Monday, April 10, 2017

Buying & Selling of Shares:Stock Markets in India

“Stock Exchange means any body or individuals whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing ins securities.” It is an association of member brokers for the purpose of self-regulation and protecting the interests of its members.
With the stock exchanges becoming operate bodies with demutualisation the control and ownership will be in different hands The above definition will change accordingly. It can operate only if it is recognized by the Government under the Securities Contracts (Regulation) Act, 1956. The recognition is granted under Section 3 of the Act by the Central Government, Ministry of Finance.

The powers of the Central Government under the Act are far reaching and include the following in particular:
  • Grant and withdrawal of recognition, approval or change of bylaws.
  • Call for periodical returns from the Stock Exchange.
  • Direct inquiries on the members or on the Stock Exchange.
  • Liability of the Exchange to submit annual reports.
  • Directing the Stock Exchange to make certain rules.
  • Supersede the Governing Board of the Exchange.
  • Suspend the Governing Board of the Exchange.
  • Impose any other conditions or regulations for trading.
Besides the above Act, the Securities Contracts (Regulation) Rules were also made in 1957 to regulate certain matters relating to trading on the Stock Exchanges. There are also byelaws of the Exchanges, which are concerned with the following subjects Opening/Closing of the stock exchanges, administration timing of trading, regulation of blank transfers, regulation of badla or carryover business, control of the settlement and other activities of the Stock Exchange, fixation of margins, fixation of market prices or making up prices (Havala rates), regulation of taravani business (jobbing), etc., regulation of brokers’ trading, brokerage charges, trading rules on the Exchange, arbitration and settlement of disputes, settlement and clearing of the trading etc.

Regulation of Stock Exchange
The Securities Contracts (Regulation) Act is the basis for operations of the stock exchanges in India. No exchange can operate legally without the government permission or recognition. Stock exchanges are given monopoly in certain areas under Section 19 of the above Act to ensure that the control and regulation are facilitated. Recognition can be granted to a stock exchange provided certain conditions are satisfied and the necessary information is supplied to the government. Recognition can also be withdrawn, if necessary. Where there are no stock exchanges, the government can license some of the brokers (licensed dealers) to perform the functions of a stock exchange in its absence.

Recognition by Government
As referred to earlier, a Stock Exchange is recognized only after the government is satisfied that its Rules and Byelaws conform to the conditions prescribed for ensuring fair dealings and protection to investors. Government has also to be satisfied that it would be in the interest of the trade and public interest to grant such recognition. Mumbai, Calcutta, Delhi, Chennai, Ahmadabad, Hyderabad, Bangalore, Indore etc. have so far been granted permanent recognition. Others are granted temporary recognition from time to time. The rules of a recognized stock exchange relating in general to the constitution of the Exchange, the powers of management of its governing body and its constitution (including the appointment thereon of not more than three government nominees), the admission of members, the qualifications for membership, the expulsion, suspension and readmission of members, the registration of partnerships and the appointment of authorized representatives and clerks must be duly approved by Government. These rules can be amended, varied or rescinded only with the previous approval of government. Likewise, the bylaws of the recognized exchanges providing in detail for the regulation and control of contracts in securities and for every aspect of the trading activities of members must also be sanctioned by government and any amendments or modifications must be similarly approved. Government’s authority extends much further to make or amend suo motto any rules of bylaws of a recognised stock exchange, if it so considers desirable in the interest of trade and in public interest. The Act empowered the government with even more drastic powers - the power to make enquiries into the affairs of a recognized stock exchange and its members, to supersede the governing body and take over the property or a recognised exchange, to suspend its business, and lastly, to withdraw the recognition granted to an exchange should such steps be deemed indispensable in the interest of trade and in public interest. Government has thus complete control over the recognized stock exchanges.

Licensed Dealers
The recognised stock exchanges are the media through which government regulation of the stock market is made effective. Where there are no stock exchanges, the Securities Contracts (Regulation) Act, 1956 empowers government to license dealers in securities and prescribe the conditions subject to which they can carry on the business of dealing in securities. These licensed dealers are now operating for OTCEI and NSE.

Securities Contracts (Regulation) Rules, 1957
Under the Act, government has promulgated the Securities Contracts (Regulation) Rules, 1957 for carrying into effect the objects of the legislation. These rules provide, among other things, for the procedure to be followed for recognition of stock exchanges; submission of periodical returns and annual reports by recognised stock exchanges ; inquiry into the affairs of recognised stock exchanges and their members ; and requirements for listing of securities. The rules are statutory and they constitute a code of standardised regulations uniformly applicable to all the recognised stock exchanges.

Present Recognised Stock Exchanges
At present, there are 21 stock exchages recognised under the Securities Contracts (Regulation) Act, 1956. They are located at Bombay, Calcutta, Madras, Delhi, Ahmedabad, Hyderabad, Indore, Bhywaneshwar, Mangalore, Patna, Bangalore, Rajkot, Guwahati, Jaipur, Kanpur, Ludhiana, Baroda Cochin, and Pune. The recently recognised stock exchanges are at Coimbatore and Meerut. Visakhapatnam Stock Exchange was recognised in 1996 for electroic trading. A stock exchange has also been set up at Gangtok, Sikkim early in 1986. No recognition has been sought for this body as the jurisdiction of the Securities Contracts (Regulation) Act, 1956 has not so far been extended to the areas covered by the State. A decade ago, there were hardly 8 stock exchanges in the country. There is no trading, however, in Merrut and Vishakhapatnam Stock Exchanges. The stock exchanges operate under the rules, byelaws and regulations duly approved by government and constitute an organised marker for securities. They offer the most perfect type of market for various reasons. There is an active bidding and in the case of shares and debentures a two-way auction trading, so hat purchases and sales are made in conditions of free and perfect competition. The bargians the are struck by members of the exchanges are the fairest price determined by the basic laws of supply and demand. In consequence, though gilt-edged securities represent ownership of public debt and share and debentures of joint-stock companies represent interest in industrial property - mills and factories, plant, machinery and equipment - they become the most liquid of assets and capable of being easily negotiated.

Qualifications for Membership

The members of recognised stock exchanges should have the following qualifications :

  • Age 21, Indian Citizen, not bankrupt.
  • Not compounded with the creditors.
  • Not convicted for fraud or dishonesty.
  • Not engaged in any other business except as agent or broker.
  • Educational Qualifications should be graduate.
  • Not connected with a company or corporation.
  • Not a defaulter of any other stock exchange.

Companies and financial institutions are not members as per the earlier rules. But the government has permitted change in the byelaws of the exchanges to permit corporate and institutonal members and also grant permission for a member of any stock exchange to be a member of another stock exchange in 1993. Members are prohibited from entering into contracts with perosns other than members or from dealing with clients as principals. Spot delivery transactons are exempt fro the provisions of the Act. Contracts can be passed only by the members in the notified areas where the stock exchange exists. The subbrokers can also pass valid contract notes or confirmation Notes, if they are registered with SEBI.

The recognised stock exchanges at Mumbai, Ahmedabad, Indore are voluntary non-profit-making associatons, while the Calcutta, Delhi, Bangalore, Cochin, Kanpur, Ludhiana, Gauhati and Kanara Stock Exchanges are joint-stock companies limited by shares and the Chennai, Hyderabad and Pune stock exchanges are companies limited by guarantee. Since the Rules or Articles of Association defining the consttution of the recognised stock exchanges are approved by the Central Governent, there is a broad unifomity in their organisation. In fact, the Madras Stock Exchange was reconstituted and the Calcutta Stock Exchange had to undergo a major reorganisation as a condition procedent to their recognition by the Government of India.

Demutualisation of Stock Exchanges
What is Demutualisation ? 
It is dissociation of ownership from control and Regulation of Stock Market operations. The Stock Exchanges are self Regulatory organisations, owned and regulated by the member brokers themselves. Traditionally, the control and ownership rested with the same member brokers. But in India the first attempt at Demutualisation was made by OTCEI set up in 1992 and NSE in 1994. Both are owned by banks, FIs and other agencies other than member brokers. BSF has now chosen to become a corporate unit with its shares listed for trading with-in a short-time.

Advantages of Demutualisation
Firstly, the interests of public and investors can be better taken care of by the vestingof control and regulation in a separate agency other than the trading members. Secondly, professionalism in Management is possible when it is owned by non-trading public. Thirdly, the derivative markets can be better controlled and regulated by professionals and experts. Fourthly, the larger funds needed by the Stock Exchanges for infrastructure development and electronic trading can be better accessed from the Capital Market and the public.

Firstly, if it is owned by the public profit motive and the return on investment become paramount concerns which is not good for regulation. Secondly, it dilutes the regulatory authority given to Stock Exchanges, which are SROs, under Article 226 of the constitution. Sometimes the volumes go down and the capacity utilisation of the Stock Exchange infrastructure will be poor leading to poor return on investment. Lastly, in India demutualisation may not be needed as the competition from the ATS and ECNs (Alternative trading system and Electronic trading) would not be there as the matching of Buy and sell orders in the broker firms is not allowed by SEBI.

Governing Body
The governing body of a recognised stock exchange has wide governmental and administrate powers and is the decisionmaking body. It has the power, subject to governmental approval, to make, amend and suspend the operation of the rule,s byelaws and regulations of the exchanges. It also has complete jurisdiction over all members and in practice, its power of management and control is almost absoute. Under the constitution, the governing body has the power toadmit and expel members, to warn, censure, fine and suspend members and their partners, attorneys, remisiers, authorised clerks and employees, to approve the formation and dissolution of partnerships and appointment of attorneys, remisiers and authorised clerks, to enforce attendance and information, adjudicate disputes and impose penalties, to determine the mode and conditions of stock exchange business and regulate stock exchange trading in all its aspects and generally to supervise, direct and control all matters and activities affecting the stock exchange. The organisation of Bombay Stock Exchange is typical. The members on roll elect 16 members to be Directors on the Governing Board, who iin turn elect a President, Vice- President and Treasurer. The Executive Director is appointed by the government on the recommendation of the Governing Board to be the Chief Administrator of the Exchange. There are also three representatives from the Government, three from the public and one from the RBI on the Board to represent their interest. As per the SEBI guidelines, the Exchanges have agreed to have 50% representation to non-members on the Governing Board.

Functions of Stock Exchanges
Stock exchanges provide liquidity to the listed companies. By giving quotations to the listed companies, they help trading and raise funds from the market. Savings of investors flow into public loans and to joint-stock enterprises because of this ready marketability and unequalled facility for transfer of ownership of stocks, shares and securities provided by the recognised stock exchanges. As a result, over the hundred and twenty years during which the stock exchanges have existed in this country and thorugh their medium, the Central and State Government have raised crores of rupees by floating public loans; Municipal Corporations, Improvement Trusts, Local Bodies and State Finance Corporations have obtained from the public their financial requirements, and industry, trade and commerce – the backbone of the country’s economy -have secured capital of crores of rupees through the issue of stocks, shares and debentures for financing their day-to-day acitivities, organizing new ventures and completing projects of expansion, diversification and medernisation. By obtaining the listing and trading facilities, public investment is increased and companies were able to raise more funds. The quoted companies with wide public interest have enjoyed some benefits and asset valuation has become easier for tax and other purposes. In tune with the growth in the ew issues market during the eighties, the secondary market also expanded fast during this project. The number of stock exchanges has increased from 8 in 1980 to a total 23 in 1993 and Vishakhapatnam Stock Exchange was recognised for electronic trading in 1996. The membership of the stock exchanges has also increased substantially to around 8,000 by end 1999 from about 1,200 a decade ago. The listed companies of all stock exchanges stood at 9,877 in 1999. The market capitalisation has also shown a substantial increase in the eigthies and Nineties and stood at Rs. 5,42,942 crores at end March 1999. The volume of daily turnover of trade has also increased more than ten-fold over the decade. The turnover of trading put through was as high as Rs. 10 lakh crores during 2000-01 on the BSE and 14 lakh crores on NSE.

Listed Paid-up Capital
The paid-up share capital of listed companies in 1946 was Rs.270 crores while in 1997, the figure was more than Rs.1.07 lakh. The market value of the capital of these listed companies stood at around Rs. 5 lakh crores in 1997 which has gone down to around Rs. 3.5 crores due to sharp fall in prices during 1998 and zoomed up during the boom period of Jan. 2000 to Rs. 10 crores and above.

Who Owns the Securities ?
The gilt-edged securities are officially listed on the recognised stock exchanges as soon as they are issued by the authorities concerned. These securities constitute the largest amount of debt traded on the stock exchanges as the government sector is the major borrower in the economy. Almost the entire outstanding rupee debt is owned by the commercial banks, the Life Insurance Corp., Provident Funds and charitable trusts. Less then one per cent is owned directly by individuals. But anyone who has a bank account or is a policyholder or a beneficiary of a public or private trust is basically involved in the ownership of gilt edged securities. Therefore, an increasingly large number of persons is being interested indirectly in Government securities. Their number will grow as savings increase and development under the Five-Year Plans is financed by public borrowing on a more extensive scale. This evidence the influence of the gilt-edged market and its vital significance in the economic life of the country. The growth and present position of stocks and shares of joint stock companies listed on the recongnised stock exchanges indicate a substantial increase in the public stake in listed stocks over the past. A study of the ownership pattern of the companies major category of holdersa although their share declined 56.4% in 1984 to 45.9% in 1989. The shares of corporate bodies and financial institutions have stood at around 28.4% and 11.2% respectively in 1989. The share of corporate bodies has increased from 17.8% in 1984 to 28.4% in 1989. This trend got accentuated due to proportional allotement system imposed by SEBI, and the share of individuals fell further, during Nineties.

Bombay: Stock Exchange
The Bombay Stock Exchange is the premier stock exchange in India. It was the first to be recognised on a permanent basis in 1957. The capital listed in Mumbai accounted for about 40% of the overall capital listed on all the stock exchanges whereas its share of the market capitalisation amounted to around 90%. In terms of the total number of companies and total number of stock issues listed also, Mumbai ranked first. The Bombay Stock Exchange regularly publishes statistics on market turnover of securities though similar figures for the other exchanges are now available with the SEBI. It is, however, roughly estimated that the turnover of Bombay Stock Exchange is about 30% of the overall turnover of all the stock exchanges in the country and NSE accounts for more than 40% of the total all India figure, in recent years. The total turnover at BSE during 2000-01 was Rs.10 lakh crores as against Rs.13 lakh crores on the NSE. The listed companies on BSE was 5955 while the same on NSE was only 785 in 2000-01.

Patel Committee
A high-powered committee under the chairmanship of Shri G.S. Patel, former Chairman of the Unit Trust of India, was set up by the Union Government in May 1984 to make a comprehensive review of the functioning of the stock exchanges and make recommendations. The terms of reference of the Committee included inter alia, thethe following:

To examine the general functioning of the stock exchanges as an integral part of the financial system;
To suggest measures to improve the overall service to investors by the members of stock exchanges and to encourage small investors particularly in semi - urban and rural areas to invest in industrial securities;
To look into the existing system of organisation and management of stock exchanges with a view to broadbase it so as to make it representative of all concerned interests and to suggest a uniform model of organisation, etc.

After deliberations which lasted more than a year, the Committee submitted its Report to the Union Finance Ministry in December 1985. In the light of the recommendations made by the Committee in their interim Report, the government issued several guidelines and directives to the stock exchanges relating to matters of securities on the stock exchange, creation of a Customers’ Protection Fund and insurance cover for members of stock exchanges, etc.

Regulations on Trading
As regards the regulations on trading in the ring of the Exchange, the Stock Exchange authorities operate a variety of regulations in the following ways:
Firstly, only authorised clerks of the members are permitted to enter the trading ring with their badges. Sauda Block Books or confirmation Memos are provided by the Stock Exchange. Entry into the Grading Ring is restricted to members and their authorised clerks. The inspectors of the Stock Exchange visit the ring and check the presence of unauthorised persons, any indiscipline or violence or other malafide acts. Persons involved in such acts could be removed from the trading ring, suspended or punished otherwise. The security guards provide physical help to the inspectors.

Secondly, the Monitoring Dept. or Surveillance Dept. of the Exchange keeps a watch on the price movements and the trading volume of the members and take such action as is necessary to control excessive trading and speculative fevour. It may impose ad hoc margins, suspend trading and enquire into any special developments.

Thirdly, in the case of any disputes on the trading floor as between members or their authorised assistants, the floor committee can officially intervene and give their judgement on the dispute, whether relating to the price or quantity or the scrip or there can be administrative intervention by inspectors. Trading Ring has lost its importance with the use of electronic type of trading and matching of purchase and sale transactions through the Exchange. The inspection of trading operations is also done electronically.

Fourthly, the Operations Department of the Stock Exchange will supervise the operations, make any announcements at the time of trading, suspension of trading or collection of quotations, giving of company information, etc. The fixation of different types of margins, making up prices (Havala rates) and supervision of trading etc. are the responsibility of the Executive Director. The acutions of shares and related matters connected with settlement are looked into by the Operations Department.

The types of margins imposed are as follows :
1. Daily margins on purchases or sales of members at varying rates or on the total outstanding position in each scrip.
2. Carry-over margins at the time of settlement on each of these scrips at varying rates upto 50% or more depending upon whether they are purchases or sales.
3. Limits imposed on total trade by each of the members in all scrips together to keep a control on over-trading by members.
4. Ad hoc margins, imposed specially on any scrip or scrips subject to high speculative attacks.
5. Suspension of trading in any scrip for any period of time, shifting of a scrip from group A to group B and vice versa, etc. depending on conditions of trading in the scrip.
6. Fixation of minimum or maximum prices for any other scrips called filter levels circuit breakers are now used for rise or fall in prices of scrips beyond a stripulated level of 10% or 15% on any trading day. To give examples of how margins operate on trading, let us take the following cases : Member A has purchased 500 and sold 200 with a net position of 300 scrips. The price of the TISCO scrip is Rs. 115. The margin on purchase is at a rate of Rs. 5 per scrip. Then the purchase price becomes Rs. 115-5 = 110. An amount of 500 × Rs. 5 = 2,500 is deposited with the Stock Exchange to the credit of the member. This is a margin on the gross purchases. Member B has purchased 800, sold 1,000 with a net sale position of 200 scrips. The price of the Century scrip is Rs. 3,400. The imposed margin is Rs. 400 per scrip Then the sale price becomes Rs. 3400 + 400 = Rs. 3,800. An amount of 200 × Rs. 400 = Rs. 80,000 is kept with the Stock Exchange to the credit of the member, which is a margin on net sales. These margins will apply in the same manner whether it is a daily gross or net position or carry-over net position. But they vary depending on the scrip, its price and speculative position in the market. These rates are different for purchases and sales. The net price after adjustment of margins is used for the purpose of carry-over.

Investor Protection
Certain measures of investor protection adopted by the Exchange deserve special mention here. Firstly, the Exchanges have set up a Customer Protetion Fund, in tune with guidelines issued by the Ministry of Finance. The objective of the fund, in tune with guidelines issued by the Ministry of Finance. The objective of the fund is to compensate the investor clients of member brokers who have defaulted. In all genuine cases of claims, the clients are compensated upto a maximum which varies from Exchange to Exchange. This Fund is financed by a levy on the turnover of members collected at the rate of one rupee for every Rs. 10 lakhs of turnover and by contributions from the listing fees, collected at the rate of 2% from the companies. Another service provided was through Investor Complaints Cell set up a decade ago, but rechristened as Investor Service Cell in some exchanges. The service was strengthened to render expeditious service to the investors and to attend to their grievances. As many as thousands of compliants are received per month, of which 90-95% are against the companies and the rest against the brokers. The nature of complaints is non-receipt of refund order, allotment letters, dividends, brokerage, underwriting commission, etc. Of the complaints received, about 50% are attended satisfactorily. Another service provided by major exchanges is to arrange an insurance policy to broker-members through the New India Assurance Co. This policy covers the perils of forgery, fabrication of securities and transfer deeds and receipts, identify of the transferer, loss of securities in transit, etc., which the brokers are subject to during their transactions with clients for delivery of shares for transfer. In view of this protection, the brokers can atleast the signatures of transferers which will help quicken the process of share transfer. To expedite the process of delivery of shares in the settlement and clearing procedure of the Stock Exchange, the BOI shareholdings Ltd. was set up jointly by the Bank of India and the Stock Exchange, Mumbai in November 1989. This new organisation takes over the clearing and delivery of shares for both ‘A’ and ‘b’ Group shares on the Stock Exchange. The actual delivery of shares as between the member brokers is now replaced by Delivery Slips, passed or credited and debited with BOI Holdings. No physical transfer of shares takes place and hence it saves a lot of time involved in delivery after clearing.
This is comparable to the present day demat form of trading. Many Stock Exchanges have also provided a service to investors in the form of fixing up an odd lot trading session on every alternate Saturday and shortlisting a group of brokers who agreed to deal in odd lots for the benefit of purchase/sale/ consolidation etc. of odd lots. The investors can get quotations for odd lots in major scrips and deal in them more freely than before. The service of purchase from investors of odd lots was later extended by the UTI, GIC and Canbank and others as an over-the-counter facility. This odd lot trading has lost its significance with the dematerialisation of physical shares into entries.

Measures to Promote Healthy Stock Markets
With a view to reduce delays in listing arising out of conversion, the Govt has issued a circular authorising the stock exchanges to take action and monitor the issues of over Rs. 10 crores and if the delay is deliberate without adequate reasons, the Exchange should report the matter to the Registrar of Companies, SEBI, etc., and also take suitable action. The Government has amended the SCR rules in December 1988 to permit multiple membership of stock exchanges and to enable the granting of membership to financial and corporate institutions. In October 1988, the Bhansali Committee’s recommendation on share transfer procedures was implemented whereby the newlyallotted shares have to be treated on par with the old shares for delivery purpose, subject to the adjustment of the dividend depending on the tie of allotment. The minimum capital for listing has been raised to Rs. 3 Crores of which Rs. 1.8 crores should have been issued to te public effective February 1989. This was further raised to Rs. 5 Crores or Rs. 10 crores depending on the Stock Exchange from October 1995. The guidelines for listing have also been amended, particularly with regard to book closure and record dates and to give more powers to the stock exchanges to monitor the allotment of new issues and to curb insider trading or takeover bids. Banks have been permitted to lend up to 90% of the value of shares to be acquired by the employees out of their quota of new issue subject to a ceiling. The government has approved the creation of Over-the- Counter Exchange of India (OTC) which would help the introduction of a multi-tiered market for securities. Stock exchanges have been directed to transfer the scrip of company from the sepcified section to the spot section if the company intends to come out with the rights issues. The Employees’ Option Scheme was partially modified restricting the allotment of the unavailed portion of the public/rights issues earmarked for employees only to financial or investment institutions or mutual funds. As it has been found that the various stock exchanges are following different methods of calculating the amount of dividend to be deducted while trading in the new shares, which are on a pari passu basis, the government has clarified in June 1990 that all stock exchanges should follow the same practice and the new shares should be traded and delivered along with old shares provided the new shares are traded and delivered at least one day in the relevant settlement period. The dividend can be deducted from the price for the new shares at not more than the amount of divident for one year. Clause 40 of the listing agreement has been replaced by 40A and 40B. Under clause 40A, when any person acquires 5% or more of the shares of a company in terms of its nominal value, the stock exchange should be notified within two days of such acuisition or agreement to purchase by the company, by the intermediary or by the acquire. Under clause 40B, if there is a take-over offer, a public announcement of the offer should be made both by the offeree and offerer. This requirement is necessary when any person acquires shares carrying 10% or more of the total voting rights of the company through their shareholdings or to secure control over the management of the company. The offer should be made public and by a public announcement and notification to the stock exchange and SEBI with regard to the terms of offer, identity of offeror and other terms and conditions and such information should be made available to all the shareholders of the offeree and offer or companies. Clause 41 was added recently to the listing. Agreement to enforce half-yearly publication to results of the working of the company. This was made quarterly publication of Results by the listed companies during 1999. The government has also notified certain guidelines for institutional transactions in shares. For any sale of over 1% of paid up capital of the company, the information regarding such transactions should be reported to the SEBI and the concerned stock exchanges and to the public within a day of the transaction through a press release. The Board of each financial institution should lay down the criteria for such transactions. The guidelines also state that all purchases or sales should be for delivery and they should be made through approved brokers at market prices. Besides no sale should be made at a negotiated price to non-institutional buyers. If, in the case of a sick company, the management changes, and such negotiated sale takes place, that should be disclosed to the public through a press release and also to the SEBI and the concerned stock exchange. Clause 16 of the listing agreement has also been amended to require companies to fix the date of book closing and record dates either on the 1st or the 16th of any month and to give a notice to the Exchange of at least 42 days in advance. The company should also ensure that the time gap between the book closures and record dates should be 90 days. The company is also required to undertake that the securities delivered for transfer will be transferred and dispatched within a period of two months from the date of receipt under the Law and within one month as per the Listing agreement. As regards the capital issues, under-subscribed in the rights or public issues, the companies have been instructed to refund all the application monies within 120 days of the opening of issue if a minimum of 90% subscription is not secured. If the refund orders are not passed even on the expiry of 10 days after a period of 120 days, interest at the rate of 15% is payable. The subscription amount would be kept in a specific bank account and companies will have no access to the funds unless the concerned stock exchange has permitted the allotment. This allotment will not be permitted until the 90% limit of subscription is achieved. It is also essential for the promoters to make their subscriptions in advance before the public issue opens and give as certificate to this effect to the concerned Exchange. If the level of 90% is not reached by the public subscription, the underwriters will have to make the subscriptions up to their limits of underwriting to achieve the minimum level of 90% subscription. The stock exchanges and in particular the regional stock exchanges are thus given a crucial role in the allotment and listing of new issues. Among other reforms mention may be made of broad basing the boards, better surveillance over companies and brokers, stricter enforcement of the trading regulations and listing norms and bettr disclosures for transprency. Weekly settlement system was enforced on all Stock Exchanges uniformly which was followed by Daily Rollover System in Selected Scrips from 1999. Trade guarantee fund and Investor Protection Funds were maintained in many Stock Exchanges. Enforcement of a code of corporate governance, quarterly publication of results and better disclosures were insisted upon the listed companies. Uniform settlemtn cycle of Monday to Friday on all Stock Exchange was also recommended by the SEBI. BOLT system was enlarged and more centres in India got connected for internet trading. NSE has also planned for overseas centres for trading purposes. Badla system was streamlined and strengthened with better surveillance in selected scrips. Volumes of trading and liquidity had increased due to electronic trading. This trend was facilitated by demat form of holdign shares, quicker weekly settlements and clearing supported by a powerful regulatory system, operated by SEBI.

Rolling Settlement System
The recent reforms of SEBI with regard to stock market include inter alia, the strengthening of the Rolling settlement System which was done during 2000-2001. Bulk of the reforms during 1996 to 2000 encompass the electronic trading system, clearance and settlement system. Uniform trading cycle, clearance and settlement through Demat system, without the need for physical certificates, weekly settlements, setting up of Trade Guarantee Funds for ensuring settlements, Customer Protection Funds, quicker Settlements, Internet trading, Broker Website Trading etc. are some of the examples of the recent Stock Market reforms, effected by SEBI. The SEBI had announced early in Feb. 2000 that Stock Markets would move towards a rolling Settlment System for selected Scrips in ‘B’ group and trading for them in a Demat form. Some 153 companies were earmarked for a Demat form of trading and compulsory Rolling settlement system. During March to June 2000, these selected companies must have signed an agreement with Central Depository Services Limited and NSDL for compulsory dematerialisation of their stocks for trading in Demat form for all investors and their trading on the stock markets will be compulsorily done on rolling settlement basis. Such companies which have recently changed their names to represent their software business and some NBFCs which have been delicensed by the RBI would be on compulsory Demat form and on rolling settlement basis. Similarly some companies which exhibited high volatility have been earmarked by the SEBI for trading on Rolling Settlement basis before June end 2000. Shares of companies which have gone recently for initial public offering but are not yet listed will be traded only in a Demat form, although investors not trading can continue to keep their stock in physical form.

CDSL : Central Depository Services Limited
The CDSL is promoted by Bombay Stock Exchange. The SEBI has mandated that the major Stock Exchanges like NSE, Delhi, Ahmedabad and Calcutta should be connected to CDSL. The clearing members of these Exchanges should open accounts with CDSL to facilitate settlement of trade in Demat form. This is in addition to existing NSDL, set up mainly be NSE. The rolling settlement was introduced from Jan. 10, 2000 in selected scrips. The clearing members have to compulsorily open a clearing account with a Depository participant. All pay ion and payout operations are to be settled in a Demat form.

Globalisation of Stock Exchanges

Demat Form of Trading
Majority of Scrips are put in Demat form for trading in the last few months during 1999. Already compulsory Demat form was introduced to most of the “A” group scrips and some leading “B” group scrips. This will increase volumes in trading and there will be consequent increase in liquidity. Nearly 90% of trade is already in Demat form, with nearly 600 scrips in compulsory Demat trading as at end May 2000.

Electronic Form of Trading
Globalisation of Stock Exchanges is now on way. The electronic age has come to the stock market. Nearly 100% of all transactions are executed through electronic media on line trading system. The number of cities covered by NSE and BSF electronic network would have crosses 1000 mark, by end 2000. More and more brokers and sub brokers are getting into the internet trading system.

Internet Trading (e-Trading)
The SEBI have allowed e-trading and brokers would rush to the web-sites and trading through web sites would increase. On the inter-net, on would be able to trade instantly and transparently from any part of the world. Trade is confirmed via the internet into time and by this method, the investor comes to know immediately the trade, member, time, rate at which the trade took place. There will also be quicker settlements and collections.

Electronic Fund Collection
Under this system, the brokers get their funds directly credited to their accounts and the clients can in-turn get their accounts credited or debited for the net funds to flow across the country. The facilitates quicker payments, improves the liquidity position of brokers and gets funds one day after the pay out day to obviate possible defaults or cash out positions of brokers and sub-brokers. The web-site on the basis of investor’s portfolio can give the investor information on company results, report cards company analysis and the performance of the company. There will be a number of improvements in the process as well as the products. So far as the process is concerned, there will be settlements on a daily basis and on a rolling basis, electronic settlement and clearance, e-mail for transmission of funds, badla trading on a daily basis, internet based trading etc. So far as product improvements are concerned, portfolio of investors may include a number of new products such derivatives and synthetics. The other facilities include Basket trading, trading in Index Funds, Voting and Non-Voting shares, Tracker shares and complex derivatives. Tracker shares refer to the separate divisional shares of a company such I.T. Divisions of Wipro or Tatas. Portfolio Tracker for valuation on web-site, company analysis and M.I.S. on the companies in one’s portfolio are presented through the web-site. There will be automatic borrowing and lending facilities, institutionalised security lending. Automatic financing or margin buying and a host of other facilities on the Stock Exchanges.

Foreign Listing
As the country opened upto foreign operations many more India Companies got listed on Foreign Stock Markets of London, New York, Nasdaq etc. Internet and one line trading facility is created in selected foreign centres. The regional stock exchanges and local trading became gradually redundant in the context of global trading. Slowly foreign companies would be listed on the Indian. Indian capital account controls are slowly getting dismantled and liberalised. Freer flow of FDI funds into India and liberal borrowing facilities for Indian Companies abroad tended to globalise Indian markets. Indian Mutual Funds are allowed to invest in Foreign Securities up to a limit. The GDRs and ADRs of Indian Companies are well received in foreign markets and are traded freely in foreign stock markets.

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