Indian Capital Market Reforms

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<p>A PRESENTATION ON INDIAN CAPITAL MARKET REFORMS</p> <p>A PRESENTATION ONINDIAN CAPITAL MARKET REFORMS </p> <p>PREPARED BY :-SEM SHAIKHTHE M.S. UNIVRSITY OF BARODAMASTER OF COMMERCEFACULTY OF POST GRADUATE</p> <p>Why Capital Markets Exist</p> <p>Capital markets facilitate the transfer of capital (i.e. financial) assets from one owner to another.</p> <p>They provide liquidity.Liquidity refers to how easily an asset can be transferred without loss of value.</p> <p>A side benefit of capital markets is that the transaction price provides a measure of the value of the asset.</p> <p>Growth of Capital Markets in India</p> <p>Origins of trading- East India companyPost independence- Capital issues control act Only nationalized companies allowed to raise capitalThe securities contract regulation ACT 1956Only stock exchanges recognized by the government of India permitted to functionForeign exchange regulations ACT 1973</p> <p>Historically Speaking</p> <p>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 &amp; evolved as the premier stock exchange Oldest stock exchange of Asia Accounts for 75% of listed capital &amp; 75% of shares in terms of market capitalization Its turnover is 1/3rd of the total turnover in securities in India</p> <p>Role of Capital Markets</p> <p>Mobilization of Savings &amp; acceleration of Capital FormationPromotion of Industrial GrowthRaising of long term CapitalReady &amp; Continuous MarketsProper Channelization of Funds Provision of a variety of Services</p> <p>Functions of a capital market</p> <p>Disseminate information efficientlyEnable quick valuation of financial instruments both equity and debtProvide insurance against market risk or price risk Enable wider participation Provide operational efficiency through -simplified transaction procedure - lowering settlement timings and - lowering transaction costs</p> <p>Factors contributing to growth of Indian Capital Market </p> <p>Establishment of Development banks &amp; Industrial financial institution.Legislative measuresGrowing public confidence Increasing awareness of investment opportunities Growth of underwriting businessSetting up of SEBIMutual Funds Credit Rating Agencies </p> <p>Indian Capital markets - Chronology</p> <p>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</p> <p>Capital Markets - Reforms</p> <p>Each 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</p> <p>CAPITAL MARKET REFORMS IN INDIA </p> <p>The 1990s have witnessed the emergence of the securities market as a major source of finance for trade and industry in India.</p> <p> A growing number of companies have been accessing the securities market rather than depending on loans from financial institutions / banks. </p> <p>The corporate sector is increasingly depending on external sources for meeting its funding requirements.</p> <p>Companies free to raise funds from securities markets after filing prospectus with SEBI</p> <p>SEBI introduces regulation for primary &amp; other secondary market intermediaries </p> <p>Listed Cos to furnish annual statement to the exchanges</p> <p>Book Building introduced for institutional investors</p> <p>SEBI introduces regulations governing substantial acquisition of shares and takeovers.</p> <p>NSE establishment as a stock exchange with national wide electronic trading</p> <p>BSE introduces screen based trading</p> <p>Capital adequacy requirement for brokers</p> <p>System of mark to market margins introduced</p> <p>Stock Lending schemes introduced</p> <p>NSCCL setup by NSE</p> <p>12</p> <p>SEBI strengthen surveillance mechanisms and have a separate surveillance departments with all stock exchanges</p> <p>Depositories act introduces for Electronic transfer of shares.</p> <p>Permission to access in international capital markets by Indian companies through Euro issues</p> <p>FDI allowed in stock broking ,AMCs, Merchant Bankers , NBFCs.</p> <p>FIIs allowed to access Indian capital markets on registration with SEBI</p> <p>Reforms / Initiatives post 2000</p> <p>Corporatization of exchange membershipsBanning of Badla / ALBM Introduction of Derivative products - Index / Stock Futures &amp; OptionsReforms/Changes in the margining systemSTP - electronic contractsMargin LendingSecurities Lending</p> <p>MARKET STRUCTURE (JULY 31, 2005)</p> <p> 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 &amp; Transfer Agents, 59 Bankers to Issue 4 Credit Rating Agencies</p> <p>15</p> <p>Reforms Undertaken in BSE</p> <p>January 2000: rolling settlement system (T+5 system)Started with 10 scripsLater 153 were brought underJanuary 2001: BLESS was introducedJuly 2001: badla was wholly replaced by rolling settlement systemJanuary 2002: all the shares in BSE were brought under this scheme</p> <p>BSE Post Reforms</p> <p>Badla and BLESS were bannedShort selling banned from March 2001 to July 200120% circuit filter for stocks in rolling settlementIndex based filter (10%, 15%, 20%)Introduction of margin trading in September 2001</p>