A PRESENTATION

ONINDIAN CAPITAL MARKET

REFORMS

PREPARED BY :-SEM SHAIKH

THE M.S. UNIVRSITY OF BARODA

MASTER OF COMMERCEFACULTY OF POST GRADUATE

Why Capital Markets ExistCapital markets facilitate the transfer

of capital (i.e. financial) assets from one owner to another.

They provide liquidity.◦Liquidity refers to how easily an

asset can be transferred without loss of value.

A side benefit of capital markets is that the transaction price provides a measure of the value of the asset.

Growth of Capital Markets in India• Origins of trading- East India company• Post independence- Capital issues

control act • Only nationalized companies allowed to

raise capital• The securities contract regulation ACT

1956• Only stock exchanges recognized

by the government of India permitted to function

• Foreign exchange regulations ACT 1973

Historically Speaking• Started in 1850 in front of Town-Hall in

Bombay currently known as Horniman circle

• Formed in 1875 as Bombay Stock Exchange

• In 1986 launched its first stock index named ‘SENSEX’ with base year 1978-79

• Non-profit association & evolved as the premier stock exchange

• Oldest stock exchange of Asia• Accounts for 75% of listed capital & 75%

of shares in terms of market capitalization

• Its turnover is 1/3rd of the total turnover in securities in India

Role of Capital MarketsMobilization of Savings & acceleration

of Capital FormationPromotion of Industrial GrowthRaising of long term CapitalReady & Continuous MarketsProper Channelization of Funds Provision of a variety of Services

Functions of a capital market Disseminate information efficiently

Enable quick valuation of financial instruments –both equity and debt

Provide insurance against market risk or price risk

Enable wider participation Provide operational efficiency through -simplified transaction procedure - lowering settlement timings and - lowering transaction costs

Factors contributing to growth of Indian Capital

Market • Establishment of Development banks &

Industrial financial institution.• Legislative measures• Growing public confidence • Increasing awareness of investment

opportunities • Growth of underwriting business• Setting up of SEBI• Mutual Funds • Credit Rating Agencies

Indian Capital markets - Chronology

1994-Equity Trading commences on NSE1995-All Trading goes Electronic1996- Depository comes in to existence1999- FIIs Participation- Globalisation2000- over 80% trades in Demat form2001- Major Stocks move to Rolling Sett2003- T+2 settlements in all stocks2003 - Demutualisation of Exchanges

Capital Markets - ReformsEach scam has brought in reforms - 1992 /

2001Screen based Trading through NSECapital adequacy norms stipulatedDematerialization of Shares - risks of

fraudulent paper eliminatedEntry of Foreign InvestorsInvestor awareness programsRolling settlementsInter-action between banking and exchanges

CAPITAL MARKET REFORMS IN INDIA

• The 1990s have witnessed the emergence of the securities market as a major source of finance for trade and industry in India.

• A growing number of companies have been accessing the securities market rather than depending on loans from financial institutions / banks.

• The corporate sector is increasingly depending on external sources for meeting its funding requirements.

Companies free to raise funds from securities markets after filing prospectus with SEBI

SEBI introduces regulation for primary & other secondary market intermediaries

Listed Co’s to furnish annual statement to the exchanges

Book Building introduced for institutional investors

SEBI introduces regulations governing substantial acquisition of shares and takeovers.

NSE establishment as a stock exchange with national wide electronic trading

BSE introduces screen based trading

Capital adequacy requirement for brokers

System of mark to market margins introduced

Stock Lending schemes introduced

NSCCL setup by NSE

SEBI strengthen surveillance mechanisms and have a separate surveillance departments with all stock exchanges

Depositories act introduces for Electronic transfer of shares.

Permission to access in international capital markets by Indian companies through Euro issues

FDI allowed in stock broking ,AMC’s, Merchant Bankers , NBFC’s.

FII’s allowed to access Indian capital markets on registration with SEBI

Reforms / Initiatives post 2000

Corporatization of exchange memberships

Banning of Badla / ALBM Introduction of Derivative products -

Index / Stock Futures & OptionsReforms/Changes in the margining

systemSTP - electronic contractsMargin LendingSecurities Lending

MARKET STRUCTURE (JULY 31, 2005)

22 Stock Exchanges, Over 10000 Electronic Terminals at over

400 locations all over India. 9108 Stock Brokers and 14582 Sub

brokers 9644 Listed Companies 2 Depositories and 483 Depository

Participants 128 Merchant Bankers, 59 Underwriters 34 Debenture Trustees, 96 Portfolio

Managers 83 Registrars & Transfer Agents, 59

Bankers to Issue 4 Credit Rating Agencies

Reforms Undertaken in BSE• January 2000: rolling settlement

system (T+5 system)–Started with 10 scrips–Later 153 were brought under

• January 2001: BLESS was introduced• July 2001: badla was wholly replaced

by rolling settlement system• January 2002: all the shares in BSE

were brought under this scheme

BSE Post Reforms• Badla and BLESS were banned• Short selling banned from March

2001 to July 2001• 20% circuit filter for stocks in

rolling settlement• Index based filter (10%, 15%,

20%)• Introduction of margin trading in

September 2001