Stock Exchange

Stock exchange

Securitisation Masterclass Sept 20061

Stock Exchange :

Stock exchange is defined as “ A centralised market for buying and

selling stocks, where the price is determined through supply and demand mechanisms”


Stock exchange is any body of individuals which is constituted for the purpose of

Assisting Regulating Controlling the business of buying and selling of securities.


Functions of Stock Exchange

• Motivates individual to save and invest funds. • A safe and productive channels for investment of

savings.• Provides liquidity to the savings of the investors,

by developing a secondary capital market.• Meeting the large capital needs of organized

industry, trade and business. • Stock exchange play the role of a Barometer.

FUNCTIONS

It provides a trading place for securities. Listing of securities Distribution of new securities. Mobilization of savings. Flow of capital to profitable ventures. Economic barometer. Capital formation. Motivating for improved performance.

Players in secondary marketClient brokers Floor brokers Jobbers Badla financiers Arbitragers Bulls Bears Stags Wolves Lame ducks Brokers FII’S Merchant bankers Custodians

by Jagannath and Santosh (R.N.S.I.T coll)

• Jobber : A jobber is a professional independent broker

who deals in securities on his own behalf, he purchases and sells securities in his own name.

His main job is to earn a profit due to price variations of securities.

He is professional broker who carefully judges the worth of securities and makes a good forecast of their future price movements.


CHARACTERISTICS OF JOBBERS

He is an independent dealer in securities.

He is dealer only with the brokers but not with general public.

He is always ready to buy or sell securities

He acts as a speculator.

Tarawaniwalas :

Tarawaniwalas is an active member of Bombay stock exchange, he is similar to jobber.

He can acts as both as a broker or jobber.

Brokers : He buys and sells a securities on behalf of his

clients for a commission.


Sub-Broker : A sub-broker is an agent of stock

broker, he helps the clients to buy and sell securities only through the broker.

Authorised clerks : Authorised clerks is one who is appointed by

a stock broker to assist him in the business of securities trading.

As per the rules of the stock exchange, each broker can employ a specified number of authorised clerks to transact the securities trading business also called as “Assistant members”


Client Brokers : These brokers do simple brokering

business by acting as intermediaries between the buyers and sellers and earn a commission for their services.

Floor Brokers : Floor brokers refers to those authorised

clerks and brokers who enter the trading floor and execute orders for their clients


Badla Financiers :

Badla financiers are those members whose main function is to give finance for carry forward deals in specified securities in return for interest.

• This interest rate is called Badla rate.• They also lend securities to brokers who have

oversold at the time of settlement.


Arbitragers :

Arbitragers are those who buy securities in one market at low prices and sell them in another market at an higher prices to take advantage on the price differences prevailing in different markets.


Types of Speculators :

Bull

A bull is a speculator who indulges in speculative buying activity with the expectation that there will be a rise in the price of certain security in the future.

http://pratikshah.files.wordpress.com/2010/12/bse-sensex-bull.j

Bear

Bear is a speculator who indulges in speculative selling activity with the expectation that will be a fall in the price of certain security in the future

Bull and Bear :


Lame ducks

• A lame duck is a bear speculator who has contracted to sell certain security on a certain date at a price , but finds it difficult to meet his commitment on the settlement days , as the concerned security is not available in the a market and the other party is not agreeable to the postponement or carry over of the transaction.

• Bear brokers who sell ultimately short by making wrong moves, hence they lose in the market.

stag

A stag is a speculator who applies for a large number of shares in a new issue with the expectation of selling them to the public immediately after allotment at a premium and making profit.

Wolves : These are the brokers who are fast

speculators called wolves.• These brokers are very quick to perceive

changes in the trends in the market.• They are not generally caught in the

wrong foot.


Method of trading in a stock exchange :

• Choice of a broker • Placement of order• Execution of orders • Preparation of contract notes • Settlement of transactions


1. Choice of a Broker

• Investors who want to buy or sell his securities, he need to transact only through the brokers.

• They can also appoint Banker for this transaction, Bankers can also become a member of stock exchange.


2. Placement of order :

• The next step is placing an order by telegram, telephone, letter, fax, in recent days through online.

• Order is placed in abbreviations are : At Best order Limit order Immediate or cancel order Discretionary order Open order


• At best order : It is an order which does not specify any

specific price, it is executed immediately at the best possible price.

Eg ; The investor may place a order like this “ Buy 50 Reliance@ Best”• Limit order : It is an order for the purchase or sell of

securities at a fixed price specified by the investor.

Eg : “Sell 200 HCL @ Rs. 76”


• Immediate or cancel order : It is an order for the purchase or

sell of securities immediately at the quoted prices.

If the order could not be executed at the quoted prices immediately, it should be treated as cancelled.


Discretionary order :

It is an order to buy or sell shares at whatever price the broker thinks reasonable. This is possible only when the investor has complete faith on the broker.

Limited discretionary order : Traded at a specified price range or within

the given time period as per the best judgement of the broker.


Stop loss order :

It is an order to sell as soon as the price falls

up to a particular level or to buy when the price rises up to a specified level.

This is mainly to protect the investors against a heavy fall or rise in prices.


3. Execution of orders :

orders are executed in the trading ring of a stock exchange, if the buyer order matches with the seller order then the order is executed.

The floor of the stock exchange is divided into number of markets according to the nature of the security is called pits.


4. Preparation of contract note :• Once the order is executed and all the

transaction are recorded and make ready of contract note and delivered to respective investors.

• A contract note is a written agreement between the broker and the investor for the transactions executed and contains the details like

Purchase/Sale of securities Name of the company Number of shares bought/sold and price Brokerage commission


5. Settlement of transactions :

Finally the settlement is made by delivering the shares certificates along with the transfer deed.

• The transfer deed is duly signed by the transferor that is seller.

• It bears the stamp of the selling broker • The buyer then fills up the particulars in the

transfer deed.


Settlement can be made from the following methods are :

• Spot delivery settlement The delivery of securities and the payment

is made on the contract day itself.• Hand delivery settlement With in the time stipulated in the

agreement or 14 days from the contract date.• Clearing settlement Under this method, the delivery of

securities and payments are cleared through the clearing house.

• Special delivery settlementSecuritisation Masterclass Sept 2006

30

Online Trading


The information technology brought out revolutionary changes in the operations of stock exchanges in India.

The traditional method was time consuming and inefficient. To overcome this NSE has introduced a nation wide online fully automated Screen Based Trading System (SBTS).

All other stock exchanges also this technology online trading.

Online trading :

Trading Network Satellite


Satellite

NW 2

P1 p2 p3

NW 1

P1 p2 p3NSE

Main Frame Computer

Benefits of Online Trading :

• Faster Trading • Accessible to all• Widening the market• Saving of time and cost• Fully transparent• No errors and frauds



Stock ExchangesIn India

BombayStock

Exchange(BSE)

NationalStock

Exchange(NSE)

RegionalStock

Exchanges

Bombay Stock Exchange

The stock exchange, Bombay, popularly known as “BSE” was established in 1887 as “The Native Share and Stock Brokers Association”. It is the oldest one in Asia.


Type Stock Exchange

Location Mumbai, India

OwnerBombay/Mumbai Stock Exchange Limited

Key people Mahesh L. Soneji

Currency INR

No. of listings 4,700

Market Cap US$ 1.79 trillion

Indexes BSE Sensex

Website www.bseindia.com



http://en.wikipedia.org/wiki/File:NSE_Logo.png

National Stock Exchange :

Type Stock Exchange

Location Mumbai, India

OwnerNational Stock Exchange of India Limited

Key peopleMr. Ravi Narain Managing Director

Currency INR

No. of l istings 1587

IndexesS&P CNX NiftyCNX Nifty JuniorS&P CNX 500

Website www.nse-india.com


Bombay Stock Exchange : In 1860, the exchange flourished with 60 brokers.

At the end of the war in 1874, the market found a place in a street (now called Dalal Street).

In 1887, "Native Share and Stock Brokers' Association" was established.

In 1895, the exchange acquired a premise in the street which was inaugurated in 1899.


LONDON INTERNATIONAL STOCK EXCHANGE

FRANKFURT STOCK EXCHANGE

TOKYO STOCK EXCHANGE

PARIS BOURSE

ISTANBUL STOCK EXCHANGE

Education

Stock Exchange