Stock Market:
The Stock Market of India is
considered to be the oldest in all of Asia. Historically it dates back to more
than 200 years. However those dealings and transactions were very obscure and
meagre. The advent of the East India Company in 1757[1],
led to India becoming the next dominant institution for business transactions
in the share market.
A Stock Exchange is a place
that provides to its investors, comprising of stockbrokers, companies,
financial institutions, foreign institutional investors and the like, trading
opportunities in the form of shares, stocks, debentures, derivatives etc. thus
a Stock Exchange is a market wherein potential stock buyers meet potential
stock sellers[2].
During the 1850’s , trading
in India happened solely at Dalal Street , it is the oldest Stock Exchange in
India, and is known as the Bombay Stock Exchange (BSE). It dates back to more
than 130 years[3].
Bombay Stock Exchange (BSE)
The Bombay Stock Exchange
(BSE) was the first Stock Exchange in India. It was granted recognition under
the provisions of the Securities Contract (Recognition) Act, 1956 (SCRA),
namely section 4 of the Act, provided for the grant of recognition to Stock
Exchanges in India.
This recognition was a
pioneering development of the securities market in India. The guidelines
followed by the Bombay Stock Exchange (BSE), consist of comprehensive rules and
regulations that are adopted by the Indian capital markets. The Bombay Stock
Exchange (BSE) traded in physical shares; however this method of transacting
business was prone to duplicity, fraud and lack of transparency in business
transactions. These loopholes led to the establishment of the “Native Share and
Stock Brokers Association”[4].
Bombay Stock Exchange (BSE)
provides its participants additional services such as risk management, clearing
settlement, education and market data services along with the usual trading in
securities, shares, debentures, derivatives, mutual funds and short and long
term equity. It provides depository services to its participants through
Central Depository Services Limited (CDSL) .The Bombay Stock Exchange (BSE), is
the first stock exchange in India and the second in the world to receive an ISO
Certification of 9001:2000 and the Information Security Management System
Standard for its on-line trading system.
National Stock Exchange (NSE)
On the basis of the
recommendations provided by the “Pherwani Committee, 1991” chaired by the
former Unit Trust of India Chief, Manohar J Pherwani, and set up under the
supervision of the Ministry of Finance, the National Stock Exchange (NSE) was
established. As it was found beneficial to and deemed necessary to uplift the
Indian Stock Market to increase liquidity of the market and provide efficient
services to investors[5].
The committee suggested changes in the market trading systems in order to be at
par with international standards, integrate existing stock exchanges and
dematerialization of all stock exchanges. Thus in 1992 under the supervision of
the Industrial Development Bank of India (IDBI), Industrial Credit and
Investment Corporation of India (ICICI), Industrial Finance Corporation of
India (IFCI), Insurance Companies, Commercial Banks and others, the National
Stock Exchange (NSE) was promoted as a tax paying company[6].
It was granted recognition under section 4 of the SCRA.
The National Stock Exchange
(NSE) covers the major cities in the country. It provides fully automatic,
modern and monitor based trading system. It helps bring about efficiency,
effectiveness of services, transparency o actions, faster transactions,
investor protection and increased market integrity.
The National Stock Exchange
(NSE), commenced its operations in 1994, however it introduced the system of
“dematerialization” in 2000, as against the practises of the Bombay Stock
Exchange (BSE), which traded in physical form. Dematerialization is the electronic
screen based trading system, wherein shares are stored and secured in the
electronic form, thus the physical share certificates of share investors are
converted into electronic form and credited to the account of the depository
participant. Such dematerialised shares do not bear any distinctive certificate
numbers. This dematerialization of shares revolutionized the Indian Stock
Market.
As of today, the National
Stock Exchange (NSE) enjoys a dominant position in the share market with
respect to spot trading and a monopoly in the derivative market[7].
The Bombay Stock Exchange (BSE) and the National Stock Exchange provide the
share market participants with reduced costs, market efficiency, innovation and
security to investors.
NIFTY:
The CNX NIFTY or NIFTY 50 or
simply NIFTY, is a stock index of the Indian equity market. The NIFTY acts as a
barometer of stock exchange in India. It indicates the current stock market
trends, whether bearish or bullish i.e. up or down, by taking into account top
performing companies free float market capitalization weighted average. Thus
one look at the NIFTY is enough to ascertain the market portfolio. The NIFTY is
a stock index for the National Stock Exchange (NSE), India.
SENSEX:
The SENSEX or BSE 30 is the
sensitivity index of the Bombay Stock Exchange (BSE) in India. It keeps a stock
index of the top 30 performing companies of the Bombay Stock Exchange (BSE). It
calculates the stock index on the basis of a weighted average of such
companies. Thus it acts as a barometer for the Bombay Stock Exchange (BSE),
making it easier to ascertain market trends to potential investors.
Importance of the Share Market
The
share market deals with the short term, medium term and long term funds and
finances, and their acquisition, lending, borrowing, disposal, sale and any
other related transaction. It provides a market to potential investors, buyers,
sellers, suppliers, government institutions, banks, multinational corporations,
companies, individuals, public companies, private companies, foreign investors,
FII’s and the like. Thus the share market plays an important role as it:-
1.
Mobilisation of resources
2.
Capital Formation
3.
Ready and Continuous Market
4.
Economic Development
5.
Rehabilitation and Revival of sick
industries
6.
Technical Assistance
7.
Employment Generation
Regulation of the Share Market:
Where there is
money, there is scope for fraud. It is this scope that all the regulatory
bodies strive to narrow down. The Indian Share market is regulated by the following
bodies:-
The Ministry of Finance (MoF)[8] operates through five
departments, one of them being The Department of Economic affairs (DoEA). This
department is the nodal agency of the government that regulates the economic
programmes and policies of the country. Thus the country’s economic management
is under the supervision, management and control of the Department of Economic
Affairs. It oversees the stock market through the following ways:-
1.
Functioning and management of public debt
and finance of capital and stock market
2.
Raising internal resources through taxation,
market borrowings and mobilisation of small savings
3.
Monitoring and raising external resources
through foreign borrowings, foreign investments, foreign exchange and control over balance of
payments
4.
Production of Indian currency i.e. bank
notes and coins
5.
Legislating the SEBI Act, 1992, the SCR Act,
1956 and the Depositories Act, 1996
6.
Strengthening the investor protection
mechanism
7.
Institutional reforms in the securities
market
8.
Building regulatory and market institutions
9.
Implementing Bilateral investment protection
and promotion agreements
10. Policy
matters relating to public and private partnerships
11. Facilitation
of foreign investments not approved under automatic route of SEBI through the
FIPB
The Reserve Bank of India (RBI) is
the apex monetary institution of India, it is also known as the central bank of
the country. It was established as per the provisions of the Reserve Bank of
India Act, 1934 and is fully owned by the government of India. With respect to
the share market, it provides the following functions:
1. Formulation,
implementation and control of monetary policy
2. Ensure
adequate flow of credit to productive sectors
3. Prescribes
the parameters of banking functions and provides cost effective banking
services to customers
4. Regulates
and supervises the payment systems by authorising setting up of payments
systems, laying down standards of payment system, any other related direction
with respect to payment systems and operators
5. Facilitates
external trade and foreign exchange
6. Issues
and supplies currency to the market
7. Control
of credit through laying down the Cash Credit Ratio (CRR) and Statutory
Liquidity Ratio (SLR)
8. Acts
as a lender of last resort by providing emergency advances
9. Research
and statistics
10. Achieving
financial stability in the country
Thus the Reserve Bank of India (RBI) seeks to achieve monetary stability
of the country by regulating the cash and credit systems of the economy.
The Securities Exchange Board of
India is the principal regulator of the stock market. It was established as a
regulatory body of the stock market under the SEBI Act, 1992. Prior to the Act,
SEBI was established as a non-statutory body to promote healthy development of
the securities market and provide protection to share investors. SEBI helps
regulate the share market by providing the following functions:-
1. Regulation
of stock market and securities market
2. Safeguarding
interest of share investors through education and training programmes
3. Issuance
of booklets and notices to inform and guide investors
4. Legislating
and implementing rules with respect to financial intermediaries
5. Registration
of brokers and sub-brokers
6. Inspection
and inquiries of stock exchanges and intermediaries
7. Prohibition
of insider trading
8. Prohibition
of unfair and deceptive trade practises in the financial markets
9. Issuance
of guidelines and instructions for financial market, mergers and acquisitions,
mutual funds and collective investment schemes.
10. Provide
training to financial intermediaries
11. Levying
of fees
12. Performance
of any other function as prescribed by the Central Government
Thus the Securities Exchange Board of India (SEBI) strives to promote and
encourage healthy development of the financial market, at the same time
undertaking investor protection.
[1]Bharati
V Pathak, The Indian Financial System, Pearson Education, Second Edition, Pg 36
[2]Bharati
V Pathak, The Indian Financial System, Pearson Education, Second Edition, Pg
105
[3]Bharati
V Pathak, The Indian Financial System, Pearson Education, Second Edition, Pg
175
[4]H.R.Machiraju,
The Working of Stock Exchanges In India, New Age International, 3rd
Edition, Pg 31-52
[5]
Shiv Taneja, India Today, http://indiatoday.intoday.in/story/pherwani-committee-report-recommends-setting-up-of-nse-in-new-bombay/1/318827.html,
25/10/14,
[6]
The National Stock Exchange official website, http://www.nseindia.com/global/content/about_us/the_organisation.htm,
01/10/14,
[7]Supra 7
[8]
The Department of Economic Affairs Official Website, http://finmin.nic.in/the_ministry/dept_eco_affairs/investment_division/invest_div_index.asp,
12/08/14
[9]
The RBI Official Website, http://www.rbi.org.in/commonman/English/scripts/organisation.aspx,
18/09/14
[10]
The SEBI Official Website,http://www.sebi.gov.in/cms/sebi_data/about_us/act15ac.html#ch4,
24/09/14
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