FINACIAL MARKET (BSE)

1. What Is Stock?
Imagine you wanted to start a retail store with members of your
family. You decide you need Rs.100, 000 to get the business off the
ground so you incorporate a new company. You divide the company into
1,000 pieces, or "shares" of stock. (They are called this because each
piece of stock is entitled to a proportional share of the profit or loss). You
price each new share of stock at Rs.100. If you can sell all of the shares
to your family members, you should have the Rs.100,000 you need
(1,000 shares x Rs.100 contributed capital per share = Rs.100,000 cash
raised for the company).
If the store earned Rs.50,000 after taxes during its first year, each
share of stock would be entitled to 1/1,000th of the profit. You'd take
Rs.50,000 and divide it by 1,000, resulting in Rs.50.00 earnings per
share (or EPS). You could call a meeting of the company's Board of
Directors (these are the people the stockholders elected to watch over
their interest since they couldn't run the business) and decide to use the
money to pay dividends, repurchase, or expand the company by
reinvesting in the retail store.
At some point, you may decide you want to sell your shares of the
family retailer. If the company is large enough, you could trade on a stock
exchange. That's what is happening when you buy or sell shares of a
company through a stock broker. You are telling the market you are
interested in acquiring or selling shares of a certain company and Wall
Street matches you up with someone and takes fees and commissions for
doing it. Alternatively, shares of stock could be issued to raise millions,
or even billions, of dollars for expansion. When Sam Walton formed Wal2014-15

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Mart Stores, Inc., the initial public offering that resulted from him selling
newly created shares of stock in his company gave him enough cash to
pay off most of his debt and fund Wal-Mart's nationwide expansion.

2. STOCK EXCHANGE

STOCK EXCHANGE is an organized market place, either

corporation
organization

or

mutual

gather

securities.Stock

organization,

to

trade

Exchange

also

where

company
facilitates

members
stocks

for

the

of

or
issue

the
other
and

redemption of securities and other financial instruments including

the payment of income and dividends. The trade on an exchange is
only by members and stock broker who have a seat on the exchange.

Name of Indian Stock Exchanges

1. Ahmedabad Stock Exchange

2. Bangalore Stock Exchange
3. Bhubaneswar Stock Exchange
4. Bombay Stock Exchange
5. Calcutta Stock Exchange
6. Cochin Stock Exchange
7. Coimbatore Stock Exchange
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8. Delhi Stock Exchange Association
9. Gawahati Stock Exchange
10.

Hyderabad Stock Exchange

11.

Inter-connected Stock Exchange of India

12.

Jaipur Stock Exchange

13.

Ludhiana Stock Exchange

14.

Madhya pradesh Stock Exchang

15.

Madras Stock Exchange

16.

Mangalore Stock Exchange

17.

National Stock Exchange

18.

Magadh Stock Exchange (Patna)

19.

Over The Counter Stock Exchange of India (OTCEI)

20.

Pune Stock Exchange

21.

Uttar Pradesh Stock Exchange

22.

Vadodara Stock Exchange

23.

Meerut Stock Exchange

24.

United Stock Exchange (started in June09)

25.

Saurashtra Stock Exchange

Stock Exchange being a very vast topic, we are focusing on BOMBAY

STOCK EXCHANGE (BSE).

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2.1 INTRODUCTION
Bombay Stock Exchange is the oldest stock exchange in Asia What
is now popularly known as the BSE was established as "The Native Share
& Stock Brokers

'Association" in1875.

Over the past 135 years, BSE has facilitated the growth of the Indian
corporate sector by providing it with an efficient capital raising platform.

Today, BSE is the world's number 1 exchange in the world in terms of the
number of listed companies (over 4900). It is the world's 5th most active
in terms of number of transactions handled through its electronic
trading system. And it is in the top ten of global exchanges in terms of
the market capitalization of its listed companies (as of December 31,
2009). The companies listed on BSE command a total market
capitalization
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USD

Trillion

1.28

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as

of

Feb,

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FINACIAL MARKET (BSE)

BSE is the first exchange in India and the second in the world to obtain
an ISO 9001:2000 certifications. It is also the first Exchange in the
country and second in the world to receive Information Security
Management System Standard BS 7799-2-2002 certification for its BSE
On-Line trading System (BOLT).

The BSE Index, SENSEX, is India's first and most popular Stock Market
benchmark index. Exchange traded funds (ETF) on SENSEX, are listed
on BSE and in Hong Kong. Futures and options on the index are also
traded at BSE.

BSE continues to innovate:

Became the first national exchange to launch its website in

Gujarati and Hindi and now Marathi

Purchased of Marketplace Technologies in 2009 to enhance the inhouse technology development capabilities of the BSE and allow
faster time-to-market for new products

Launched a reporting platform for corporate bonds christened the

ICDM or Indian Corporate Debt Market

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

development and growth of the currency and interest rate
derivatives markets

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

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

BSE now offers AMFI Certification for Mutual Fund Advisors

through BSE Training Institute (BTI)

Co-location facilities for Algorithmic trading

BSE also successfully launched the BSE IPO index and PSU
website

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

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

Other Awards:

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The Annual Reports and Accounts of BSE for the year ended March
31, 2006 and March 31, 2007 have been awarded the ICAI awards
for excellence in financial reporting.

The Human Resource Management at BSE has won the Asia Pacific HRM awards for its efforts in employer branding through
talent management at work, health management at work and
excellence in HR through technology

Drawing from its rich past and its equally robust performance in the
recent times, BSE will continue to remain an icon in the Indian capital
market.

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2.3 NEED FOR BSE

BSE is one of the factors Indian Economy depends upon. BSE has played
a major role in the development of the country. Through BSE, Foreign
Investors have invested in India. Due to inward flow of foreign currency
the, the Indian economies have started showing the upward trend
towards the development of the country.
BSE provides employment for many people. Trading in BSE is also a
business for a few, their family income depends on it that is the reason
why when scandals occur in the stock market it not only affects the
companies listed but also affects many families. In the few extreme cases,
it is observed that the bread winner of a family tends to suicide due to
the losses occurred.
In most of major industrial cities all over the world, where the businesses
were evolving and required investment capital to grow and thrive, stock
exchanges acted as the interface between Suppliers and Consumers of
capital. One of the key advantages of the stock exchanges is that they are
efficient medium for raising resources and channeling savings from the
general public by the way of issue of Equity / Debt Capital by joint stock
companies which are listed on stock exchanges.
Not to forget that the taxes and other statutory charges paid by BSE are
substantial and make a sizeable contribution to the Government
exchequer (Financial resources; funds). For example, transactions on the
stock exchanges are subject to stamp duties, which are paid to the State
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Government. The annual revenue from this source ranges from Rs 75
100 crores
With the opening up of the financial markets to Foreign Investors a
number of foreign institutional investors and brokers have established a
sizeable presence in Mumbai.

3 FUNCTIONS OF BSE
The Stock Market is a pivotal institution in the financial system. A
well-ordered stock market performs several economic functions: It
ensures the measure of safety and fair dealing

It performs an act of magic by translating short-term

investments into long-term funds for companies.

It directs the flow of capital in the most profitable

channels.

It

induces

companies

to

raise

their

standard

of

performance.

It offers guidance to management about the cost of

capital.

1. Measure of Safety and Fair Dealing:

The stock exchanges operate under a regulatory framework which
seeks to protect the interest of investors. The rules, regulations, and
bye-laws of a stock exchange, which are approved by the central
government, are meant to ensure that a reasonable measure of
safety is provided to investors and transactions take place in
competitive conditions which are fair to all concerned.
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2. Act of Magic:
Most of the investors are interested in short-term investments. The
requirements of companies are, however, long-term in naturethey
require equity capital on a more or less permanent basis and
debenture capital for 3 to 15 years. Thanks to the negotiability and
transferability of securities, through the stock market, it is possible
for companies to obtain their long-term requirements from investors
with short-term horizons. While one investor is substituted by
another when a security is transacted, the company is assured of
availability of funds.
3. Flow of Capital in the Most Profitable Channels:
Companies which have more profitable investment opportunities are
normally able to raise substantial funds through the stock market,
whereas companies which do not have such opportunities are
normally not able to do so. As a result, the stock market facilitates
the direction of the flow of capital in the most profitable channels.
4. Inducement to Companies to Raise their Standard of
Performance:
When the equity, capital of a company is listed on a stock exchange,
the performance of the company is reflected in the market price of
the equity stock, which is readily available for public consumption.
Put differently, the companys performance is more visible in the
eyes of public. Such a public exposure normally induces companies
to raise their standard of performance.
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5. Guidance of Cost of Capital:
The market value of the securities of company is required for
computing its cost of capital. Such values can be obtained from
stock market quotations. Hence the stock market offers guidance on
cost of capital.

4. OBJECTIVES OF BSE
1) To safeguard the interest of investing public having dealings on the
exchange.
2) To establish and promote honorable and just practices in securities
transactions.
3) To promote, develop and maintain well regulated market in securities.
4) To promote industrial development in the country through efficient
resource mobilization by the way of investment in corporate securities.

FEATURES OF SENSEX
1)
2)
3)
4)
5)
6)
7)

Sensex is a value weighted index

Composed of 30 stocks representing various sectors
These companies accounts for one fifth of market capitalization
Base value of sensex is 100 (april 1,1979)
Base year (1978-79)
Free float capitalization method
Iconic stature-tracked worldwide

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8) Index cooperation agreement with deutsche borse has made sensex
available to investors in europe and america
9) Also available in hong kong

INDICES OF BSE
Broad Market Indices
1) Sensex

2) Bse 100

3) Bse 200

4) Bse500

5) Bse Mid Cap

6) Bse Small Cap

Sectoral Indices
1) Bse Auto

2) Bankex

4) Consumerable Goods

5) Fmcg

3) Capital Goods
6)IT, Power

Dollar Linked Indices

1) Dollex30

2) Dollex100

CONSTITUENTS LIST OF BSE SENSEX

Bombay Stock Exchange has 30 companies scripted
1. BHEL
2. BHARTI AIRTEL
3. DLF UNIVERSAL Ltd.
4. GRASIM INDUSTRIES
5. HDFC
6. HDFC BANK
7. HERO HONDA MOTORS Ltd.
8. HINDALCO INDUSTRIES Ltd.
9. HLL
11.

ICICI BANK

12.

INFOSYS

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3) Dollex 20

FINACIAL MARKET (BSE)

13.

ITC Ltd.

14.

JAIPRAKASH ASSOCIATES

15.

L&T

16.

M&M Ltd.

17.

MARUTI UDYOG

18.

NTPC

19.

ONGC

20.

RELIANCE COMMUNICATION

21.

RELIANCE INDUSTRIES

22.

RELIANCE INFRASTRUCTURE

23.

SBI

24.

STERLITE INDUSTRIES

25.

SUN PHARMACEUTICAL INDUSTRIES

26.

TCS

27.

TATA MOTERS

28.

TATA STEEL

29.

TATA POWER

5. WHO SELECTS THE SCRIP

1. They are selected by the Index Committee.

2. This committee consists of all sorts of individuals including
academicians, mutual fund managers, finance journalists,
Independent governing board members and Other participants in
the financial markets.

SCRIP SELECTION CRITERIA

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Market capitalization: The company should have a market capitalization
in the Top 100market capitalizations of the BSE. Also the market
capitalization of each company should Be more than 0.5% of the total
market capitalization of the Index.

Trading frequency: The Company to be included should have been

traded on each and every trading day for the last one year. Exceptions
can be made for extreme reasons like share suspension etc.

Number of trades: The scrip should be among the top 150 companies
listed by average number of trades per day for the last one year.
Industry representation: The companies should be leaders in their
industry group.

Listed history: The companies should have a listing history of at least

one year on BSE.

Track record: In the opinion of the index committee, the company

should have an acceptable track record.

KINDS OF SHARES

Small Caps (small market Capitalization less lie in between

$300 million - $2billion),

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FINACIAL MARKET (BSE)

Large

Caps

(large

Capitalization

in

$200billion),
Mid Caps (lie in between Small & Large)

between

$10billion-

MARKET CAPITALIZATION

It is the worth of the company in terms of shares

Based on this market capitalization values onlycompanies are

classified into "large-cap", "mid-cap"and "small cap"

Market Capitalization = No. of outstanding shares
x Current market price of one share

IN CASE OF BONUS SHARES

Sensex will be based on some adjustment in the total market

capitalization
Total market capitalization (new) = Total market capitalization(old) x
[ New market capitalizationof stock / old market capitalization of
stock]

6. BENEFITS OF BSE
FROM THE POINT OF VIEW OF COMMUNITY:

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1. It assist the economic development by providing a body of interested
investors.
2. it uploads the position of superior enterprises and assist them in
raising further funds.
3. Government can undertake projects of national importance and social
value raising funds through the sale of its securities on the stock
exchange.
4. It is the stock exchanges that central bank of a country can control
credit by undertaking open market operations (purchase and sale of
security)

FROM THE COMPANY POINT OF VIEW:

1. A company whose shares quoted on stock exchange they enjoy better
reputation and credit.
2. The market for the shares of such a company is naturally widened.
3. The market price of securities is likely to be higher in relation to its
earnings, dividends and property values. This raises the bargaining
power of

the company in the

event

of a

takeover,

merger or

amalgamation.

FROM THE INVESTORS POINT OF VIEW:

1. Liquidity of the investment is increased
2.The securities dealt on a stock exchange are good
collateral security for loans.
3. The stock exchange safeguards interests of investors through strict
enforcement of rules and regulations.

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4. The present net worth of investments can be easily known by the daily
quotations.

7. FACTORS AFFECTING BSE

There are various factors that affect BSE:
(a)

THE KETAN PAREKH SCAM

Ketan Parekh was a graduate from HR College and CA by profession.

Ketan Parekhs scam was often referred to as the one-man army or
Pentafour Bull. The 176-point Sensex crash on March 1, 2001 came as a
major shock for the Government of India, the stock markets and the
investors alike
This sudden crash in the stock markets prompted the Securities
Exchange Board of India (SEBI) to launch immediate investigations into
the volatility of stock markets.
The scam shook the investor's confidence in the overall functioning of the
stock markets. By the end of March 2001, at least eight people were
reported to have committed suicide and hundreds of investors were
driven to the brink of bankruptcy.
The first arrest in the scam was of the noted bull, Ketan Parekh (KP), on
March 30, 2001, by the Central Bureau of Investigation (CBI). Soon,
reports abounded as to how KP had single handedly caused one of the
biggest scams in the history of Indian financial markets. He was charged
with defrauding Bank of India (BoI) of about $30 million among other
charges.

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

FII has lead a significant improvement in India relating to the flow of

foreign capital during the period of post economic reforms. The
inflow of FII investments has helped the stock market to raise at a
greater height according to financial analysts. Sensex touched a new
height. It crossed 10000-mark in January 2006, which was 8073 on
November 2, 2005, and 9323 in December 2005.FII participation in
the Indian stock market triggers its upward movement, but, at the
same time, increased liquidity through FII investment inflow
increases volatility too.
FIIs IMPACT ON THE INDIAN ECONOMY.
The Ashok Lahiri Committee Report on encouraging FII Flows (Ministry
of Finance, the Government of India) mentions some reasons for the need
of FII flows. FII flows supplement and augment domestic savings and
domestic investment without increasing the foreign debt of our country.
Capital inflows to the equity market increase stock prices lower the cost
of equity capital and encourage investment by Indian firms.
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The Indian stock markets are both shallow and narrow and the
movement of stocks depends on limited number of stocks. As FIIs
purchases and sells these stocks there is a high degree of volatility in the
stock markets. If any set of development encourages outflow of capital
that will increase the vulnerability of the situation. The high degree of
volatility can be attributed to the following reasons:

The increase in investment by FIIs increases stock indices in turn

increases the stock prices and encourages further investments. In
this event when any correction takes place the stock prices
declines and there will be full out by the FIIs in large number as

earning per share declines.

The FIIs manipulate the situation of boom in such a manner that
they wait till the index raises up to a certain height and exit at an
appropriate time. This tendency increases the volatility further.

So even though the portfolio investment by FIIs increases the flow of

money in the economic system, it may create problems of inflation.

CAUSES OF PRICE FLUCTUATION:

1. DEMAND AND SUPPLY
2. BANK RATE
3. SPECULATIVE PRESSURE
4. ACTIONS

OF

UNDERWRITERS

AND

OTHER

INSTITUTIONS
5. CHANGE IN COMPANYS BOARD OF DIRECTORS
6. FINANCIAL POSITION OF THE COMPANY
7. TRADE CYCLE
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FINANCIAL

FINACIAL MARKET (BSE)

8. POLITICAL FACTORS
9. SYMPATHETIC FLUCTUATIONS
10.

OTHER FACTORS:
i) EXPECTED MONSOON
ii) PERSONAL HEALTH OF HEAD OF GOVERNMENT OR
CHAIRMAN OF THE COMPANY
iii) OIL PRICES IN THE INTERNATIONAL MARKET.
iv) CHANGES IN EXCHANGE RATE
v) BORDER TENSION
vi) STOCK BROKERS SCAM LIKE HARSHAD MEHTA AND
KETHAN PAREKH
vii)STRIKES AND LOCK-OUT OF THE COMPANY.

viii)

NEW BUDGET PROPOSALS

ix) LIBERLIZATION AND PRIVATIZATION OF THE COMPANY.

8. SPECULATION:

It involves the buying, holding, selling, short-term selling of stocks,

bonds, commodities, currencies, collectible or any valuable financial
instrument to profit from fluctuations in its price as opposed to
buying it for use or for income via method like dividends or interest.

Kinds of speculation

Bull Market (Tejiwala):

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In case of that they purchase the shares at current prices to sell at a
higher price in the near future and makes a profit if his expectations
come true. He is also called a long buyer.

Bear Market (Mandiwala):

He sells security in the hope that he will be able to buy them back at
lesser price. It is also called short selling.

Stag:
He is that type of speculator who applies for a large number of shares
in a new issue with the intention of selling them at a premium. He is
bullish and very cautious.

HIGHS AND LOWS OF BSE

15,000, July 6, 2007 The Sensex on July 6,2007 crossed the magical
figure of 15,000 to touch 15,005 points in afternoon trade. It took seven
months for the Sensex to move from 14,000 to 15,000 points.
16,000, September 19, 2007 The Sense scaled yet another milestone
during early morning trade on September 19, 2007.Within minutes after
trading began, the Sensex crossed 16,000, rising by 450 points from the
previous close. The 30-share Bombay Stock Exchange's sensitive index
took 53 days to reach 16,000 from 15,000

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17,000, September 26, 2007 The Sensex scaled yet another height
during early morning trade on September 26, 2007.Within minutes after
trading began, the Sensex crossed the 17,000-mark .
18,000, October 09, 2007 The BSE Sensex crossed the 18,000-mark on
October 09, 2007. It took just 8 days to cross 18,000 points from the
17,000 mark. The market set several new records including the biggest
single day gain of 789 points at close, as well as the largest intra-day
gains of 993.
21,000, January 8, 2008 The sensex peaks. It crossed the 21,000 mark
in intraday trading after 49 trading sessions. However, it later fell back
due to profit booking.
15,200, June 13, 2008 The sensex closed below 15,200 mark, Indian
market suffer with major downfall from January 21,2008
14,220, June 25, 2008 The sensex touched an intraday low of 13,731
during the early trades, then pulled back and ended up at 14,220 amidst
a negative sentiment.

12,822, July 2, 2008 The sensex hit an intraday low of 12,822.70 on

July 2nd, 2008.This is the lowest that it has ever been in the past year.
Six months ago, on January 10th, 2008, the market had hit an all time
high of
21206.70. This is a bad time for the Indian markets, although Reliance
and Infosys continue to lead the way with mostly positive results.
11801.70, Oct 6, 2008 The sensex closed at 11801.70 hitting the lowest
in the past 2years.

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10527, Oct 10, 2008 The Sensex today closed at 10527,800.51 points
down.
14284.21, May 18, 2009 After the result of15th Indian general election
Sensex gained 2110.79 points from the previous close of 12173.42 these
creates a new history in Indian Market. In the Opening Trade itself
sensex gains 15% from the previous day close this leads to the
suspension of 2 hours trade. After 2 hours sensex again surged this
leads to the suspension of full day trading.
Sensex falls
Some major single-day falls of the Sensex have occurred on the following
dates
January 21, 2008 --- 1,408.35 points
Oct 24, 2008---1070.63 points
March 17, 2008 --- 951.03 points
July 6, 2009 --- 870 points
January 22, 2008 --- 857 points
February 11, 2008 --- 833.98 points
May 18, 2006 --- 826 points
October 10,2008 --- 800.10 points

9. PROBLEMS OF PRIMARY AND

SECONDARY MARKET
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Recommendations &problem of capital market

problem of new issue market

Problem of secondary market
Suggestions and recommendations

IT IS ten years since the Securities and Exchange Board of India (SEBI)
started to put in place the regulatory framework for the capital market.

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FINACIAL MARKET (BSE)

And investors have certainly benefited from the availability of more
information and a contemporary secondary market structure.
SEBI began to put in place regulations a decade ago, starting with its
Guidelines for Disclosure and Investor Protection (primary markets) in
1992. A fairly broad-based regulatory framework is now in place, though,
going forward, SEBI has to make the market a friendlier place for
investors by plugging the gaps in its performance, especially in the
following areas:
Enhancing disclosures
Despite a plethora of disclosure requirements, there are still key areas
where investors get precious little information of value. This mainly
relates to big-ticket corporate action, such as mergers, de-mergers,
acquisitions, asset sell-offs, takeovers and inter-corporate investments. In
each of these areas, no doubt, the minimum information requiredunder
the Companies Act is made available.
The disclosure level varies from one instance to another, though a lot of
information is made available on the financials and the synergies of a
merger. But the manner in which the swap ratio is fixed and what the
management thinks of the same is largely taken for granted.
The valuation of the two companies and the swap ratio are key aspects in
any merger. No doubt, valuation reports are made available for
inspection, but access is not easy for all investors. A comprehensive and
mandated list of disclosures, like the one that accompanies an IPO or a
rights offer, should be made available to all shareholders.
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Aspects such as risks from these actions, mode of deployment of
resources, the benefits, reasons for such action and management
perception of the issues involved, can form part of such a disclosure list.
SEBI has much to do to make its existing disclosure requirements work
better. This can be done only by making all disclosures available freely to
every one. Take, for instance, mutual funds. Trustee and asset
management companies are required to file monthly/quarterly reports
with SEBI. These must be available on the Internet.
Only public scrutiny and comment can improve the level of disclosures
mandated by SEBI. While this is not a job that SEBI can do on its own,
due partly to resource constraints and also because of the varying types
of expertise needed, it has made a small beginning with its Web site
http://www.edifar.nic.in/ and must make sure as much information as
possible is pumped in through this Web site.
Quality of decisions
The effectiveness of any regulatory body is judged by the quality of
implementation, in general, and the rate of convictions achieved in cases
where there are violations.
What is worrying is the poor rate of conviction in major cases. Virtually
every SEBI decision involving major cases such as Sterlite, BPL,
Videocon, Anand Rathi and Associates and Hindustan Lever has been
overturned by the appeals process (or the Securities Appellate Tribunal).

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This hardly sends the right signals about SEBI's penal actions when
regulations are violated. There is clearly something seriously amiss if the
SAT can overturn SEBI orders by pointing to lacunae on almost every
possible ground ranging from the merely technical aspects to
substantive issues involving the regulator's subjective judgment.
This is what happened in the Sterlite, BPL and Videocon cases (they were
barred from capital market access for their role in price manipulation in
1998). . Quite clearly, the quality of SEBI's investigative work has to
improve considerably so that penal actions stick.
Take a larger view
There are quite a few instances where shareholders have suffered due to
specific corporate actions. Whenever an issue of this kind has come up, ,
SEBI has generally shied away from taking up the cudgels (unless
nudged by some extraneous pressure) on behalf of the investors to
ensure that they get a fair deal.
In some of the global development-triggered `changes in control', SEBI's
actions have been mixed . In some cases, such as Castrol, it has acted
with alacrity and ordered open offers. But in quite a few others, its
stance has virtually enabled elaborate structures to be created that
helped avoid open offers or its actions have come rather late in the day
Color Chem-Clariant, for example imposing unfair costs on acquirers
and shareholders.
There have been a quite a few decisions on whether open offers are
triggered by global developments or not, both by SEBI and/or by SAT.
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But no parameters have been laid down so far and eachissue is handled
on a case-by-case basis.
When it comes todomestic acquisitions, SEBI's interpretation of `change
in control' is questionable. When Gujarat Ambuja picked up the entire
14.4 per cent of the Tatas in ACC, it was clear that effective control had
passed. But SEBI offered no view and, only when directed by the court,
took the stance that there was `no change in control' on technical
grounds. In such situations, SEBI has to come out and clearly say why it
thinks there is change in control or not. The absence of a convincing
rationale only creates precedents that can be used by others, as
happened with Grasim-L & T.
Every time there is a major corporate action, SEBI should proactively
examine if there are issues of a contentious nature. In most major cases
SEBI has tended to take up matters only when there is a referral from a
court or investor forum or the government (like in the UTI's assured
return schemes).
Accounting, audit quality
SEBI can now act proactively on the issue of accounting and auditing
quality. In several recent instances in the US, such as Enron, WorldCom,
Global Crossing, Merck, to name a few, companies put out blatantly false
numbers and auditors went along with this charade.
In India, hundreds of companies came out with IPOs and vanished
subsequently, and in many companies, accounting and audit information
has proved to be of poor quality and unreliable. This is where SEBI can
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step in and work with the government to have special audits done of the
top 100 or 200 firms that account for more than 90 per cent of market
capitalization and trading.
There is no reason to assume that everything is hunky-dory on the
accounting-auditing front in Indian companies. Just look at the problems
in the finance sector the likes of IFCI, IDBI, UTI and Centurion Bank,
to name a few and one cannot help feeling there may be problems
elsewhere too.
The plethora of inter-corporate investments, intra-company and intragroup transactions, guarantees and contingent liabilities are areas where
there is room for considerable concern.
A one-time special audit, efforts to ensure that audit assignments are
rotated at three- or five-year intervals and fast-tracking the process of
accounting standards with relevant authorities are actions that SEBI can
pursue before a crisis breaks out on this front.

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Perhaps the most significant change in the market in the last decade is
the complete transformation of the trading, clearing and settlement
infrastructure. From a market burdened with heavy problems of paper
and an opaque trading structure (where brokers and sub-brokers ruled
the roost), there has been a dramatic transformation to a paperless
market and transparent trading system.
The last six months or so, all trades on the National Stock Exchange are
settled in demat (paperless mode). Full marks to SEBI.
No doubt, the process of electronic trading was set off by the NSE, but
SEBI too moved rapidly to force other exchanges, especially the Bombay
Stock Exchange, to adopt contemporary trading systems.
By also moving towards rolling settlement (albeit after a considerable and
unnecessary delay), cutting the settlement cycle and now going forward
towards a T+1 settlement system, SEBI has made the markets much
safer for investors. But when it comes to addressing price manipulation,
the story is different.
Price manipulation no dent: One area where SEBI has barely made
any difference is in the manipulation of stock prices ahead of key
corporate actions and even at other times when operator driven activity
is rampant. The most recent instance was the manner in which all Ketan
Parekh favoured stocks, such as Himachal Futuristic, Global TeleSystems, SSI, Silverline, surged, recording heavy trading volumes.

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But one was left completely in the dark on what was behind the sudden
spurt in interest in these stocks and the rise in prices (even if not of the
1999-2000 kind). This was the kind of situation where SEBI should have
stepped in proactively and told investors what was going in. This would
do much more for investors than the mundane investor education
programmes talked about often.
Price manipulation, informed trading and insider trading with key
operators/investors is now routine. This is an area that is difficult to
tackle for any regulator. But over the last ten years, SEBI has taken
action on such price manipulation in just two cases (Bayer ABS and
Amara Raja Batteries). Here, too, the penal action has hardly been
stringent.
Act on corporate actions: Perhaps as a matter of routine, SEBI should
take up all cases of corporate action and subject them to scrutiny for
share price behaviour ahead of and after the action.
Trading action is generally confined to a small list of 150 stocks, on
which SEBI can focus its attention. It can also draw up a list of another
150 stocks of companies with reasonable standing but poor liquidity, for
tracking. At the end of the day, SEBI's effectiveness will be enhanced
only if it can make a dent in this crucial area. Else, the larger body of
shareholders will be shortchanged by such price manipulation.
Suggestions and Recommendations
India does not have a legacy of employer provided pensions. The OASIS
report is right in making the proposed pension system completely
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portable and independent of employers. India does not also have a legacy
of social security, and does not have to contend with the nightmare of
politically determined defined-benefit plans. The OASIS report is right in
keeping its proposals for pension funds totally on a defined-contribution
basis and providing market determined rates of return. The OASIS report
is also right in eschewing any attempt to use the pension fund assets as
a pool of funds for financing infrastructure or any other socially useful
purpose other than on the basis of a competitive risk-return tradeoff
decided by the fund manager. The broad framework of the OASIS
Committee report therefore has much to be commended.
However, it attempts to create a class of financial intermediaries to
manage pensions which are isolated from other financial institutions. In
any economy, there are institutions like mutual funds and insurance
companies that provide services that have similarities to what the
pension funds would offer. By keeping them as distinct entities, regulated
by a new regulator different from either the capital market regulator
(SEBI) or the insurance regulator (IRDA), the OASIS proposals would
perhaps impede the full play of scale and scope economies and restrict
the pace of financial innovation. Investors would probably have more
choice if pension products were fully integrated into the panoply of
financial products available in the economy. The financial sector would
also be more efficient and vibrant if that were done.
In this context, this paper argues that pension fund reforms should be
placed in the broader context of capital market development aimed at
providing investors with a range of choices on risk, liquidity and
maturity. It must be recognized that investors save for life cycle reasons
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as well as for shorter term income smoothing and for hedging human
capital. Since there are no watertight compartments between these
various investment needs, artificial barriers between different types of
financial products and services do not serve investor interests.

10. CONCLUSION
With the increasing Globalization, the Stock Exchanges have
tremendously affected the financial conditions of India.
The stock markets of the future will have a redefined pupose and
reinvented architecture due to the advent and widespread

use of

technology. Information and stock price quotations are available

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

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