred to as the "BSE Sensex" due to its benchmark index. The BSE is headquartered in
Mumbai, Maharashtra. BSE Sensex (benchmark index) and several sectoral indices like BSE
Bankex, BSE Auto, BSE IT, and more. BSE facilitates the trading of a wide range of
financial instruments, including equities, equity derivatives, debt securities, mutual funds,
and exchange-traded funds (ETFs). BSE operates the BOLT (BSE Online Trading) platform,
an electronic trading system. BSE has a long and storied history, and it was the first stock
exchange in the world to be formally recognized by the Indian government under the
Securities Contracts Regulation Act, 1956. BSE is a corporatized and demutualized exchange
with various shareholders, including financial institutions.

2. NSE (National Stock Exchange):

NSE was established in 1992 and became operational in 1994. It has grown rapidly to
become one of the largest stock exchanges in India. NSE is headquartered in Mumbai,
Maharashtra. NSE Nifty 50 (benchmark index) and sectoral indices like Nifty Bank, Nifty IT,
and more. NSE is primarily known for equities, equity derivatives, and index derivatives like
futures and options. It also offers trading in currency derivatives. NSE uses the NEAT
(National Exchange for Automated Trading) system, which is known for its high-speed,
automated trading capabilities. NSE introduced electronic trading and dematerialization of
shares in India, which transformed the country's stock market landscape. NSE is also a
corporatized and demutualized exchange with a diverse set of shareholders, including
financial institutions.

BSE BOLT and NSE NEAT are trading systems used by two major stock exchanges in India
to facilitate the trading of stocks and other financial instruments.

The BSE BOLT (Bombay Stock Exchange Online Trading System) is the electronic
trading platform used by the Bombay Stock Exchange (BSE), one of the two major stock
exchanges in India. It facilitates the trading of various financial instruments, including
equities, derivatives, debt securities, and mutual funds. Here are more details about the BSE
BOLT system and its features:

Key Features of BSE BOLT:

Real-Time Trading: BSE BOLT offers real-time trading capabilities, allowing market
participants to buy and sell securities as prices change throughout the trading session. It
provides a dynamic trading environment where orders are executed in a matter of seconds.

Order Matching: The system matches buy and sell orders based on price and time priority.
Orders are executed at the best available price, ensuring fair and transparent trading.

Market Data Dissemination: BSE BOLT provides real-time market data, including price
quotes, trading volumes, and other market-related information. This data is critical for
investors and traders to make informed decisions.
Order Types: The platform supports various order types, such as market orders, limit orders,
stop orders, and iceberg orders. Traders can use different order types to implement their
trading strategies.

Risk Management: BSE BOLT incorporates robust risk management mechanisms to prevent
erroneous or excessively large trades. These risk checks help maintain the stability of the
market.

Market Surveillance: The system includes market surveillance tools to detect and prevent
market manipulation, fraud, and other irregular trading activities. This enhances the integrity
of the market.

Multiple Interfaces: BSE BOLT offers various interfaces tailored to different market
participants, including brokers, institutional investors, and retail traders. These interfaces are
designed to meet the specific needs of each user group.

Accessibility: Market participants can access BSE BOLT through dedicated trading
terminals, web-based interfaces, and mobile applications. This accessibility allows for trading
from various locations and devices.

User-Friendly: The platform is designed to be user-friendly, with a straightforward and

intuitive interface. This helps traders execute orders efficiently.

Settlement: BSE BOLT supports the post-trade settlement process, including the exchange of
funds and securities between buyers and sellers. Settlement ensures that ownership of
securities is transferred and payment is made promptly.

Market Orders: BSE BOLT enables the execution of market orders, which are orders to buy
or sell a security at the current market price. This allows for immediate execution of the trade.

Limit Orders: Traders can place limit orders specifying the price at which they are willing to
buy or sell a security. These orders are executed only at or better than the specified price.

The NSE NEAT (National Stock Exchange for Equity and Automated Trading) system
is a sophisticated electronic trading platform used by the National Stock Exchange of India
(NSE). It is the primary trading platform for equities and equity derivatives in India and is
known for its high-speed, automated trading capabilities. Here are more details about the
NSE NEAT system and its features:

Key Features of NSE NEAT:

Automated Order Matching: NSE NEAT operates on an automated order matching system. It
matches buy and sell orders based on specific criteria, including price and time priority.
Orders are executed quickly and efficiently.

High-Speed Trading: The system is designed for high-frequency trading and operates at very
low latency. It ensures rapid order execution and real-time data dissemination, making it one
of the fastest trading systems in the world.

Market Data Dissemination: NSE NEAT provides real-time market data, including live price
quotes, trading volumes, and market depth. Market data is made available to all market
participants, enabling them to make informed trading decisions.

Multiple Order Types: The platform supports a wide range of order types, including market
orders, limit orders, stop orders, and iceberg orders. Traders can choose the appropriate order
type to execute their trading strategies.

Risk Management: NSE NEAT incorporates robust risk management mechanisms to prevent
excessive volatility, erroneous trades, and other market disruptions. These risk controls help
maintain market stability.

Market Surveillance: The system includes advanced market surveillance tools to detect and
prevent irregular trading activities, market manipulation, and fraud. This enhances market
integrity and fairness.

Accessibility: NSE NEAT is accessible through various channels, including dedicated trading
terminals, web-based trading interfaces, and mobile applications. Market participants can
trade from different locations and devices.

User-Friendly Interface: The platform features a user-friendly and intuitive interface, making
it easy for traders to place and manage orders effectively.

Continuous Trading: NSE NEAT supports continuous trading sessions during market hours,
allowing for the execution of orders as long as the market is open.
Settlement Integration: The platform integrates with the post-trade settlement process,
ensuring that securities and funds are exchanged promptly between buyers and sellers.
Settlement is a crucial part of the trading process.

Indices and Benchmarking: NSE NEAT is used to track and calculate various NSE indices,
including the Nifty 50 and other sectoral indices, which are widely followed by investors and
analysts.

Market Types

Equity Market

The equity market is the market for trading in equity shares of listed companies. Equity
shares represent ownership in the company and provide investors with the potential for long-
term capital appreciation and dividend income. The equity market is an attractive investment
option for investors who are looking for capital appreciation in the long run.

Derivatives Market

The derivatives market provides investors with the opportunity to trade in financial
instruments such as futures and options. Futures and options are contracts that allow investors
to buy or sell an underlying asset at a future date at a predetermined price. The derivatives
market is an essential component of the financial market, as it provides investors with a
mechanism to manage risk and hedge against price volatility.

Commodity Market

The commodity market is a platform for trading in commodities such as gold, silver, crude
oil, and agricultural products. The commodity market provides a platform for producers and
consumers to hedge against price volatility in the market. It is also an attractive investment
option for investors who want to diversify their portfolio and invest in physical assets.

Debt Market
The debt market is a platform for trading in fixed-income securities such as bonds and
debentures. These securities offer fixed returns to investors and are an attractive investment
option for investors who are risk-averse. The debt market is also an essential component of
the financial market as it provides companies with an alternative source of funding for their
business operations.

Foreign Exchange Market

It deals in trading of currencies of different countries.

It is considered as the most liquid financial market as currencies can be sold and purchased
easily.

The fluctuating rate of currencies benefit the traders who are eager to derive profits by selling
at a higher rate and buying at a lower one.

Bond Market

It facilitates trading of government and corporate bonds that are offered by the companies and
the government to raise capital.

These bonds are debt instruments having a fixed rate of return.

They also have a specific tenure; thus the bond market lacks liquidity.

Order types

1. Limit Order:

A limit order is an instruction to buy or sell a security at a specific price or better. If you're
buying, it will execute at the specified limit price or lower, and if you're selling, it will
execute at the limit price or higher. If a stock is trading at ₹100, you can place a buy limit
order at ₹95. If the stock's price drops to ₹95 or lower, your order will be executed.

2. Market Order:
A market order is an instruction to buy or sell a security immediately at the best available
market price. It guarantees execution but not the price, which can vary from the last quoted
price.

If a stock is trading at ₹100, a market order will execute at the current market price, which
may be slightly different from ₹100.

3. Stop-Loss Order (SL):

A stop-loss order is placed to limit potential losses. It becomes a market order when the
specified stop price is reached. If you're long (owning the security), it's placed below the
current market price, and if you're short (short-selling), it's placed above the current market
price.

If you own a stock trading at ₹100 and you want to limit potential losses, you can place a
stop-loss order at ₹90. If the stock's price drops to ₹90 or below, it becomes a market order
to sell.

4. Good Till Triggered (GTT) Order:

A GTT order is used to place an order that remains inactive until a specific trigger condition
is met. Once the trigger condition is met, the order becomes active and is sent to the exchange
for execution.

You can place a GTT buy order for a stock with a trigger price of ₹110 when it is currently
trading at ₹100. The order will remain inactive until the stock's price reaches ₹110.

5. Single Order:

A single order is a basic order to buy or sell a security at a specified price or the current
market price. It does not have complex conditions or contingencies.

Placing a limit order to buy 100 shares of a stock at ₹50 is a simple single order.

6. One Cancels Other (OCO) Order:

An OCO order is a combination of two orders. When one of the orders is executed, the other
is automatically canceled. It's often used for setting both a profit target and a stop-loss.

You own a stock at ₹100 and want to set a profit target at ₹120 and a stop-loss at ₹90. You
can place an OCO order with a limit sell order at ₹120 and a stop-loss order at ₹90. If one
order is executed, the other is canceled.

These different order types offer flexibility and control for investors and traders to manage
their positions and execute trades in line with their strategies and risk management
preferences. The choice of order type depends on your specific trading goals and the
prevailing market conditions.

Clearing and settlement systems in India

Clearing and settlement systems are essential components of financial markets in India,
ensuring the smooth and efficient processing of trades and the delivery of securities and
funds.

In the Indian stock market, the settlement cycle follows a T+2 system. This means that trades
executed on a trading day (T) settle two trading days later. For example, trades executed on
Monday settle on Wednesday.

The clearing and settlement systems are essential to the functioning of the Indian financial
markets, ensuring the secure, transparent, and timely processing of securities transactions and
funds transfer, which is crucial for maintaining investor confidence and market integrity.

Clearing and settlement process

Step 1: Trading

Investors initiate the process by placing buy or sell orders through their brokers or trading
platforms. They specify details such as the security, quantity, and order type (e.g., market
order, limit order). Stock exchanges match buy and sell orders based on price and time
priority. Market orders are executed immediately, while limit orders are queued until the
specified price is reached. Once orders are matched, trades are executed at the current market
price (for market orders) or the limit price (for limit orders).

Step 2: Clearing
 The clearing corporation or clearinghouse processes the trade data and validates the
transaction, ensuring that the details match on both sides. Clearing corporations offer a
settlement guarantee, ensuring that trades are settled even if a trading member defaults. They
use a settlement guarantee fund to cover defaults. Offset buy and sell orders within the same
security to reduce the number of transactions and minimize risk.

Step 3: Settlement

The buyer's account is debited, and the seller's account is credited with the agreed-upon
amount of funds through electronic funds transfer systems. The seller delivers the securities
to the buyer, and the buyer's demat account is credited with the purchased securities. For
dematerialized securities, this is a simple electronic entry in the depository. Confirmation
statements are generated to confirm the successful settlement of both funds and securities.
These statements are sent to the buyer and seller, providing evidence of the completed
transaction.

rolling settlement

In a rolling settlement system, securities transactions are settled every trading day, usually
following a T+2 cycle. This means that trades executed on a particular day are settled two
trading days later. Unlike periodic settlement systems with specific settlement dates, rolling
settlement offers ongoing, frequent settlements, resulting in quicker access to funds and
securities. This system is particularly advantageous for active traders and investors as it
minimizes counterparty risk, enhances liquidity, and allows for continuous trading. It also
enables real-time risk management and lowers margin requirements, contributing to a more
efficient and secure trading environment. Rolling settlement is a standard practice in many
global financial markets, including India.

pay in and pay out

"Pay in" and "pay out" are terms commonly used in the Indian stock market and refer to two
different aspects of trading and settlement:

Pay In: This is the process of depositing securities (stocks or bonds) or funds into your
trading account with a broker. It is typically done to cover your trading positions. For
example, if you buy 100 shares of a company, you need to "pay in" the funds required to
purchase those shares into your trading account.

Example: You decide to buy 100 shares of ABC Ltd. at Rs. 500 per share. To pay in, you
deposit Rs. 50,000 into your trading account.

Pay Out: This is the process of receiving securities or funds from your trading account after a
trade has been settled and you want to withdraw your profits or assets. It is the reverse of
"pay in."

Example: After selling the 100 shares of ABC Ltd. at Rs. 550 per share, you receive Rs.
55,000 in your trading account. You can then request a "pay out" to transfer these funds to
your linked bank account.

In essence, "pay in" involves depositing money or securities to initiate a trade, while "pay ou
In the Indian stock market, there are two main settlement systems: physical settlement and
dematerialized (demat) settlement. These systems differ in how securities (stocks) are
transferred between buyers and sellers.

Physical Settlement:

In a physical settlement, actual share certificates are exchanged between the buyer and the
seller. It involves the physical delivery of share certificates from the seller to the buyer.

It used to be the traditional way of trading in the past, where share certificates were
physically delivered to the buyer's address. However, physical settlements are now less
common due to the introduction of dematerialization.

Demat Settlement:

In a demat settlement, securities are held and transferred electronically in a demat account.
No physical share certificates are involved. Investors need to open a demat account to
participate in this settlement system. When a trade is executed, the securities are
automatically transferred from the seller's demat account to the buyer's demat account.
This system offers greater convenience, security, and efficiency, as it eliminates the risk of
physical share certificates being lost, stolen, or damaged.

In India, the majority of trading and settlement activities have shifted to demat settlement due
to its advantages. The Securities and Exchange Board of India (SEBI) has mandated
dematerialization for many securities to enhance the efficiency and safety of stock trading.
However, there are still a few securities where physical settlement is allowed, although they
are becoming increasingly rare.

Funds settlement

In the Indian share market, funds settlement typically follows a T+2 (Trade Date plus 2
business days) cycle. Here's how it works:

Trade Execution: When you buy or sell stocks or other securities on the stock exchange, a
trade is executed. The trade date is when this transaction occurs.

T+2 Settlement: The funds and securities settlement happens on the second business day after
the trade date. This means that if you buy shares on a Monday, the funds and shares will be
settled by Wednesday.

Pay-In and Pay-Out: On the settlement day (T+2), you need to ensure that you have the
necessary funds in your trading account for purchases or securities in your demat account for
selling. This is known as the "pay-in" for buyers and "pay-out" for sellers.

Clearing Corporation: The clearing corporation or clearing house acts as an intermediary to

ensure the smooth settlement of trades. It verifies the availability of funds and securities,
matches trades, and facilitates the transfer of funds and securities between buyer and seller.

Transfer of Securities: If you are a seller, your securities are debited from your demat account
and credited to the buyer's demat account.

Transfer of Funds: If you are a buyer, the funds required for the purchase are debited from
your trading account and credited to the seller's trading account.

Confirmation: You receive a confirmation of the trade settlement in your trading account and
demat account statements.
It's essential to ensure that you have the necessary funds and securities available for a smooth
settlement process and avoid penalties or auction processes for failed settlements. The
specific processes and timings may vary, so it's a good practice to check with your broker or
the stock exchange for exact settlement details.

Auction

Identifying Defaulting Members: In an exchange, some members fail to deliver the stocks
they owe. The exchange keeps a list of these members.

Debit Request to Clearing Bank: The exchange sends a request to the clearing bank to take
money from the defaulting members' accounts (called Settlement Accounts) to cover the
missing stocks. This request is based on the details of the stocks that were not delivered.

Setting an Auction Date: The exchange schedules a specific date and time for an auction to
sell the missing stocks. Only members who didn't default can participate in this auction.

Auction Bidding: During the auction, the non-defaulting members can bid to buy the missing
stocks, indicating the price they're willing to pay. The lowest bid is accepted.

Three Important Rates: There are three crucial rates in this process:

Auction Rate: It's the average price of the successful bids. This rate is used to calculate the
debit amount for the defaulting members.

Cut-off Rate: This is the maximum and minimum price range for the auction. It's typically set
at 20% above or below the closing price of the stock on the auction day.

Closeout Rate: If there are no bids or only partial bids, this rate is used to determine the
payment to the buyer. It's either 20% above the highest trade rate from the auction date or the
highest rate from the trade date to the auction date, whichever is higher.

After the Auction: The system records the lowest successful bids. If no one bids, the stocks
are sold at the closeout rate.

Exchange Actions: The exchange then delivers the stocks to the winning members. The
process for paying in and paying out for the auction is the same as the regular settlement
process.
Clearing Bank Adjustment: The exchange tells the clearing bank to adjust the accounts of
defaulting members. They are debited the difference between the auction rate and the original
delivery rate, and the accounts of auction sellers are credited.

In essence, an auction in this context is a way to handle stocks that haven't been delivered,
ensuring fair prices and consequences for defaulting members.

BSE Sensex

The BSE Sensex, often simply referred to as the Sensex, is one of the most prominent and
widely followed stock market indices in India.

The BSE Sensex is short for the Bombay Stock Exchange Sensitive Index. It is a benchmark
stock market index that represents the performance of the top 30 companies listed on the
Bombay Stock Exchange (BSE). These 30 companies are often referred to as "blue-chip"
stocks and are considered to be among the largest and most influential companies in India.

The Sensex is a free-float market capitalization-weighted index. This means that the index's
value is calculated based on the market capitalization of its constituent companies, and only
the freely tradable shares are considered for the calculation. The companies represented in the
Sensex come from various sectors of the Indian economy.

The primary purpose of the Sensex is to provide a snapshot of the overall health and
performance of the Indian stock market. It is used as a benchmark to assess the performance
of mutual funds, portfolios, and the overall investment climate in India.

The index is regularly reviewed and updated to ensure it accurately reflects the market's
dynamics. The Sensex is often considered a barometer of India's economic health and a key
indicator of investor sentiment. It is closely watched by both domestic and international
investors, as well as financial experts and analysts.

Investors and analysts use the Sensex as a reference point to track the performance of the
Indian stock market and to make investment decisions. Movements in the Sensex can
influence trading activity and investment strategies.

The BSE Sensex is a vital component of India's financial landscape and plays a significant
role in both domestic and international financial markets. It is considered a reliable indicator
of the Indian stock market's performance and economic trends
NSE Nifty 50

The NSE Nifty 50, commonly referred to as "Nifty 50" or simply "Nifty," is a prominent
stock market index in India. It is a benchmark index representing the National Stock
Exchange of India (NSE) and is widely regarded as one of the key indicators of the Indian
equity market.

The Nifty 50 is a stock market index that includes 50 of the largest and most liquid
companies listed on the National Stock Exchange of India (NSE). These 50 companies span
various sectors of the Indian economy and are considered to be some of the most influential
and widely traded stocks.

The Nifty 50 constituents are selected based on several criteria, including market
capitalization, liquidity, and sector representation. The index aims to represent the overall
performance of the Indian stock market and is often used as a benchmark for measuring the
performance of mutual funds, portfolios, and the broader equity market.

Like most market indices, the Nifty 50 is a market capitalization-weighted index. The NSE
reviews and updates the index periodically to ensure that it accurately reflects market
dynamics. The Nifty 50 is one of the most closely watched financial indicators in India. It
serves as a barometer of the Indian economy's health, and movements in the index are closely
monitored by investors, analysts, and policymakers. It is used for assessing market sentiment
and making investment decisions.

The NSE Nifty 50, along with its counterpart, the BSE Sensex, plays a crucial role in the
Indian financial markets. Both indices provide valuable insights into the country's economic
and financial landscape and are vital tools for investors and analysts when evaluating India's
equity market performance.

Sectoral Indices

BSE Bankex (BSE Bank Exchange):

The BSE Bankex is a sectoral index that represents the banking and financial services sector
in India. It includes companies involved in banking, financial services, and related activities.

Sample of Companies Listed:

HDFC Bank

ICICI Bank

State Bank of India (SBI)

Axis Bank

Kotak Mahindra Bank

HDFC Ltd

IndusInd Bank

BSE Auto (BSE Automobiles):

The BSE Auto index represents the automobile sector in India, encompassing companies
involved in manufacturing and selling automobiles, two-wheelers, and commercial vehicles.

Sample of Companies Listed:

Maruti Suzuki India

Tata Motors

Bajaj Auto

Mahindra & Mahindra (M&M)

Hero MotoCorp

Ashok Leyland

Eicher Motors (Royal Enfield)

BSE IT (BSE Information Technology):

The BSE IT index focuses on the information technology sector, which includes IT services,
software development, and technology companies.

Sample of Companies Listed:

Infosys

Tata Consultancy Services (TCS)

Wipro
HCL Technologies

Tech Mahindra

Mindtree

Coforge (formerly NIIT Technologies)

BSE FMCG (BSE Fast Moving Consumer Goods):

The BSE FMCG index is dedicated to the fast-moving consumer goods sector, covering
companies that produce and sell everyday consumer products, including food, beverages,
personal care, and household items.

Sample of Companies Listed:

Hindustan Unilever

ITC

Nestle India

Britannia Industries

Colgate-Palmolive India

Dabur India

Marico

BSE Oil & Gas (BSE Oil and Gas):

The BSE Oil & Gas index represents the oil and gas sector, including companies engaged in
the exploration, production, refining, and distribution of oil and gas products.

Sample of Companies Listed:

Reliance Industries

Oil and Natural Gas Corporation (ONGC)

Indian Oil Corporation (IOC)

Bharat Petroleum Corporation (BPCL)

Hindustan Petroleum Corporation (HPCL)

GAIL (India) Ltd

Oil India

NSE Nifty Bank

The Nifty Bank index represents the banking and financial services sector in India. It includes
companies involved in banking, financial services, and related activities. The base year for
Nifty Bank is November 3, 1995, with a base value of 1,000.

Sample of Companies Listed:

HDFC Bank

ICICI Bank

State Bank of India (SBI)

Axis Bank

Kotak Mahindra Bank

IndusInd Bank

Bajaj Finance

NSE Nifty FMCG:

The Nifty FMCG index is dedicated to the fast-moving consumer goods sector, covering
companies that produce and sell everyday consumer products, including food, beverages,
personal care, and household items. The base year for Nifty FMCG is November 1, 1996,
with a base value of 1,000.

Sample of Companies Listed:

Hindustan Unilever

ITC

Nestle India

Britannia Industries

Colgate-Palmolive India
Dabur India

Marico

NSE Nifty Pharma:

The Nifty Pharma index focuses on the pharmaceutical sector, including companies involved
in the production of pharmaceuticals and healthcare-related services. The base year for Nifty
Pharma is November 1, 1996, with a base value of 1,000.

Sample of Companies Listed:

Sun Pharmaceutical Industries

Dr. Reddy's Laboratories

Cipla

Lupin

Aurobindo Pharma

Cadila Healthcare

Biocon

NSE Nifty Auto:

The Nifty Auto index represents the automobile sector in India, encompassing companies
involved in manufacturing and selling automobiles, two-wheelers, and commercial vehicles.

The base year for Nifty Auto is November 3, 1995, with a base value of 1,000.

Sample of Companies Listed:

Maruti Suzuki India

Tata Motors

Bajaj Auto

Mahindra & Mahindra (M&M)

Hero MotoCorp

Ashok Leyland
Eicher Motors (Royal Enfield)

NSE Nifty Energy:

The Nifty Energy index represents the energy sector, including companies involved in the
exploration, production, refining, and distribution of oil and gas products.

The base year for Nifty Energy is November 3, 1995, with a base value of 1,000.

Sample of Companies Listed:

Reliance Industries

Oil and Natural Gas Corporation (ONGC)

Indian Oil Corporation (IOC)

Bharat Petroleum Corporation (BPCL)

Hindustan Petroleum Corporation (HPCL)

GAIL (India) Ltd

Oil India

The base year for each of these Nifty sectoral indices serves as a reference point for
calculating and comparing index values over time. These sectoral indices provide valuable
insights into the performance of specific industries within the Indian stock market and are
widely used by investors and analysts for making investment decisions and assessing market
trends.