Stock exchange is taken as a barometer of the economy of a country. It is the most dynamic and organised component of capital market. Especially, in developing countries like India, the stock exchanges play a cardinal role in promoting the level of capital formation through effective mobilization of savings and ensuring investment safety. It is equally important to have the understanding of the governance of Stock Exchanges, and the services they provide to investors.
This lesson will enable the students to understand the Operation of stock exchanges, Stock Exchange Trading Mechanism, Short Selling and Securities Lending and Borrowing, Straight Through Processing, Direct Market Access and Algorithmic Trading, Demutualization of Stock Exchange, SME Exchange and advantages of SME Exchange etc.
DOWNLOAD EXAM ORIENTED NOTES & CHARTS BY CLICKING ON THE BUTTON :-
There are 19 stock exchanges at present in India. All of them are regulated in terms of Securities Contract (Regulation) Act, 1956 and SEBI Act, 1992 and the rules and regulations made there under. Some of the exchanges started of as voluntary non-profit associations such as Bombay Stock Exchange (BSE) and Indore Stock Exchange. The Stock Exchanges at Chennai, Jaipur, Hyderabad and Pune were incorporated as companies limited by guarantee. The other stock exchanges are companies limited by shares and incorporated under the Companies Act, 1956 (now Companies Act, 2013) or earlier acts. Pursuant to Section 131 of the Finance Act, 2015 and Central Government Notification F. No. 1/9/SM/2015 dated 28th August, 2015 all recognized association (commodity derivatives exchanges) under the Forwards Contracts Act, 1952 and deemed to recognized stock exchange under the SCRA, 1956. The stock exchanges are managed by Board of Directors or Council of Management consisting of elected brokers and representatives of Government and Public appointed by SEBI. The Boards of stock exchanges are empowered to make and enforce rules, bye-laws and regulations with jurisdiction over all its members. The Acts, Rules and Regulations governing the stock exchanges have been separately discussed in a lesson in of this study material.
Membership of stock exchanges is generally given to persons financially sound and with adequate experience/training in stock market. Their enrollment as member is regulated and controlled by SEBI to whom they have to pay an annual charge. A member of the stock exchange is called ‘broker’ who can transact on behalf of his clients as well as on his own behalf. A non-member can deal in securities only through members. A broker can also take the assistance of sub-broker whom he can appoint under the procedure of registration.
STOCK EXCHANGE TRADING MECHANISM
The stock exchange is a key institution facilitating the issue and sale of various types of securities. It is a pivot around which every activity of the capital market revolves. In the absence of the stock exchange, the people with savings would hardly invest in corporate securities for which there would be no liquidity (buying and selling facility). Corporate investments from the general public would have been thus lower.
Stock exchanges thus represent the market place for buying and selling of securities and ensuring liquidity to them in the interest of the investors. The stock exchanges are virtually the nerve centre of the capital market and reflect the health of the country’s economy as a whole. Securities are traded in three different ways in stock exchanges ring, namely–settlement basis, spot basis and cash basis. Shares of companies which are not in the spot list are known as ‘cash’ shares or ‘B’ Category shares. They are traded on cash basis or delivery basis and cannot be traded on settlement basis. The actual delivery of securities and payment has to be made on or before the settlement date fixed in the case of cash basis trading.
As far as spot trading is concerned the actual delivery of securities must be made to the buying broker within 48 hours of the contract. It is expected that the seller would be paid by the buyer immediately on delivery of securities.
All securities whether the specified list or cash list can be traded on spot basis or cash basis.
0 Comments