FINANCIAL MARKET OPERATIONS

[Link] III

UNIT-II

SYLLABUS:- Capital Market: Security market (a) New issue market (b) Secondary market;

Functions and role of stock exchange; listing procedure and legal requirements; Public issue pricing and
marketing; Stock exchanges National Stock Exchange, Bombay stock exchange

 MEANING OF CAPITAL MARKET

Capital Market refers to that part of the broader financial market which provides a market for borrowing and
lending of medium and long-term funds, above 1 year. Thus, it caters to the borrowing needs for medium to
long term projects and investments.

Because of the long maturity period, the Capital Market facilitates the mobilization and allocation of long-term
funds.

– Financial Market is a broad term, referring to any center or arrangement where buyers and sellers participate
in the trade of financial claims such as equities, bonds, currencies, and derivatives.
– The Financial Market is classified into two categories.
A. Money Market – Market for trading short-term financial assets with a maturity of upto 1 year
B. Capital Market – Market for borrowing and lending of medium and long-term funds, above 1 year.

 CAPITAL MARKET INSTRUMENTS

Capital Market Instruments or the Instruments of Capital Market refer to various types of financial tools used
within the market. They include financial securities and derivatives that serve as mediums and facilitate the
flow of money among the participants of the capital market.

Various capital market instruments can be, broadly, classified into the following types:

 Share or Stock
 Debt Instruments
 Derivatives
 Mutual Funds
 Exchange Traded Funds (ETFs)
 Instruments of Foreign Investments

Each type of capital market instrument has been discussed in detail in our article Instruments of Capital Market.

Capital Market Infrastructure

Capital Market Infrastructure refers to the institutions that facilitate the smooth operation of the market. These
institutions play a crucial role in connecting various participants and ensuring their regulated interactions for
trading through instruments available in the market.

Major types of institutions forming part of the capital market infrastructure are as follows:

 Stock Exchanges: Stock exchanges are essentially marketplaces for buying and selling financial
instruments. They act as a central platform where investors and companies connect.
o Various concepts regarding Stock Exchanges have been dealt with in detail below.
 Regulatory Bodies: These organizations ensure fair and transparent practices within the market. Major
regulators involved in regulation of Capital Market in India are:
o Securities and Exchange Board of India (SEBI)
o Reserve Bank of India (RBI)
o Union Ministry of Corporate Affairs, and
o Department of Economic Affairs, Union Ministry of Finance.
 Financial Intermediaries: These institutions connect investors with those seeking capital.
o Brokers, investment banks, and underwriters are some examples.

 TYPES OF CAPITAL MARKET

Based on the type of securities traded, the Capital Market is of 2 types:

1) Primary Market or New Issue Market

 The Primary Market is the type of Capital Market where new securities are issued for the first time.
o Thus, it is also called the New Issue Market.
 The primary market provides the channel for the sale of new securities. The issuer of securities sells the
securities in the primary market to raise funds for investment and/or to discharge.
o In other words, the market wherein resources are mobilized by companies through the issue of
new securities is called the primary market.

2) Secondary Market or Old Issue Market

 The Secondary Market refers to a market where those types of securities are traded, which
have already been issued and offered to the public in the Primary Market and/or listed on the Stock
Exchange.
o Thus, it is also called the Old Issue Market.
 The secondary market enables securities holders to adjust their holdings in response to changes in their
assessment of risk and return or to buy/sell their securities as per their liquidity needs.

 DIFFERENCE BETWEEN PRIMARY MARKET AND SECONDARY MARKET

Primary Market Secondary Market

 Primary Market Secondary Market

New market securities are sold. Only existing securities are traded.

Investors have the option of only buying the securities. Investors can both buy and sell securities.

The price of securities is mostly decided by the The price of securities is determined by the demand
management of the issuing company. and supply of the market.

Secondary Markets are located at specified places,

Primary Markets have no fixed geographical location.
known as Stock Exchange.

Major intermediaries – Merchant Banks, Underwriters,

Major intermediaries – Brokers, Jobbers, etc.
Debenture Trustees, Portfolio Managers, etc.

1) PRIMARY MARKET OR NEW ISSUE MARKET: CONCEPTS

a) Public Issue or Public Offering

 Public Issue or Public Offering refers to the process of a company offering its securities (usually stocks
or bonds) for sale to the general public for the first time or subsequently.
 It is the usual way through which companies raise capital from a broad range of investors.
 There are 2 main types of public issues:

b) Initial Public Offering (IPO)

 Initial Public Offering (IPO) refers to the process when a private or unlisted company sells its shares
to the public for the very first time.
 This process transforms the company from being privately owned to a public company.
o This is why an IPO is also referred to as “going public”.
 It is generally used by new and medium-sized firms that are looking for funds to grow and expand their
business.
 After IPO, the company‟s shares are traded in an open market.
o Those shares can be further sold by investors through secondary market trading.

Follow on Public Offering (FPO)

 Follow on Public Offering (FPO) refers to the process when a company, that has already issued
shares and is listed on a stock exchange, issues shares again to raise additional fund.
  Public companies have to sell at least 25% of their shares to the public to be traded on a stock exchange.
Usually, it is this requirement that makes companies go for FPOs.

c) Offer For Sale

 Under this method, securities are not issued directly to the public but are offered for sale through
intermediaries like issuing houses or stock brokers.
 In this case, a company sells securities enbloc at an agreed price to brokers who, in turn, resell them to
the investing public.

d) Bonus Issue or Scrip Issue or Capitalization Issue

 It refers to offer of share to the existing shareholders against their distributable profit.
 Thus, under this, shareholders‟ share in profit is converted as shares.

e) Rights Issue

 Rights Issue is an invitation to existing shareholders to purchase additional new shares in the
company.
 This type of issue gives existing shareholders rights to purchase new shares at a discount to the market
price on a stated future date.
o That‟s why it is called Rights Issue.

f) Private Placement
When an issuer makes an issue of securities to a limited group of pre-selected investors, and which is neither a
rights issue nor a public issue, it is called a private placement.

Private placement can be of 2 types:

Preferential Allotment
When a listed issuer issues shares or convertible securities to a select group of persons, it is called a
Preferential Allotment.

Qualified Institutional Placement (QIP)

When a listed issuer issues shares or convertible securities to a select group of Qualified Institutional Buyers
(QIBs), it is called a Qualified Institutional Placement (QIP).

Key Terminologies Related to Primary Market

Declared Price Issue

Its a method of pricing new issues wherein the issuer offers securities at a pre-fixed price.

Book Building Issue

Its is another method of pricing new issues wherein the price is not announced beforehand. Rather, the issuer,
first, offers the shares and gets application from public and then based on the demand fixes the price.
Authorized Capital
It is the maximum amount authorized by Memorandum of Association of a company that can be raised by the
company. The issuer can issue securities upto worth this amount only.

Issued Capital
It is the actual amount issued by the issuer. It may be equal to or lesser than the Authorized Capital.

Subscribed Capital
After the company issues shares, the public starts subscribing to those shares. The subscription can be
oversubscribed (demand of shares more than the issued number of shares) or undersubscribed (demand of
shares less than the issued number of shares). The actual amount subscribed is called Subscribed Capital.

Merchant Bankers
A “merchant banker” means any person who is engaged in the business of issue management either by making
arrangements regarding selling, buying or subscribing to securities or acting as manager, consultant, adviser or
rendering corporate advisory service in relation to such issue management.

Underwriting
Underwriting means an agreement with or without conditions to subscribe to the securities of a body corporate
when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to
them.

Underwriter
The financial intermediary which agrees to purchase the undersubscribed portion of issued capital is called
Underwriter.

Called Up Capital
The company usually collects the subscribed capital in installments. The portion of money demanded from
subscriber is known as Called Up Capital.

Paid Up Capital
The amount actually paid by subscribers, when the money is demanded by the issuer, is known as Paid Up
Capital.

Reserve Capital
Usually, the issuer does not demand the whole amount from the subscriber. A small portion of money is left un-
demanded, which is called Reserve Capital.

2) SECONDARY MARKET OR OLD ISSUE MARKET: CONCEPTS

Based on the type of trading, the secondary market has 2 components:

Over-The-Counter (OTC) Market

 Over-The-Counter Markets or OTC Markets are essentially informal markets for trading securities.
  It is a decentralized marketplace where securities are traded directly between two parties, bypassing a
central exchange.
 OTC markets are generally subject to less stringent regulations than exchanges.

Stock Exchange Market

It refers to markets for trading of securities through a centralized exchange, usually called Stock Exchange.

Key Terminologies Related to Secondary Market

Listed Securities
Listed Securities refer to those securities that are accepted to be traded in stock exchanges.

Cash Trading
Its a type of trading in the Secondary Market wherein the sale and purchase of securities takes place at the
prevailing price on the day of trading.

Forward Trading
Its another type of trading in the Secondary Market wherein both buyer and seller agree to buy and sell
respectively at a future date at a pre-agreed price, irrespective of the price that prevails on the day of trade.

Third Market

 Third Market refers to the trading of exchange-listed securities in the over-the-counter (OTC) market.
 It allows institutional investors to trade blocks of securities directly, rather than through an exchange,
providing liquidity and anonymity to buyers.

Fourth Market
Fourth Market refers to institution-to-institution trading directly, without using the service of broker-dealers,
thus avoiding both commissions, and the bid–ask spread.

Stock Exchange

 A Stock Exchange is a regulated marketplace where investors can buy and sell shares of publicly traded
companies.
o It acts as a central hub for facilitating stock trading in a secure and efficient manner.
 In India, a Stock Exchange can operate only if it is recognized by the Government under the Securities
Contracts (Regulation) Act,

 ROLES AND IMPORTANCE OF CAPITAL MARKET

The Capital Market, as the major channel for mobilization of funds, plays very crucial role in an economy.
Some of the its major roles and importance can be seen as follows:

 Mobilization of Savings: It mobilizes idle savings or funds from people for further investments in the
productive channels of an economy.
  Capital Formation: Through mobilization of ideal resources it helps in formation of capital.
 Investment Avenues: It enables to raise resources for longer periods of time. Thus it provides an
investment avenue for people who wish to park their resources for a long period of time and earn
reasonable return.
 Economic Growth and Development: As it makes funds available for long period of time, the financial
requirements of business houses are met by the capital market. This, in turn, helps them grow.
 Optimal Allocation of Fund: By enabling price discovery as per the demand and supply, it helps in
optimal allocation of financial resources.
 Service Provision: As an important financial set up, capital market provides various types of services. It
includes long term and medium term liquidity to industry, underwriting services, consultancy services,
export finance, investor education by widening ownership base.
 Barometer of Economic Health: The performance of the Secondary Market acts as the barometer of
economic health. The investors use the level of stock exchange indices as a benchmark to track market
movements and compare the performance of their investments.

REGULATION OF CAPITAL MARKET IN INDIA

 Securities Contracts (Regulations) Act, 1956: It gives Central Government regulatory jurisdiction over
o stock exchanges – through a process of recognition and continued supervision.
o contracts in securities, and
o listing of securities on stock exchanges.
 Companies Act, 2013: It regulates incorporation of a company, lays down responsibilities of a
company, directors, dissolution of a company.
o The Companies Act is mainly administered by the Union Ministry of Corporate Affairs.
 SEBI Act, 1992: It has established the Securities and Exchange Board of India (SEBI) as the primary
regulator of securities markets in India.
 Depositories Act, 1996: It provides a legal framework for establishment of depositories to facilitates
holding of securities in physical/dematerialised form and to effect the transfer of securities through book
entry only.
 RBI’s Provisions for NBFCs: Of late, the RBI has proposed a significant shift in its regulatory
approach towards the NBFCs.

The Capital Market serves as a vital channel for mobilizing savings into investments, and hence driving
economic growth and prosperity. As India aims to grow faster in the time times to come, the role of the Capital
Market is going to become even more important. Efforts should be taken to ensure its efficient functioning by
focusing on transparency, fairness, and regulatory oversight to maintain investor confidence and market
integrity.

Related Concepts
Qualified Institutional Buyers (QIBs)

 Qualified Institutional Buyers (QIBs) are those institutional investors who are generally perceived to
possess expertise and the financial muscle to evaluate and invest in the capital markets.
 Some prominent examples of QIBs are – Insurance companies, provident funds, pension funds.
Commodity Exchange

 A commodity exchange is an exchange where various commodities, derivative products, agricultural

products and other raw materials are traded.
 The commodity exchanges in India includes – National Spot Exchange Limited (NSEL), Indian
Commodity Exchange Limited (ICEX), Multi Commodity Exchange (MCX), etc.
 Commodity Exchanges in India are regulated by the Securities and Exchange Board of India (SEBI).
o Earlier, they were regulated by the Forward Markets Commission (FMC), which got merged
with the SEBI on September 28, 2015.

 STOCK EXCHANGES OF INDIA

Bombay Stock Exchange (BSE)

 The Bombay Stock Exchange (BSE) is India‟s largest and earliest securities market.
 It is also Asia‟s first stock exchange.
 BSE On-Line Trading (BOLT) is a screen-based automated trading platform of BSE.
 The BSE also offers depository services through one of its arms called the Central Depository Services
Limited (CDSL)

National Stock Exchange of India Ltd. (NSE)

 The National Stock Exchange of India Ltd. (NSE) is India‟s largest financial market.
 It ranks fourth in the world by equity trading volume.
 NSE is the first exchange in India to provide modern, fully automated electronic trading.

Stock Market Index

 A Stock Market Index is a statistical measure that reflects the overall performance of a specific segment
of the stock market, or the entire market itself.
 Each index is composed of a weighted values of specific group of stocks chosen based on certain criteria
such as Market Capitalization, Representation of various sectors, etc.
 From each sector, top companies are selected on the basis of total value of all shares that are traded in
the stock exchange.
o These companies are called Blue Chip Companies.
 It acts as an indicator of rise or fall in the prices of shares or other securities.
 Investors use Stock Market Indices as a benchmark to track market movements and compare the
performance of their investments.
  IMPORTANT STOCK MARKET INDICES IN INDIA

BSE Sensex or Sensitive Index

It is an index of BSE, which measures the price movement of top 30 companies‟ shares.

Nifty or National Index for Fifty

It is an index of NSE, which measures price movement of top 50 companies.

Nifty Junior
It is an index of NSE, which measures the price movement of the next top 50 companies.

 MEANING OF STOCK EXCHANGE

A stock exchange is an important factor in the capital market. It is a secure place where trading is done in a
systematic way. Here, the securities are bought and sold as per well-structured rules and regulations. Securities
mentioned here includes debenture and share issued by a public company that is correctly listed at the stock
exchange, debenture and bonds issued by the government bodies, municipal and public bodies.

Typically bonds are traded Over-the-Counter (OTC), but a few corporate bonds are sold in a stock exchange. It
can enforce rules and regulation on the brokers and firms that are enrolled with them. In other words, a stock
exchange is a forum where securities like bonds and stocks are purchased and traded. This can be both an online
trading platform and offline (physical location).

 FUNCTIONS OF STOCK EXCHANGE

Following are some of the most important functions that are performed by stock exchange:

1. Role of an Economic Barometer: Stock exchange serves as an economic barometer that is indicative
of the state of the economy. It records all the major and minor changes in the share prices. It is rightly
said to be the pulse of the economy, which reflects the state of the economy.
2. Valuation of Securities: Stock market helps in the valuation of securities based on the factors of supply
and demand. The securities offered by companies that are profitable and growth-oriented tend to be
valued higher. Valuation of securities helps creditors, investors and government in performing their
respective functions.
3. Transactional Safety: Transactional safety is ensured as the securities that are traded in the stock
exchange are listed, and the listing of securities is done after verifying the company‟s position. All
companies listed have to adhere to the rules and regulations as laid out by the governing body.
 4. Contributor to Economic Growth: Stock exchange offers a platform for trading of securities of the
various companies. This process of trading involves continuous disinvestment and reinvestment, which
offers opportunities for capital formation and subsequently, growth of the economy.
5. Making the public aware of equity investment: Stock exchange helps in providing information about
investing in equity markets and by rolling out new issues to encourage people to invest in securities.
6. Offers scope for speculation: By permitting healthy speculation of the traded securities, the stock
exchange ensures demand and supply of securities and liquidity.
7. Facilitates liquidity: The most important role of the stock exchange is in ensuring a ready platform for
the sale and purchase of securities. This gives investors the confidence that the existing investments can
be converted into cash, or in other words, stock exchange offers liquidity in terms of investment.
8. Better Capital Allocation: Profit-making companies will have their shares traded actively, and so such
companies are able to raise fresh capital from the equity market. Stock market helps in better allocation
of capital for the investors so that maximum profit can be earned.
9. Encourages investment and savings: Stock market serves as an important source of investment in
various securities which offer greater returns. Investing in the stock market makes for a better
investment option than gold and silver.

FEATURES OF STOCK EXCHANGE:

 A market for securities- It is a wholesome market where securities of government, corporate

companies, semi-government companies are bought and sold.
 Second-hand securities- It associates with bonds, shares that have already been announced by the
company once previously.
 Regulate trade in securities- The exchange does not sell and buy bonds and shares on its own account.
The broker or exchange members do the trade on the company‟s behalf.
 Dealings only in registered securities- Only listed securities recorded in the exchange office can be
traded.
 Transaction- Only through authorised brokers and members the transaction for securities can be made.
 Recognition- It requires to be recognised by the central government.
 Measuring device- It develops and indicates the growth and security of a business in the index of a
stock exchange.
 Operates as per rules– All the security dealings at the stock exchange are controlled by exchange rules
and regulations and SEBI guidelines.

BENEFITS OF LISTING OF SECURITIES

Registering on the stock exchange has many benefits, they are as follows:
 First and foremost when a company gets registered on the stock exchange, its securities become
tradeable.
  The company has the chance of getting the best price from its securities as the market price on the stock
exchange is regulated by the availability of buyers and sellers and the number of buyers and sellers there
is huge.
 Registering on the stock exchange gives the company great publicity as all information such as opening
price, closing price, and other information are provided through almost every means of communication
such as the internet, and newspapers, basically becoming public and providing more reach.
 A proper timely report has to be maintained for a company to stay on the stock exchange. This helps in
eradicating fraud and maintaining transparency in the operations of the company.

CONDITIONS FOR REGISTERING IN THE STOCK EXCHANGE

According to regulation 4(2) of the SEBI Regulations, 2009, if a company wants to list its securities on a stock
exchange then it has to make an application to one or more designated stock exchange, which has nationwide
trading capacity. Certain other conditions need to be fulfilled by a company to enter the stock market, they are
as follows:
 A company has to publish a prospectus through which twenty-five percent of the securities are to be offered
to the public.
 The company must have a good amount of capital structure and the securities which are being listed must be
in the public interest.
 The prospectus should also contain the date of receipt of the application and such other details as necessary.

 The basic or minimum requirement of capital is three crore rupees out of which sixty percent,i.e., one crore
eighty lakh rupees should be made available for the public. If the share capital exceeds five crore rupees
then it becomes mandatory for the company to get itself registered under a recognized stock exchange.
 The company must inform the stock exchange in case the board of directors changes or new securities are
issued.
 A company needs to file the annual return and inform the stock exchange.
 Last but not least, a company must comply with the terms and conditions of the stock exchange under which
it is getting registered and strictly adhere to them.

DOCUMENTS NEEDED FOR A LISTING OF SECURITIES

Certain documents are needed to be shown by the company which wants to register its securities in a stock
exchange, they are as follows:
1. Details of the company since its inception.
2. Certified copy of Articles of Association and Memorandum of Associations.
3. Copy of financial report and auditor‟s report for last five years.
4. Details of the company‟s capital structure.
5. Prospectus and agreement.
6. Consent copy from SEBI.
THE PROCEDURE FOR A LISTING OF SECURITIES ON THE STOCK EXCHANGE

There is a step-by-step procedure that is to be followed for a listing of securities in the stock market:
1. Firstly, an application has to be submitted by the company to a recognized stock exchange. This
procedure is provided vide section 73 of the Companies Act, 1956 whereby it is stated that if a public
limited company wants to list its securities on the national stock exchange then it has to submit an
application regarding the same with necessary documents to that stock exchange. The stock exchange
can ask for any missing documents that are needed and the company has to submit them within ten
working days.
2. Next, the stock exchange will inspect the financial status of the company and make sure everything is in
line. If the stock exchange accepts the application of the listing company then the stock exchange and
the listing company enter into an agreement.
3. The listing company has to accept all the terms and conditions and follow rules and regulations of the
stock exchange under which it is getting registered and also abide by the regulations of SEBI.
4. A company shall have to pay a fee for listing annually, which is calculated on the company‟s paid-up
capital.
5. A company seeking admission to the stock exchange has to pay a security deposit which the stock
exchange can confiscate if the company fails to pay dividends or delays in transferring securities, etc.
6. Finally, a company gets access to trade in the stock market after it fulfills all the formalities within the
time prescribed under the SEBI Regulations, 2009.

 NATIONAL STOCK EXCHANGE

Share

The stock exchange in India has gone through a transition state. The trading functions can be performed
electronically with equal opportunities to find the best option for investing stocks. It provides an electronic
trading platform for the exchange of stocks, shares, bonds, etc. It enables the issue and redemption of securities
and capital events commonly known as „continuous auction‟ markets with buyers and sellers performing
different transactions.

NATIONAL STOCK EXCHANGE

National Stock Exchange is an electronic platform where the investors can carry out trading, buy and sell
equities, stock, debts and shares from the different stock markets or financial markets. This electronic facility
provided the clients even in remote areas to access the stock price information with ease, previously only a few
people were able to access that information. This process does not involve any market experts or specialists. It
entirely works on its own, that is when an investor places a market order, the electronic order book tries to
match it with a limit order. Due to this the sellers and buyers remain anonymous to each other.

The market timings are as follows-

Pre-opening sessions-

Order entry opens- at 9.00 hours

Order entry closes- at 9.08 hours

Regular sessions-

The market opens- at 9.15 hours

The market closes – at 15.30 hours

Benefits of NSE

1. Fast transactions– The fast pace of placing orders allows the investors to avail of the stock for the best
prices.
2. Premium marketplace– The expenses of trading for investors decrease as the volume of trading
activity in the stock exchange lowers the costs.
3. Trade statistics– The trade statistics of a company can be evaluated due to which the performances of
the organisation can be tracked.

Establishment of the National Stock Exchange

Before the establishment of the National Stock Exchange, the trading was confined to a group of brokers. So, in
1992 National stock Exchange was established to bring clarity and efficiency and transparency to Indian stock
markets. So, the random trading memberships were replaced by the electronic trading platform. The NSE kept
certain conditions for the people who were allowed to trade. They must be qualified, experienced and meet the
minimum financial requirements. NSE separated the ownership and regulation of the management under the
supervision of the Securities and Exchange Board of India (SEBI).

National Stock Exchange is the country‟s leading financial exchange with its headquarters in Mumbai. Now
National Stock Exchange of India has become the largest derivatives exchange by 2021 by the number of
contracts traded based on the statistical evaluation of the Futures Industry Association (FIA).

PURPOSE OF NATIONAL STOCK EXCHANGE

[Link] of investors to electronic trading– Using an electronic trading system, investors can get fair and
efficient securities from the financial market. It provides a nationwide trading facility for debt instruments,
shares and equities. It enables appropriate communication and an interactive network for investors with equal
opportunities. To enhance the standard of the securities market to a global level.
It was established to meet the needs of shorter settlement cycles and book entry settlements systems. To provide
easy access to any individual even in remote areas for trading facilities. It facilitates easy trading by prioritising
the orders as per the best prices available. It allows individuals to decide the value and efficiency of the
company through supply and demand.

[Link] capital- By issuing new shares and equities the companies are able to raise the capital fund for their
own profit and expansion of business and financial operations. This increases the company‟s revenue.

3 Economic efficiency- The National stock Exchange allows individuals to invest their cash merely for saving
funds. Hence, if the capital invested remains untouched then the cash is used for other economic purposes,
resulting in a more efficient economy

 BOMBAY STOCK EXCHANGE

BSE full form stands for Bombay Stock Exchange. It is the oldest stock exchange in India as well as Asia.
Bombay Stock Exchange was established by Premchand Roychand in 1875 and is currently headed by Shri
Sundararaman Ramamurthy (Managing Director & CEO).

The Bombay Stock Exchange is one of the largest securities markets. It is located on Dalal Street, Mumbai and
lists over 6000 companies.

BSE has contributed significantly to developing and shaping India's capital markets. Through BSE, investors
get the opportunity to trade in equities, mutual funds, debt instruments, [Link] also offers capital market trading
services that include investor education, risk management, clearing, settlement, and many more.

How Does BSE Work

Financial transactions in BSE are done online through an electronic trading system. Market orders can be
directly placed in BSE online without the requirement of external specialists through direct market access. Due
to the absence of such limit orders, the focus is shifted from buyers/sellers to the total value of transactions in a
day.

Trading in the BSE share market has to be done through a brokerage agency against a stipulated charge.
However, direct investment access is given to certain preferential investors making large transactions in the
BSE stock market. BOLT- Bombay Online trading platform is used by this stock exchange for efficient trading.

Transactions made in BSE online are done through a T+2 rolling settlement, wherein all transactions are
processed within two days. Securities and Exchange Board of India (SEBI) is responsible for the regulation of
this stock exchange, continuously updating rules for its smooth operation.
Background of BSE

BSE has an interesting backstory to it. In the 19th century, some traders, with businessman Premchand
Roychand, would gather under a Banyan tree in current Dalal Street. Popularly known as the Native Share and
Stockbrokers Association, this gathering would engage in purchasing and selling stocks. This association later
evolved into the BSE.

Earlier, the BSE worked on a floor trading system in which a licensed broker stands in the ring and calls out the
rising price. The investors, who were outside the BSE, would only find out about the stock prices in the
newspapers. That is why the NSE, or the National Stock Exchange, went digital, and the prices became public
to all investors. Consequently, the NSE became the favourite spot for investing. Seeing the shift to digital, the
board of BSE decided to change their system as well. In 1995, BSE received technological aid from CMC Ltd
and went digital. Today, the BSE trading area is called BSE online trading.

ADVANTAGES OF LISTING ON BSE

A company listed under the Bombay Stock Exchange can enjoy several benefits, such as:

 Hassle-free Capital Generation

Listed companies enjoy the trust of all kinds of investors present in the market. It spreads market knowledge
regarding a budding business, allowing individuals to carefully analyse the imminent condition of such
companies and invest accordingly.

Paid-up capital for a business can only be raised effectively if a company is listed with a prevalent stock
exchange in a country.

Market securities can be readily sold in a financial market if it is listed on the Bombay Stock Exchange, thereby
sufficing the liquidity needs of both businesses and individual investors. Funds to meet any requirement of a
company can be obtained through the issuance of debt and equity securities, which investors purchase for the
purpose of wealth creation.

Securities purchased can be readily sold through the electronic trading settlement of BSE, thereby allowing
investors to encash their investment as and when the need arises effectively.

 Legal Supervision

Investors can skim through fraudulent companies if they choose to invest in organisations listed with BSE.

Several rules and regulations are mandated by SEBI to monitor the actions of registered companies, minimising
the chances of investors incurring a loss due to illicit activities of a business.
  Timely Information Display

Adequate information about total revenue generation and reinvestment patterns has to be published annually by
all companies listed under the BSE stock exchange.

Total dividend disbursed, bonus and transfer issues, book-to-closure facility, etc., have to be displayed as per
SEBI regulations.

 Adequate Pricing Rules

The price of securities trading in the BSE share market is determined by the demand and supply of the same
currently prevailing. This reflects the real value of a share, affecting a company‟s market capitalisation and ease
of procurement of funds.

 Collateral Guarantee

Securities issued by a company act as a collateral guarantee at the time of availing loans. Most financial
institutions accept equity shares listed in BSE as leverage against which funds can be obtained.

What Are The Various Investment Methods?

 Trading of securities of a company listed on the Bombay Stock Exchange can be done either directly or
indirectly, depending upon the volume of transactions undertaken.

 Primary trading can be done only by registered brokerage agencies and institutional investors making
bulk transactions in BSE.

 Retail customers, on the other hand, do not have access to direct investment schemes and have to make
transactions through a certified stockbroker or a stock investing platform. This is known as a secondary
trading mechanism, regulated by the Financial Industry Regulatory Authority (FINRA).

 For secondary trading, an individual must hold a Demat account, through which the financial
transactions take place. Virtual ownership of all stocks can be gained through the account itself.

CHIEF INVESTMENT SEGMENTS

All companies listed under BSE can use the following financial instruments to raise funds for their business:

 Equity

Equity instruments primarily consist of shares issued by a company to raise adequate paid-up capital for its
smooth operations. Massive equity is raised during an initial public offering of a start-up company in the
primary capital market. However, new issuance of shares is subject to strict regulations under SEBI due to the
volatility of prices at this stage.

Equity already issued can be traded amongst retail customers in the secondary market through a stockbroker.

 Debt Instruments and Government Securities

These tools are issued by an underlying company to raise finances without giving ownership to investors.
Relatively risk-free in nature, trading in debt instruments can be done in both primary and secondary markets,
depending upon its nature.

Various government securities such as zero coupon bonds, floating rate bonds, capital indexed bonds and dated
securities are traded in BSE.

 Major Indices

Sensex is a benchmark index under BSE. It is a free-floating market-weighted index tracking the performance
of the top 30 companies.

BSE share market uses Sensex to monitor the performance of these companies to determine whether the capital
market of India would rise or fall, depending upon the movement direction of share prices of these companies.

Other than the benchmark index, several other sectoral indices are also provided by BSE, such as:

1. S&P BSE Auto

2. S&P BSE bankex
3. S&P BSE Capital Goods
4. S&P BSE Consumer Durables
5. S&P BSE Fast-moving consumer goods

Indices segregating companies on the basis of market capitalisation into small and mid-cap companies are also
launched by BSE, in the form of BSE small-cap index and BSE mid-cap index. These indices can be tracked by
index Mutual Funds aiming to profit from capital appreciation of stocks of these companies.

Bombay Stock Exchange plays a vital role in regulating the financial markets of India. Market fluctuations in an
economy can easily be observed through the performance of its benchmark index, which has cascading effects
on the capital sector of economies all around the world.