Rise of American Accounts."Hollywood. "

CAPITAL MARKRT-2 (SECONDARY MARKET/STOCK EXCHANGE)

INTRODUCTION

Stock market represents the secondary market where existing securities (shares and debentures) are traded, Stock exchange provides an organised mechanism for purchase and sale of existing securities. By now, we have 24 approved stock exchange in our country.

The investors want liquidity for their investments. The securities which they hold should easily be sold when they need cash. Similarly there are others who want to invest in new securities. There should be a place where the securities may be purchased and sold. Stock exchanges provide such a place where securities of different companies can be purchased and sold. Stock exchange is a body of persons, whether incorporated or not, formed with a view to helping, regulating and controlling the business and selling of securities.

Stock exchange are organised and regulated markets for various securities issued by corporate sector and other institutions. The stock exchanges enable free purchase and sale of securities as commodity exchange allow trading in commodities.

DEFINITIONS OF STOCK EXCHANGE.

Pyle. "Security exchanges are market places where securities that have been listed thereon may be bought and sold for either investment or speculation. " Stock exchange allow trading in securities both to the genuine investors and speculators.

Securities Contract (Regulation) Act, 1956."Stock exchange means any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling in securities. "

According to this definition, the stock exchange allows trading in securities under certain rules and regulations.

Hartley Withers "A Stock Exchange is something like a vast warehouse where securities are taken away from the shelves and sold across the countries at a fixed price in a catalogue which is called the official list. "

Hartley calls stock exchange a warehouse where all securities are kept and traded on specified prices. It may not always be that every type of security is purchased for sale, there may be investors who do not bring their securities to the market but keep them only as investments.

Husband and Dockeray -"Securities or stock exchanges are privately organised markets which are used to facilitate trading in securities. " As per this definition the stock exchanges are the organised places where securities are purchases and sold.

CHARACTERISTICS

From the definitions given earlier, the following characteristics or salient features of stock exchange come out :

1.It-is a place where securities are purchased and sold.

2.A stock exchange is an association of persons whether incorporated or not.

3.The trading in a stock exchange is strictly regulated and rules and regulations prescribed for various transactions.

4.Both genuine investors and speculators buy and sell shares.

5.The securities of corporations, trusts, governments, municipal corporations etc. are allowed to be dealt at stock exchanges.

FUNCTIONS OF STOCK EXCHANGE

The stock exchanges play an important role in the economic development of a country. The importance of stock exchange will be clear from the functions they perform and discussed as follows :

1.Ensure Liquidity of Capital. The stock exchanges provide a place where shares and stock are converted into cash. The exchanges provide a ready market where buyers and sellers are always available and those who are in need of hard cash can sell their holdings. Had this not been possible then many persons would have feared for blocking their savings in securities as they can not again convert them into cash.

2.Continuous Market for Securities. The stock exchanges provide a ready market for securities. The securities once listed continue to be traded at the exchanges irrespective of the fact that owners go on changing. The exchanges provide a regular market for trading in securities..

3.Evaluation of Securities. The investors can evaluate the worth of their holdings from the prices quoted at different exchanges for those securities, the securities are quoted under free atmosphere of demand and supply and the prices are set on the basis of free market. Stock exchanges are helpful in evaluating any type of security listed there.

4.Mobilising Surplus Savings. The stock exchanges provide a ready market for various securities. The investors do not have any difficulty in investing their savings by purchasing shares, bonds etc. from the exchanges. If this facility is not there then many persons who want to invest their savings will not find avenues to do so. In this way stock exchanges play an important role in mopping up surplus funds of investors.

5.Helpful in Raising New Capital. The new and existing concerns need capital for their activities. The new concerns raise capital for the first time and existing units increase their capital for expansion and diversification purposes. The shares of new concerns are registered at stock exchanges and existing companies also sell their shares through brokers etc, at exchanges. The exchanges are helpful in raising capital both by new old concerns. The intending buyers also remain in touch with the exchanges for investing money in securities.

6.Safety in Dealings. The dealings at stock exchanges are governed by well-defined rules and regulations of Securities Contract (Regulation) Act, 1956. There is no scope for manipulating transactions. Every contact is done according to the procedure laid down and there is no fear in the minds of contracting parties. The safety in dealings brings confidence in the minds of all concerned parties and helps in increasing various dealings.

7.Listing of Securities. Only listed securities can be purchased at stock exchanges. Every company desirous of listing its securities will apply to the exchange authorities. The listing is allowed only after a critical examination of capital structure, management and prospects of the company. The listing of securities gives privilege to the company. The investors can from their own views about the securities because listing a security does not guarantee the financial stability of the company.

8.Platform for Public Debt. The increasing government's role in economic development had necessitated the raising of huge amounts for this purpose. The stock exchanges provide a platform for raising public debts. The stock exchanges are also organised markets of government securities. However, there is no provision for a separate counter for government securities but these are traded through brokers dealing in their securities.

9.Clearing House of Business Information. The companies listing securities with exchanges have to provide financial statements, annual reports and other reports to ensure maximum publicity of corporation operations and working. The economic and other informations provided at stock exchanges help companies to decide their policies.

LISTING OF SECURITIES

Listing of securities means permission to quote shares and debentures officially on the trading floor of the stock exchange. Every security issued by companies cannot be traded at a stock exchange. The stock exchanges fix certain standards which the company must fulfil before getting the securities listed.

Requirements for Listing

Any company intending to get its securities listed at an exchange has to fulfil certain conditions. The following informations must be filed with exchange for getting a security listed :

(1) Memorandom and Articles of Association.

(2) Copies of all prospectuses or statements in lieu of prospectuses.

(3) Copies of Balance Sheets, audited accounts, agreements with promoters, underwriters, brokers, etc.

(4) Letters of consent from Controller of Capital issues, now replaced with SEBI.

(5) Details of share and debentures issued and share forfeited.

(6) Details of issue of bonuses and dividends declared.

(7) History of the company in brief.

(8) Agreement with managing director, etc.

(9) An undertaking regarding compliance with the provisions of the Companies Act, 1956 and Securities Contracts (Regulation) Act, 1956 as well as rules made therein.

(10) A list of the highest ten holders of each class or kind of securities of the company.

The stock exchanges are empowered to withdraw or suspend the admission granted for trading following any breach of conditions.

The securities are classified into (a) cleared securities and (b) non-cleared securities. Cleared securities enjoy forward trading facilities while non cleared securities have only cash trading facilities while non cleared securities have only cash trading and are on the cash list. If the shares are fully paid and have listing privilege for three years the exchange may grant the status of cleared securities. The securities must be widely distributed and have public interests only then they can become cleared securities.

Objectives of Listing

The main objectives of listing of securities are :

1.To ensure proper supervision and control of dealings in securities.

2.To protect the interests of shareholders and the investors.

3. To avoid concentration of economic power.

4. To assure marketing facilities for the securities.

5. To ensure liquidity of securities.

6.To regulate dealings in securities.

7. To require promoters to have a reasonable stake in the company.

Advantages of Listing

Following are some of the advantages of listing securities :

1. Publicity of Securities. The listed securities get wide publicity in papers etc. The rates of securities are regularly quoted for the benefit of investors. The names of companies are also mentioned along with the rates and the investors become familiar with the securities.

2.Protection of Investors'Interest. The securities are traded according to certain rules and regulations. The listed companies have to provide full information about assets, liabilities etc. to the stock exchange. The Investors' interests can be protected disclosing full information about the companies. They can make their own decisions by analysing financial statements of those companies whose securities they want to purchase.

3.Ensure Liquidity. The listed securities have a ready market at stock exchange. A large number of buyers and sellers are always present at exchange to trade in securities. The prices offered for securities are also competitive.

4.Better Goodwill. The securities listed in exchanges have better goodwill in the market. These securities are rated high in the market and banks accept such securities as collateral securities.

PROCEDURE FOR DEALING AT STOCK EXCHANGES

The buying and selling at stock exchanges is not allowed to outsiders. They have to approach who are members of the exchange and the dealings can only be through them. The following procedure is followed for dealings at exchanges.

1.Selection of a Broker. The first thing to be done is to select broker through whom the purchase or sale is to be made. The intending investor or seller may approach his bank for this purchase. The banks have appointed their own brokers at exchanges and they contact for dealings on behalf of their customers. On a recommendation from there bank the client's account is opened by the broker. The bank assures the financial condition of the client.

2.Placing an Order. After selecting the broker the client places an order for purchase or sale of securities. The broker also guides the client about the type of securities to be purchased and the proper time for it. If a client is to sell the securities then the broker tells him about the favourable time for sale. The broker is told to purchase shares, their number and price to be paid. Sometimes a definite price is given on which the purchase is to be made, sometimes the tentative price is told, sometimes the maximum price to be paid is told, etc. The broker will try to make purchases as far as possible to the nearest price offered by the client. The broker is given some choice for bargaining. The same type of choice is given to the broker for selling the securities.

3.Making the Contract. The trading floor of the stock exchange is divided into different parts known as trading posts. Different posts deal in different types of securities. The authorised clerk of the broker goes to the concerned post and expresses his intention to buy and sell the securities. A deal is struck when the other party also agrees. The bargain is struck by an outcry mentioning the price and number of securities contracted by both the clerks. The bargain is noted by both the parties in their note books. The slip giving brief details of the bargain is put in a box for making announcement in the official price list for publicity.

4.Contact Note. The buying and selling brokers prepare notes after their mutual consent next day. The seller is sent a selling note and the buyer is sent a buying note. The details of securities are given mentioning their number, price, etc.

5.Settlement.The spot dealings are settled there in full. The selling broker hands over the transfer form and share certificates to the buying broker after receiving the price. The settlement for ready delivery and forward contracts is done with a different procedure.

(1) Settlement of Ready Delivery Contracts. The settlement in different stock exchanges is done between 3 to 7 days of the transaction. If the settlement is done by giving actual delivery of securities on receiving the price, it is called liquidation in full. In another method the dealings are squared by adjusting price differences only.

(2)Settlement of Forward Delivery Contracts. The forward delivery contracts are done for speculative purposes. Only the active and broad market securities are traded in forward contracts. The settlement of forward contracts can be done in any of the three ways:

(a) Liquidation in full: The securities are delivered and payment is received or vice-versa after crossing all intermediate purchases and sales.

(b) Liquidation by payment of differences. The purchases and sales are offset at the ruling price by paying or receiving the difference amount. The securities are not delivered but only the differences of prices contracted and current prices are received or paid as the case may be.

(c) Carry over to the next settlement. When the buyer does not want to settle the contract but wants to carry it to a future date then it is called carry over. The buyer will have to pay certain amount to the seller for this concession and the amount paid is known as 'Badla' or 'Contago charge'.

6.Electronuc Settlement of Trade

(A) Procedure for selling Dematerialised Securities

The procedure for selling dematerialised securities in stock exchanges is similar to the procedure for selling physical securities. The only major difference is that instead of delivering physical securities to the broker, the investor instructs his depository participant (DP) to debit his demat account with the number of securities sold by him and credit the broker's clearing account. The procedure for selling dematerialised securities is given below:

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