L-17-STOCK
EXCHANGE AND SEBI
L-18- STOCK EXCHANGE AND SEBI
STOCK EXCHANGE
A stock exchange is a regulated marketplace where
securities, such as stocks and bonds, are bought and sold. It provides a
platform for companies to raise capital by issuing stocks to the public and for
investors to trade these securities. The stock exchange acts as an intermediary
between buyers and sellers, facilitating the transparent and efficient exchange
of securities.
Key features of stock exchanges:
Listing and Trading: Companies
that meet the listing requirements of the stock exchange can have their stocks
listed for trading. Once listed, the stocks can be bought and sold by investors
through the exchange. The stock exchange ensures fair and orderly trading by
setting rules and regulations for trading activities.
Price Discovery: Stock
exchanges play a crucial role in price discovery, which refers to the process
of determining the fair market value of securities. The forces of supply and
demand interact on the exchange, leading to the establishment of market prices
for securities. These prices reflect the collective opinion of market
participants about the value of the securities.
Liquidity: Stock
exchanges provide liquidity to investors by offering a secondary market for
securities. Investors can buy and sell securities on the exchange, providing
them with the ability to convert their investments into cash when needed.
Liquidity is an important characteristic of stock exchanges as it allows
investors to enter or exit positions easily.
Regulation and Investor
Protection: Stock exchanges are regulated entities that operate under
the oversight of regulatory bodies, such as the Securities and Exchange Board
of India (SEBI) in India. These regulatory bodies set rules and regulations to
ensure fair trading practices, investor protection, and market integrity. They
monitor the operations of stock exchanges and take action against any violations.
SEBI (Securities and Exchange Board of
India):
SEBI is the regulatory authority in India that oversees
the securities market, including stock exchanges. Its primary objective is to
protect the interests of investors and promote the development and regulation
of the securities market. SEBI plays a crucial role in ensuring transparency,
fairness, and efficiency in the stock market.
Functions of SEBI:
Regulatory Oversight: SEBI
regulates various participants in the securities market, including stock
exchanges, brokers, and other intermediaries. It sets rules and regulations for
their operations, monitors their compliance, and takes appropriate action in
case of any violations.
Investor Protection: SEBI
works towards ensuring the protection of investor interests. It promotes fair
and transparent practices in the market, enforces disclosure requirements by
companies, and takes measures to prevent fraudulent activities or market
manipulation that can harm investors.
Market Development: SEBI
plays a proactive role in the development of the securities market. It
introduces reforms and measures to improve market infrastructure, promote
investor education and awareness, and encourage the adoption of best practices
in the market.
Supervision and
Enforcement: SEBI conducts inspections, investigations, and audits of
market participants to ensure compliance with regulations. It has the authority
to take enforcement actions against violators, including imposing fines,
penalties, and initiating legal proceedings.
By regulating and overseeing stock exchanges and market
participants, SEBI aims to create a transparent, fair, and well-functioning
securities market that inspires investor confidence and facilitates capital
formation and economic growth.
TYPES OF OPERATERS IN STOCK EXCHANGE
In the
context of a stock exchange, there are various types of participants or
operators who engage in trading activities. Here are some common types:
Brokers: Brokers are intermediaries who
facilitate the buying and selling of securities on behalf of their clients.
They execute trades, provide market information, and offer advisory services to
investors. Brokers can be individuals or firms registered with the stock
exchange.
Investors: Investors are individuals or
institutions who buy and sell securities on the stock exchange with the goal of
earning a return on their investments. They can be retail investors,
institutional investors, or high-net-worth individuals.
Market Makers: Market makers are entities that
provide liquidity to the market by continuously quoting bid and ask prices for
securities. They are responsible for ensuring there is a ready market for
buying and selling securities. Market makers earn profits through the bid-ask
spread and help maintain smooth trading in the market.
Clearing Members: Clearing members are entities that
facilitate the clearing and settlement of trades on the stock exchange. They
act as intermediaries between buyers and sellers, ensuring that the securities
and funds are transferred correctly and settlement obligations are met.
Stock Exchange Operators: Stock exchange operators are the
entities that operate and manage the stock exchange itself. They are
responsible for setting trading rules, maintaining trading systems, and
ensuring compliance with regulations. Examples of stock exchange operators
include the New York Stock Exchange (NYSE), London Stock Exchange (LSE), and
Bombay Stock Exchange (BSE).
Regulators: Regulatory bodies oversee and
regulate the functioning of the stock exchange to maintain fair and transparent
trading practices. They ensure compliance with securities laws, protect
investor interests, and maintain market integrity. In India, the Securities and
Exchange Board of India (SEBI) is the regulatory authority for the stock
market.
Market Analysts: Market analysts study market trends,
company financials, and other factors to provide insights and recommendations
on stock market investments. They analyze data and information to help investors
make informed decisions.
These are
some of the key types of operators or participants in a stock exchange. Each
participant plays a unique role in the trading ecosystem, contributing to
market liquidity, price discovery, and overall market efficiency.
FUNCTIONS OF A STOCK EXCHANGE
A stock exchange performs several important
functions in the financial market. Here are some of the key functions of a
stock exchange:
Facilitating Buying and
Selling of Securities: One of
the primary functions of a stock exchange is to provide a platform for the
buying and selling of securities. It serves as a marketplace where investors
can trade shares, bonds, derivatives, and other financial instruments. The
exchange ensures fair and transparent transactions by establishing rules and
regulations that govern trading activities.
Price Discovery: A stock exchange plays a crucial role
in price discovery, which is the process of determining the fair market value
of securities. Through continuous buying and selling activities, the exchange
helps establish market prices based on supply and demand dynamics. This
information is important for investors to make informed decisions and for
companies to evaluate their market value.
Liquidity Enhancement: Stock exchanges provide liquidity to
the market by ensuring there is a ready market for buying and selling
securities. Investors can easily convert their investments into cash, as there
are usually many buyers and sellers available on the exchange. This liquidity
makes it easier for investors to enter or exit positions and contributes to market
efficiency.
Listing and Regulation: Stock exchanges have the authority to
list companies and securities that meet specific requirements. The listing
process involves assessing the financial soundness, corporate governance
practices, and compliance of companies with exchange regulations. By listing on
an exchange, companies gain access to capital and exposure to a wider investor
base. Exchanges also regulate listed companies to ensure adherence to
reporting, disclosure, and corporate governance standards.
Market Surveillance and
Investor Protection: Stock
exchanges play a crucial role in maintaining market integrity and investor
protection. They monitor trading activities to detect and prevent market
manipulation, insider trading, and other fraudulent practices. Exchanges
enforce compliance with trading rules and regulations to ensure fair and
transparent markets. They also provide a platform for dispute resolution and
handle grievances related to trading activities.
Market Information and
Transparency: Stock
exchanges provide market participants with vital information such as stock
prices, trading volumes, company announcements, and financial reports. This
information is disseminated in real-time and helps investors make informed
decisions. Exchanges also promote transparency by ensuring timely and accurate
disclosure of information by listed companies.
Capital Formation: A stock exchange facilitates capital
formation by providing a platform for companies to raise funds through the
issuance of new securities. Companies can issue shares or bonds to investors
through initial public offerings (IPOs) or subsequent offerings. This process
allows companies to raise capital for expansion, investment, or debt repayment,
contributing to economic growth.
These functions
collectively contribute to the efficient functioning of the financial market,
providing investors with opportunities for investment, companies with access to
capital, and maintaining market integrity and investor confidence.
SERVICES/MPORTANCE/ANDVANTAGES OF STOCK EXCHANGES
Stock
exchanges provide several services, hold significant importance, and offer
various advantages to market participants. Here are some key aspects:
Services
of Stock Exchanges:
Trading Platform: Stock exchanges provide a regulated
and centralized marketplace where buyers and sellers can trade securities. They
offer trading platforms that facilitate the buying and selling of stocks,
bonds, derivatives, and other financial instruments.
Clearing and Settlement: Stock exchanges provide clearing and
settlement services, ensuring that the transfer of securities and funds between
buyers and sellers is executed correctly. They facilitate the smooth and
efficient settlement of trades, reducing counterparty risk.
Market Information: Stock exchanges gather and
disseminate market information such as stock prices, trading volumes, company
announcements, and financial reports. This information helps investors make
informed decisions and enables market participants to stay updated on market
trends and developments.
Regulatory Oversight: Stock exchanges play a crucial role
in regulating and overseeing market activities. They establish and enforce
rules and regulations to maintain fair and transparent trading practices,
protect investor interests, and ensure market integrity. Regulatory bodies
associated with stock exchanges monitor compliance and investigate any
violations.
Importance
of Stock Exchanges:
Capital Formation: Stock exchanges play a vital role in
channeling savings and investments into productive activities. Companies can
raise capital by issuing securities to investors through initial public
offerings (IPOs) or subsequent offerings. This facilitates business expansion,
research and development, infrastructure projects, and job creation.
Investment Opportunities: Stock exchanges provide investors
with opportunities to invest in a wide range of securities, allowing them to
diversify their portfolios and potentially earn returns. Investors can
participate in the growth of companies and the overall economy through the
purchase of stocks, bonds, or other financial instruments.
Price Discovery: Stock exchanges contribute to the
process of price discovery, helping determine the fair market value of
securities. Through continuous buying and selling activities, market forces of
supply and demand establish prices, providing transparency and ensuring that
securities are traded at their fair values.
Advantages
of Stock Exchanges:
Liquidity: Stock exchanges offer liquidity to
investors, allowing them to easily buy or sell securities. The presence of
numerous buyers and sellers on the exchange provides a liquid market, enabling
investors to convert their investments into cash quickly.
Transparency: Stock exchanges promote transparency
by requiring companies to adhere to strict reporting and disclosure standards.
Listed companies must disclose relevant financial information and other
material events, allowing investors to make informed decisions based on
transparent information.
Investor Protection: Stock exchanges enforce rules and
regulations to protect investor interests. They monitor market activities,
detect and prevent market manipulation or fraudulent practices, and provide a
platform for dispute resolution. This helps maintain investor confidence in the
market.
Market Efficiency: Stock exchanges contribute to market
efficiency by facilitating price discovery, providing liquidity, and ensuring
fair and transparent trading. Efficient markets allow investors to make
transactions at fair prices and enable capital to flow to its most productive
uses.
Overall,
stock exchanges serve as crucial pillars of the financial market, providing
essential services, fostering capital formation, offering investment
opportunities, and ensuring transparency and investor protection.
STOCK EXCHANGES IN INDIA
Stock
exchanges in India play a vital role in the country's financial market. The
primary stock exchanges in India are the National Stock Exchange (NSE) and the
Bombay Stock Exchange (BSE). Here are some key points about stock exchanges in
India:
National Stock Exchange
(NSE): The NSE is the leading stock exchange
in India, established in 1992. It is the first electronic stock exchange in the
country and operates on a fully automated screen-based trading system. The NSE
is known for its benchmark index, the Nifty 50, which represents the
performance of the top 50 companies listed on the exchange.
Bombay Stock Exchange
(BSE): The BSE is the oldest stock exchange
in Asia, founded in 1875. It is also one of the largest stock exchanges in
India. The BSE operates on an electronic trading system called BOLT (BSE
On-Line Trading) and is known for its benchmark index, the Sensex, which comprises
30 actively traded stocks.
Regulatory Authority: The Securities and Exchange Board of
India (SEBI) is the regulatory authority that oversees the functioning of stock
exchanges in India. SEBI ensures compliance with securities laws, protects
investor interests, and promotes fair and transparent trading practices.
Listing and Trading: Stock exchanges in India provide a
platform for companies to list their securities and raise capital from the
public. Companies go through a rigorous listing process, including meeting
eligibility criteria and complying with disclosure and corporate governance norms.
Once listed, companies' shares are traded on the exchanges.
Trading Mechanism: Stock exchanges in India operate
through a system of brokers who execute trades on behalf of investors. Trading
can take place in various segments, including equity (shares), derivatives
(futures and options), bonds, and commodities.
Indices: Indian stock exchanges have benchmark
indices that reflect the performance of listed companies. The Nifty 50 on the
NSE and the Sensex on the BSE are widely followed indices that serve as
indicators of the overall market sentiment and performance.
Market Structure: The stock exchanges in India operate
on a centralized order book system, where buyers and sellers place orders
electronically. The exchanges match orders based on price and time priority to
facilitate trading.
Investor Protection: Stock exchanges in India, along with
SEBI, have implemented various measures to protect investor interests. These
include stringent disclosure requirements, surveillance mechanisms to detect
market manipulation, investor education initiatives, and grievance redressal
mechanisms.
Stock
exchanges in India provide a platform for capital raising, investment
opportunities, and price discovery. They contribute to the growth of the
economy by facilitating investment and ensuring fair and transparent trading
practices.
NATIONAL STOCK EXCHANGE OF INDIA (NSEI)
The
National Stock Exchange of India (NSE) is the leading stock exchange in India.
Here are some key points about the NSE:
Establishment: The NSE was incorporated in 1992 and
commenced operations in 1994. It was the first electronic stock exchange in
India and introduced screen-based trading, replacing the open outcry system
prevalent at that time.
Objectives: The primary objective of the NSE is
to provide a transparent, efficient, and fair marketplace for trading in
various financial instruments. It aims to promote investor protection, enhance
market integrity, and facilitate the growth of the Indian capital market.
Ownership and Governance: The NSE is a professionally managed
exchange, and it is owned by a group of leading financial institutions, banks,
and insurance companies in India. The exchange operates under the regulatory
oversight of the Securities and Exchange Board of India (SEBI).
Market Segments: The NSE provides trading platforms
for various market segments, including equity, equity derivatives, currency
derivatives, debt instruments, and interest rate derivatives. It offers a
diverse range of investment opportunities to market participants.
Trading Mechanism: The NSE operates on a fully automated
screen-based trading system known as the National Exchange for Automated
Trading (NEAT). This system enables efficient order matching, transparent price
discovery, and real-time trade execution.
Benchmark Index: The NSE is known for its benchmark
index, the Nifty 50. The Nifty 50 is a broad-based index comprising 50 actively
traded stocks across various sectors of the Indian economy. It is widely used
as a barometer of the overall market performance.
Technology and
Infrastructure: The NSE is
known for its robust technology infrastructure, which enables seamless trading
and efficient market operations. It continuously invests in advanced
technologies to enhance trading speed, capacity, and security.
Investor Protection and
Market Regulation: The NSE, in
collaboration with SEBI, has implemented stringent regulatory measures to
protect investor interests. It has surveillance mechanisms in place to detect
market manipulation, insider trading, and other fraudulent activities.
Market Education and
Awareness:
The NSE conducts various
investor education programs, training sessions, and workshops to enhance
financial literacy and awareness among market participants. It strives to
educate investors about market functioning, investment strategies, and risk
management.
International Presence: The NSE has established partnerships
and collaborations with several international exchanges to facilitate
cross-border trading and enhance market access for investors. It actively participates
in global initiatives and promotes international best practices in the Indian
market.
The NSE has
played a pivotal role in the development of the Indian capital market and has
significantly contributed to the growth of the Indian economy. It has been at
the forefront of adopting technological advancements, ensuring market
integrity, and providing a robust platform for trading and investment.
OVER THE COUNTER EXCHANGE OF INDIA (OTCEI)
The
Over-The-Counter Exchange of India (OTCEI) was an alternative stock exchange in
India that operated from 1990 to 2014. Here are some key points about OTCEI:
Establishment: OTCEI was established in 1990 with
the objective of providing a platform for small and medium-sized companies to
raise capital through the issuance of securities. It aimed to provide an
organized and transparent marketplace for trading in these securities.
Listing Requirements: OTCEI had relaxed listing
requirements compared to other stock exchanges in India. It allowed smaller
companies with limited operating history and lower net worth to list their
securities. This provided an avenue for these companies to access capital
markets and raise funds.
Screen-Based Trading: OTCEI was one of the first stock
exchanges in India to introduce screen-based trading, similar to the National
Stock Exchange (NSE). This electronic trading system facilitated transparent
and efficient trading by matching buy and sell orders electronically.
Regional Exchanges: OTCEI operated through a network of
regional exchanges spread across major cities in India. These regional
exchanges provided access to investors and companies from various regions,
promoting regional participation in the capital market.
Market Segments: OTCEI offered trading facilities for
various securities, including equity shares, debentures, and preference shares.
It provided a platform for primary market issuances as well as secondary market
trading.
Investor Protection: OTCEI, like other stock exchanges in
India, worked under the regulatory framework of the Securities and Exchange
Board of India (SEBI). It implemented measures to protect investor interests,
including disclosure requirements, surveillance mechanisms, and investor grievance
redressal mechanisms.
Decline and Closure: Over time, OTCEI faced various
challenges, including limited liquidity, low trading volumes, and the emergence
of other stock exchanges offering similar services. As a result, it witnessed a
decline in its operations and eventually ceased operations in 2014.
Although
OTCEI is no longer operational, it played a significant role in providing a
platform for smaller companies to access capital markets in its time. Its
introduction of screen-based trading and relaxed listing requirements were
noteworthy innovations that influenced the Indian stock market.
TRADING AND SETTLEMENT PROCEDURE AT STOCK EXCHANGE
The trading
and settlement procedure at a stock exchange involves a series of steps that
facilitate the buying and selling of securities. Here is a simplified overview
of the trading and settlement procedure at a stock exchange:
Order Placement: Investors place buy or sell orders
for securities through their stockbrokers. These orders specify the quantity,
price, and type of security they wish to trade.
Order Matching: The stock exchange matches buy and
sell orders based on price and time priority. Orders with matching criteria are
automatically executed, resulting in a trade.
Trade Execution: Once an order is matched, the trade
is executed at the prevailing market price. The stock exchange records the
trade details, including the security, quantity, price, and trading parties.
Trade Confirmation: Stockbrokers provide trade
confirmation to their clients, which includes the details of the executed
trade, such as the trade price, quantity, and transaction charges.
Trade Reporting: The stock exchange reports the
executed trades to the relevant regulatory authorities and disseminates the
trade information to market participants and the public through various
channels.
Clearing and Settlement: After trade execution, the clearing
and settlement process begins. It involves the determination of obligations,
transfer of securities, and settlement of funds between the trading parties.
Clearing: The clearing corporation or
clearinghouse, which is a separate entity from the stock exchange, acts as an
intermediary to ensure the smooth settlement of trades. It calculates the
obligations of the trading parties and nets off the positions to minimize the
number of securities and funds that need to be exchanged.
Settlement: The settlement process involves the
actual transfer of securities and funds between the buyer and seller. This can
be done through a process called Delivery versus Payment (DVP), where
securities and funds are simultaneously exchanged, ensuring a secure and
efficient settlement.
Settlement Cycle: The settlement cycle refers to the
timeframe within which the settlement of trades takes place. In many countries,
including India, the settlement cycle is typically T+2, which means that trades
are settled two business days after the trade date.
Trade Confirmation and
Account Statement: Following
the settlement, stockbrokers provide trade confirmation and account statements
to their clients, which reflect the updated positions of securities and funds in
their trading accounts.
It is
important to note that the trading and settlement procedures may vary slightly
depending on the specific rules and regulations of the stock exchange and the
country in which it operates. Additionally, technology advancements have
introduced electronic trading platforms and automated settlement systems,
further streamlining the trading and settlement processes.
DEMATERIALIZATION
Dematerialization,
often referred to as "Demat," is the process of converting physical
share certificates or securities into electronic form. It is a significant
development in the capital market that eliminates the need for physical
handling and storage of paper certificates. Here are some key points about
dematerialization:
Purpose: The primary purpose of
dematerialization is to provide a more convenient and secure way of holding and
trading securities. By converting securities into electronic form, investors
can easily buy, sell, and transfer securities without the need for physical
certificates.
Demat Account: To hold securities in electronic
form, investors need to open a demat account with a depository participant
(DP). A demat account serves as a digital repository for holding and
transacting securities.
Depositories: In most countries, including India,
the process of dematerialization is facilitated by central securities
depositories. In India, there are two depositories: National Securities
Depository Limited (NSDL) and Central Depository Services Limited (CDSL). These
depositories are responsible for maintaining the electronic records of
securities and facilitating the transfer and settlement of trades.
Dematerialization Process: To dematerialize physical
certificates, investors need to submit a dematerialization request to their DP.
The request typically includes details of the securities, such as the
certificate numbers, quantities, and relevant documents. The DP forwards the
request to the respective depository, which verifies the details and initiates
the dematerialization process.
Benefits
of Dematerialization: Dematerialization offers several advantages to investors,
including:
a. Convenience: Holding securities in electronic form
eliminates the need for physical handling and storage of certificates.
Investors can access and manage their securities online through their demat
account.
b. Safe and Secure: Electronic securities are safeguarded
against risks such as theft, loss, or damage that may occur with physical
certificates. The risk of fake or forged certificates is also reduced.
c. Easy Transfer and
Settlement: Dematerialized
securities can be easily transferred between demat accounts through a simple
transfer process. The settlement of trades is faster and more efficient since
the transfer of securities is done electronically.
d. Reduction in Paperwork: Dematerialization significantly
reduces paperwork associated with share transactions. Investors do not need to
fill out physical transfer forms or submit physical certificates for trading.
e. Corporate Actions: Investors holding dematerialized
securities receive corporate benefits such as dividends, bonus shares, or
rights issues directly into their demat accounts. This simplifies the process
and ensures timely receipt of entitlements.
Dematerialization
has revolutionized the way securities are held and traded, bringing efficiency,
convenience, and safety to investors. It has become the standard mode of
holding securities in many countries, promoting a more streamlined and
digitized capital market ecosystem.
DEPOSITORY SYSTEM
The depository
system is a mechanism that facilitates the electronic holding and transfer of
securities, eliminating the need for physical certificates. It is a central
infrastructure that enables investors to hold their securities in
dematerialized (electronic) form and conduct transactions efficiently. Here are
some key points about the depository system:
Purpose: The primary purpose of the depository
system is to provide a secure, efficient, and convenient way of holding and
transacting securities. It eliminates the risks associated with physical
certificates, such as loss, theft, or damage, and streamlines the process of share
transfers and settlement.
Role of Depositories: Depositories are central institutions
that provide the infrastructure for holding and maintaining electronic records
of securities. They act as custodians of securities on behalf of investors and
facilitate the transfer and settlement of securities.
Participants
in the Depository System: The depository system involves several key
participants:
a. Depository: The depository is the central
institution responsible for maintaining electronic records of securities and
providing related services. Examples include the National Securities Depository
Limited (NSDL) and the Central Depository Services Limited (CDSL) in India.
b. Depository Participants
(DPs): DPs are intermediaries that provide
depository services to investors. They act as agents of the depository and
offer demat account services to investors. DPs can be banks, financial institutions,
or brokerage firms.
c. Investors: Investors are the individuals or
entities that hold securities in dematerialized form through their demat
accounts. They can buy, sell, or transfer securities electronically using the
services provided by DPs.
d. Issuing Companies: Issuing companies are the entities
that offer securities for issuance or listing on the stock exchange. They work
in collaboration with depositories and DPs to facilitate the electronic
transfer of securities to investors' demat accounts.
Demat Account: A demat account is a digital account
provided by a DP to investors for holding securities in electronic form. It
serves as an interface between investors and the depository system. Investors
can access and manage their demat accounts online to view holdings, transact
securities, and receive corporate benefits.
Dematerialization and
Rematerialization: The
depository system facilitates the process of converting physical certificates
into electronic form (dematerialization) and vice versa (rematerialization).
Investors can submit their physical share certificates to the depository
through their DPs for dematerialization, and electronic securities can be
rematerialized into physical certificates if required.
Benefits of the Depository
System: The depository system offers several
advantages, including:
a. Safety and Security: Electronic securities held in the
depository system are protected against risks such as theft, loss, or damage
associated with physical certificates.
b. Efficiency and
Convenience: Transactions
involving dematerialized securities can be executed faster and more
efficiently, with reduced paperwork and processing time.
c. Easy Transfer and
Settlement: The
depository system enables seamless transfer of securities between demat
accounts, simplifying the process of buying, selling, or transferring
securities.
d. Corporate Actions: Investors holding securities in demat
form receive corporate benefits directly into their demat accounts, such as
dividends, bonus shares, or rights issues.
e. Reduced Costs: The depository system eliminates the
costs associated with physical handling, printing, and transportation of
certificates, leading to cost savings for investors and companies.
The
depository system has revolutionized the securities market by providing a
secure and efficient platform for holding and transferring securities
electronically. It has become an integral part of the financial infrastructure
in many countries, promoting transparency, convenience, and investor
protection.
SECURITIES S EXCHANGE BOARO OF INDIA (SEBI)
INTRODUCTION
The
Securities and Exchange Board of India (SEBI) is the regulatory authority
responsible for overseeing and regulating the securities market in India. It
was established in 1988 as an independent statutory body with the goal of
protecting the interests of investors and promoting the development and
regulation of the securities market. Here are some key points about SEBI and
its introduction:
Regulatory Authority: SEBI acts as the apex regulatory body
for the securities market in India. It operates under the Securities and
Exchange Board of India Act, 1992, and has been granted extensive powers to
regulate various participants and entities in the market.
Investor Protection: One of the primary objectives of SEBI
is to protect the interests of investors. It achieves this by formulating
regulations and guidelines to ensure fair practices, transparency, and
integrity in the securities market. SEBI also takes measures to prevent
fraudulent and manipulative activities that may harm investors.
Market Regulation: SEBI regulates and supervises various
entities and intermediaries in the securities market, including stock
exchanges, depositories, brokers, portfolio managers, and mutual funds. It sets
rules and regulations for their functioning, monitors compliance, and takes
enforcement actions when necessary.
Promoting Market
Development: SEBI plays a
crucial role in promoting the development and growth of the securities market.
It formulates policies and regulations that facilitate market efficiency,
liquidity, and transparency. SEBI also encourages innovation and new product
offerings in the market to meet the evolving needs of investors.
Surveillance and
Enforcement: SEBI
conducts surveillance and monitoring of market activities to detect and prevent
any market abuse or misconduct. It has the authority to investigate and take
enforcement actions against entities and individuals involved in violations of
securities laws. SEBI's enforcement actions may include penalties, fines,
disgorgement of illegal gains, or suspension of market participants.
Investor Education and
Awareness:
SEBI undertakes
initiatives to enhance investor education and awareness. It conducts investor
awareness programs, disseminates information about investment opportunities,
and educates investors about their rights, risks, and responsibilities. SEBI
aims to create a well-informed and empowered investor community.
International
Collaborations: SEBI
actively participates in international forums and collaborations to enhance its
regulatory capabilities and align with global best practices. It engages with
other regulatory bodies and organizations to promote cross-border cooperation,
information exchange, and harmonization of regulations.
SEBI has
played a crucial role in transforming the securities market in India, fostering
investor confidence, and ensuring market integrity. Through its regulatory
initiatives, SEBI aims to create a fair, transparent, and efficient market
ecosystem that promotes investor protection and sustainable market growth.
OBJECTIVES OF SEBI
The Securities and Exchange Board of India (SEBI) has
several objectives that guide its regulatory and supervisory role in the
securities market. Here are the main objectives of SEBI:
Investor Protection: SEBI's
primary objective is to protect the interests of investors in the securities
market. It aims to ensure fair and equitable treatment of investors and
safeguard them against fraudulent practices, market manipulation, and insider
trading. SEBI strives to enhance investor education and awareness to empower
investors and enable informed decision-making.
Regulation and Development
of the Securities Market: SEBI is responsible for regulating and
developing the securities market in India. It formulates regulations,
guidelines, and codes of conduct for various market participants, including
issuers, intermediaries, and investors. SEBI's role is to create a transparent,
efficient, and well-regulated market ecosystem that fosters fair competition
and market integrity.
Promoting Fair Practices
and Market Integrity: SEBI aims to promote fair practices and maintain market
integrity. It prohibits fraudulent and unfair trade practices, manipulative
activities, and insider trading. SEBI establishes standards for market conduct,
disclosure requirements, and corporate governance practices to ensure
transparency, accountability, and ethical behavior in the securities market.
Ensuring Efficiency and
Liquidity:
SEBI focuses on enhancing market efficiency and liquidity. It strives to
create a competitive and efficient market structure that facilitates the smooth
functioning of capital raising, trading, and settlement processes. SEBI
promotes market innovations, introduces new products, and adopts advanced
technologies to improve market efficiency and investor experience.
Developing Investor
Education and Awareness: SEBI recognizes the importance of investor
education and awareness. It undertakes initiatives to educate investors about
investment opportunities, risks, and rights. SEBI aims to enhance financial
literacy, disseminate information about market practices, and empower investors
to make informed investment decisions.
Promoting Self-Regulation: SEBI
encourages self-regulatory organizations (SROs) such as stock exchanges and industry
associations to play an active role in regulating their members. It works in
collaboration with SROs to establish and enforce regulations, monitor
compliance, and maintain market discipline.
Conducting Research and
Training: SEBI
conducts research and studies on various aspects of the securities market to
gain insights and inform its regulatory decisions. It also provides training
and certification programs to market participants to enhance their knowledge,
skills, and professionalism.
By pursuing these objectives, SEBI aims to foster a
vibrant, transparent, and well-regulated securities market in India. It seeks
to balance the interests of various stakeholders and ensure investor
confidence, market stability, and sustainable growth.
FUNCTIONS OF SEBI
The Securities and Exchange Board of India (SEBI)
performs various functions to regulate and supervise the securities market in
India. Here are the main functions of SEBI:
Regulatory Functions: SEBI
formulates regulations, guidelines, and rules for the securities market to
ensure fair practices, transparency, and investor protection. It regulates
various entities and intermediaries in the market, including stock exchanges,
depositories, brokers, portfolio managers, and mutual funds. SEBI sets
standards for their functioning, registration, and compliance.
Supervisory Functions: SEBI
exercises supervisory powers over market participants to monitor their
activities and ensure compliance with securities laws. It conducts inspections,
audits, and investigations to detect any violations or irregularities. SEBI has
the authority to take enforcement actions, including imposing penalties, fines,
disgorgement of illegal gains, or suspension of market participants.
Investor Protection: SEBI's
primary function is to protect the interests of investors. It establishes
regulations and mechanisms to safeguard investors against fraudulent practices,
market manipulation, and insider trading. SEBI ensures disclosure of relevant
information by companies, enhances corporate governance practices, and promotes
transparency in the securities market.
Development of the
Securities Market: SEBI plays a crucial role in the development and growth
of the securities market in India. It formulates policies and regulations to
promote market efficiency, liquidity, and innovation. SEBI introduces new
products and trading mechanisms, facilitates the use of advanced technologies,
and encourages market participants to adopt best practices.
Market Surveillance: SEBI
conducts market surveillance to monitor trading activities and detect any
irregularities or market abuses. It uses advanced systems and technology tools
to analyze trading patterns, identify potential manipulations or insider
trading, and maintain market integrity. SEBI takes proactive measures to
prevent market misconduct and ensures a level playing field for all
participants.
Investor Education and
Awareness:
SEBI undertakes initiatives to enhance investor education and awareness.
It conducts investor awareness programs, disseminates information about
investment opportunities, risks, and rights. SEBI educates investors about the
functioning of the securities market, encourages responsible investing, and
promotes financial literacy.
Promoting Market Integrity
and Fair Practices: SEBI ensures fair practices and market integrity by
setting standards for market conduct and preventing fraudulent activities. It
establishes codes of conduct, disclosure requirements, and corporate governance
norms for listed companies and market intermediaries. SEBI encourages market
participants to adopt ethical practices and maintains market discipline.
International Coordination: SEBI
collaborates with other international regulatory bodies and organizations to
enhance its regulatory capabilities and align with global best practices. It
actively participates in international forums and initiatives to promote
cross-border cooperation, information sharing, and harmonization of
regulations.
By performing these functions, SEBI aims to create a
well-regulated, transparent, and investor-friendly securities market in India.
It strives to foster investor confidence, market stability, and sustainable
growth in the securities market ecosystem.
DEVELOPMENTAL FUNCTIONS
In addition to its regulatory and supervisory functions,
the Securities and Exchange Board of India (SEBI) also performs developmental
functions to promote the growth and development of the securities market in
India. These developmental functions include:
Promotion of Market
Institutions: SEBI works towards promoting and developing market
institutions such as stock exchanges, depositories, and clearinghouses. It
formulates policies and guidelines to enhance the efficiency, transparency, and
competitiveness of these institutions. SEBI encourages the establishment of new
market infrastructure and facilitates their growth through regulatory support.
Introduction of Market
Reforms: SEBI
introduces market reforms to improve the functioning of the securities market.
It initiates policy changes and regulatory reforms to align the Indian
securities market with international best practices. SEBI encourages innovation
and introduces new products, trading mechanisms, and technologies to enhance
market efficiency and liquidity.
Investor Education and
Awareness:
SEBI places significant emphasis on investor education and awareness. It
conducts investor education programs, workshops, seminars, and awareness
campaigns to educate investors about the securities market, investment risks,
and investor rights. SEBI aims to empower investors with knowledge and
information to make informed investment decisions.
Research and Development: SEBI
conducts research and studies to gain insights into market dynamics, investor
behavior, and emerging trends. It collaborates with academic institutions,
market participants, and other stakeholders to undertake research projects. The
research findings help in formulating effective policies, regulations, and market
development initiatives.
Market Intermediaries
Development: SEBI focuses on the development of market intermediaries
such as brokers, investment advisors, portfolio managers, and mutual funds. It
sets eligibility criteria, registration requirements, and conducts periodic
reviews to ensure the competence, integrity, and professionalism of these intermediaries.
SEBI promotes investor-friendly practices and ethical conduct among market
intermediaries.
Investor Protection
Measures: As
part of its developmental functions, SEBI takes measures to protect the
interests of investors. It establishes investor grievance redressal mechanisms,
such as SEBI Complaints Redress System (SCORES), to address investor complaints
and grievances effectively. SEBI also works towards enhancing the efficiency
and transparency of dispute resolution mechanisms.
Collaboration and
Cooperation: SEBI collaborates with other domestic and international
regulatory bodies to foster cooperation and exchange of information. It
participates in international forums and initiatives to share experiences,
knowledge, and best practices in securities market regulation. SEBI actively
engages with market participants, industry associations, and other stakeholders
to seek their inputs and ensure a consultative approach to market development.
Through these developmental functions, SEBI aims to create
a robust and vibrant securities market in India. It promotes investor
confidence, market integrity, and sustainable growth by fostering a conducive
regulatory environment and facilitating market development initiatives.
OTHER FUNCTIONS
In addition to the regulatory, supervisory, and
developmental functions, the Securities and Exchange Board of India (SEBI)
performs various other functions to ensure the smooth functioning of the
securities market and protect the interests of investors. These other functions
include:
SEBI is responsible for the registration and regulation
of various entities operating in the securities market, such as brokers,
depositories, credit rating agencies, and collective investment schemes. SEBI
sets eligibility criteria, registration requirements, and ongoing compliance
obligations for these entities to maintain market integrity and protect
investor interests.
Enforcement of Securities
Laws: SEBI
has the power to enforce securities laws and take action against entities that
violate the regulations. It conducts investigations, inspections, and audits to
detect any fraudulent or manipulative activities in the market. SEBI can impose
penalties, fines, or other disciplinary actions on those found guilty of
misconduct.
Monitoring and Surveillance: SEBI
employs advanced technology and surveillance systems to monitor trading
activities, market trends, and potential market abuses. It tracks price
movements, trading volumes, and other market indicators to identify any
irregularities or suspicious transactions. SEBI's monitoring and surveillance
function helps maintain market integrity and detect any instances of market manipulation
or insider trading.
Policy Advocacy and
Representation: SEBI acts as a policy advocate for the securities market
by providing recommendations and inputs to the government on policy matters
related to capital markets. It represents the interests of the securities
market participants and investors in discussions and consultations with various
stakeholders, including government agencies, industry associations, and
international organizations.
Investor Education and
Awareness Programs: SEBI conducts investor education and awareness programs
to educate investors about the securities market, investment risks, and
financial planning. It disseminates information through various mediums,
including websites, publications, seminars, and interactive platforms. SEBI's
investor education initiatives aim to empower investors with knowledge and help
them make informed investment decisions.
Policy Formulation and
Review: SEBI
is responsible for formulating and reviewing policies and regulations governing
the securities market. It continually assesses the regulatory framework to
ensure its effectiveness, relevance, and alignment with market dynamics. SEBI
considers feedback from market participants, investors, and other stakeholders
to make necessary amendments and improvements to the regulatory framework.
Dissemination of
Information: SEBI ensures the timely and accurate dissemination of information
that is relevant to the securities market. It mandates companies to make
disclosures regarding their financial performance, corporate actions, and other
material information that may impact investor decisions. SEBI also maintains a
centralized database of corporate disclosures and makes it accessible to the public
and market participants.
These other functions performed by SEBI contribute to the
overall functioning, stability, and development of the securities market in
India. SEBI's efforts are focused on maintaining investor confidence, market
integrity, and the efficient operation of the securities market.
Multiple Choice
Questions:
1. What is the primary
function of a stock exchange?
a) Facilitating buying and selling of securities
b) Ensuring market surveillance
c) Providing investor protection
d) Enhancing market liquidity
2. Which function of a
stock exchange involves determining the fair market value of securities?
a) Facilitating buying and selling of securities
b) Price discovery
c) Liquidity enhancement
d) Listing and regulation
3. What is the role of a
market maker in a stock exchange?
a) Facilitating IPOs for companies
b) Ensuring market surveillance
c) Providing liquidity to the market
d) Regulating listed companies
4. Which function of a
stock exchange promotes transparency and investor confidence?
a) Market surveillance and investor protection
b) Capital formation
c) Market information and transparency
d) Listing and regulation
5. Stock exchanges provide
a regulated marketplace for trading securities. What is one of the services
they offer?
a) Capital formation
b) Market information
c) Investor protection
d) Regulatory oversight
6. Which stock exchange is
known for its benchmark index called the Nifty 50?
a) National Stock Exchange (NSE)
b) Bombay Stock Exchange (BSE)
c) Over-The-Counter Exchange of India (OTCEI)
d) None of the above
7. The National Stock
Exchange (NSE) operates on a fully automated screen-based trading system
called:
a) NEAT
b) BOLT
c) Sensex
d) Nifty 50
8. OTCEI aimed to provide a
platform for which type of companies to raise capital?
a) Large multinational corporations
b) Small and medium-sized companies
c) Government-owned enterprises
d) Foreign companies
9. What is the purpose of
dematerialization in the securities market?
a. To facilitate physical handling and storage of paper
certificates.
b. To provide a convenient and secure way of holding and
trading securities.
c. To increase the risk of theft, loss, and damage of
securities.
d. To reduce investor access to their securities.
10. Who acts as an
intermediary to ensure the smooth settlement of trades in the clearing process?
a. Stock exchange
b. Depository participant
c. Clearing corporation or clearinghouse
d. Regulatory authorities
11. What is the settlement
cycle in many countries, including India?
a. T+0
b. T+1
c. T+2
d. T+3
12. Which of the following
is NOT a benefit of dematerialization?
a. Convenience in accessing and managing securities
b. Protection against theft, loss, or damage
c. Reduction in paperwork
d. Faster and more efficient settlement of trades
13. What is the primary
objective of SEBI?
a. To protect the interests of investors
b. To promote fraudulent and manipulative activities
c. To discourage market transparency
d. To hinder the growth of the securities market
True or False
Questions:
1.
Stock exchanges facilitate the buying
and selling of stocks, bonds, derivatives, and other financial instruments. (True/False)
2.
The Securities and Exchange Board of
India (SEBI) is the regulatory authority overseeing stock exchanges in India. (True/False)
3.
The Nifty 50 is a benchmark index of the
Bombay Stock Exchange (BSE). (True/False)
4.
The Over-The-Counter Exchange of India
(OTCEI) ceased operations in 2014. (True/False)
5.
Stock exchanges help in price discovery
by determining the fair market value of securities. (True/False)
6.
Liquidity enhancement is one of the key
functions of a stock exchange, allowing investors to easily convert their investments
into cash. (True/False)
7.
Stock exchanges regulate listed
companies to ensure adherence to reporting, disclosure, and corporate governance
standards. (True/False)
8.
Market information provided by stock
exchanges helps investors make informed decisions. (True/False)
9.
Capital formation is facilitated by
stock exchanges through the issuance of new securities by companies. (True/False)
10.
Dematerialization eliminates the need
for physical handling and storage of paper certificates. (True/False)
11.
The depository system facilitates the
electronic holding and transfer of securities. (True/False)
12.
SEBI regulates and supervises various
entities and intermediaries in the securities market. (True/False)
13.
The primary objective of SEBI is to
promote unfair practices in the securities market. (True/False)
14.
SEBI conducts market surveillance to
monitor trading activities and detect any irregularities or market abuses. (True/False)
YERY SHORT ANSWER
QUESTIONS
Q.1. Define stock exchange?
Ans. A stock exchange is a marketplace where
stocks and other securities are bought and sold.
Q.2.Explain National stock Exchange of India?
Ans. The National Stock Exchange of India
(NSE) is the leading stock exchange in India. It is a fully automated
electronic trading platform that facilitates the trading of various financial
instruments such as stocks, derivatives, bonds, and exchange-traded funds
(ETFs). The NSE operates on a nationwide basis and provides a transparent and
efficient marketplace for investors to buy and sell securities. It is regulated
by the Securities and Exchange Board of India (SEBI) and plays a crucial role
in the Indian capital market by promoting investor protection and ensuring fair
trading practices.
Q.3. Name two areas of operation of NSEI?
Ans. The two areas of operation of the National
Stock Exchange of India (NSEI) are:
Trading: NSEI
provides a platform for trading various financial instruments such as stocks,
derivatives, bonds, and ETFs. It facilitates transparent and efficient trading
operations for investors.
Listing: NSEI
offers companies the opportunity to list their securities on the exchange. By
listing on NSEI, companies can raise capital from the public and provide
investors with an avenue to trade their securities on the exchange.
Q.4.What is SEBI?
Ans. SEBI stands for the Securities and
Exchange Board of India. It is the regulatory body that oversees and regulates
the securities market in India. SEBI's primary role is to protect the interests
of investors and promote the development and regulation of the securities
market. It formulates rules and regulations for various market participants,
including stock exchanges, brokers, listed companies, and investors. SEBI's
responsibilities include ensuring fair practices, preventing fraud and market
manipulation, promoting transparency, and fostering investor education and
awareness.
Q.5. Name six prominent stock exchanges of India?
Ans. The six prominent stock exchanges of India
are:
1.
National Stock Exchange of India (NSE)
2.
Bombay Stock Exchange (BSE)
3.
Calcutta Stock Exchange (CSE)
4.
Madras Stock Exchange (MSE)
5.
Ahmedabad Stock Exchange (ASE)
6.
Metropolitan Stock Exchange of India (MSEI)
Q.6. State any one regulatory function of securities and
Exchange board of India (SEBI)?
Ans. One regulatory function of the
Securities and Exchange Board of India (SEBI) is overseeing the registration
and regulation of intermediaries such as stockbrokers, sub-brokers, depository
participants, and other market participants. SEBI sets the eligibility
criteria, code of conduct, and regulatory framework for these intermediaries to
ensure their compliance with rules and regulations, maintain market integrity,
and safeguard investor interests.
Q.7. State any protective function of securities and
Exchange board of India (SEBI)?
Ans. One protective function of the
Securities and Exchange Board of India (SEBI) is to prevent insider trading.
SEBI implements rules and regulations to prohibit the trading of securities
based on unpublished price-sensitive information by individuals who have access
to such information. This protective measure ensures fair and equal
opportunities for all investors and promotes market integrity. SEBI monitors
and investigates suspected cases of insider trading and takes appropriate
actions to safeguard the interests of investors and maintain the integrity of
the securities market.
Q.8. Sate any one function of stock exchange?
Ans. One function of a stock exchange is to provide a
platform for companies to raise capital through the issuance of stocks or other
securities.
SHORT ANSWER QUESTIONS
Q.1. Define stock exchange briefly discuss its
characteristics?
Ans. A stock exchange is a regulated
marketplace where buyers and sellers come together to trade stocks and other
securities. Here are some key characteristics of stock exchanges:
Centralized Market: Stock exchanges provide a centralized
platform for trading securities, where buyers and sellers can meet and execute
transactions.
Regulated Environment: Stock exchanges operate under the
supervision and regulation of relevant authorities, ensuring fair trading
practices, transparency, and investor protection.
Listing of Securities: Companies can list their securities
on stock exchanges, allowing them to raise capital by selling shares to the
public. Listing requirements and regulations vary among exchanges.
Price Discovery: Stock exchanges facilitate price discovery
by bringing together the forces of supply and demand. The trading activity on
the exchange helps determine the market prices of securities.
Liquidity: Stock exchanges provide liquidity to
investors, enabling them to buy or sell securities quickly and at competitive
prices. The presence of numerous buyers and sellers enhances market liquidity.
Market Transparency: Stock exchanges provide transparent
trading mechanisms, disclosing information about trading volumes, prices, and
other market data. This transparency enables informed decision-making by
investors.
Trading Mechanisms: Stock exchanges employ various
trading mechanisms, such as continuous trading or call auctions, to facilitate
efficient and orderly trading of securities.
Market Surveillance: Stock exchanges monitor trading
activities to detect and prevent market manipulation, fraud, and insider
trading. Surveillance systems help maintain market integrity.
Access to Market
Information: Stock
exchanges disseminate market information, including real-time quotes, news, and
financial data, to market participants, enabling them to make informed
investment decisions.
Market Indices: Stock exchanges often calculate and
publish market indices, such as the S&P 500 or the Nifty 50, which
represent the performance of a specific group of stocks and serve as benchmarks
for market trends.
Overall,
stock exchanges play a crucial role in facilitating the trading of securities,
promoting capital formation, and providing a regulated and transparent
marketplace for investors.
Q.2. Briefly explain the importance of stock exchange?
Ans. The stock exchange holds significant
importance in the financial system and the economy. Here are some key reasons
why stock exchanges are important:
Capital Formation: Stock exchanges provide companies
with a platform to raise capital by issuing stocks or other securities to
investors. This capital helps companies finance their operations, expand their
businesses, invest in new projects, and drive economic growth.
Investment Opportunities: Stock exchanges offer individuals and
institutional investors the opportunity to invest in a wide range of
securities, including stocks, bonds, derivatives, and ETFs. This allows
investors to diversify their portfolios, participate in the growth of companies,
and potentially earn returns on their investments.
Liquidity and Market
Efficiency: Stock
exchanges provide liquidity to securities, allowing investors to buy and sell
their holdings easily. The presence of multiple buyers and sellers enhances market
efficiency, ensuring that securities can be traded at fair prices with minimal
transaction costs.
Price Discovery: Stock exchanges facilitate price
discovery by bringing together buyers and sellers and enabling them to
determine the market prices of securities through supply and demand dynamics.
This price discovery process ensures that securities are traded at fair and
transparent prices.
Corporate Governance and
Transparency: Listing
on a stock exchange requires companies to adhere to regulatory and disclosure
requirements, promoting corporate governance and transparency. Publicly listed
companies are accountable to their shareholders and are required to disclose
financial information, corporate actions, and other important updates,
enhancing investor confidence.
Economic Indicators: Stock exchanges and their indices
serve as barometers of overall market and economic conditions. Market indices
like the S&P 500 or the FTSE 100 reflect the performance of a broad section
of stocks and are used as benchmarks to gauge market trends and economic
health.
Wealth Creation and
Retirement Planning: Stock
exchanges have historically provided opportunities for wealth creation, as
investors can benefit from capital appreciation and dividends over time. Stock
market investments also play a vital role in long-term retirement planning for
individuals and help build wealth for the future.
Economic Stability and
Growth: Stock exchanges contribute to
economic stability by providing avenues for companies to raise capital and grow
their businesses. They also foster economic growth by facilitating investment,
job creation, and innovation, thereby contributing to overall economic
development.
In summary,
stock exchanges play a crucial role in mobilizing capital, providing investment
opportunities, promoting market efficiency, ensuring transparency, and
contributing to economic growth and stability.
Q.3.What are the disadvantages of stock exchange?
Ans. While stock exchanges have numerous
advantages, there are also some disadvantages to consider:
Market Volatility: Stock markets can be highly volatile,
with prices fluctuating rapidly. Market volatility can lead to significant
price swings, which may create uncertainty and risk for investors. Sudden
market downturns can result in substantial losses for those holding securities.
Risk of Loss: Investing in the stock market carries
inherent risks. There is no guarantee of returns, and investors may experience
losses if the value of their investments declines. Factors such as economic conditions,
market trends, and company-specific issues can impact the performance of
stocks.
Market Manipulation: Despite regulatory measures, there is
still a risk of market manipulation, insider trading, and other fraudulent
activities in stock exchanges. These practices can distort market prices,
undermine investor confidence, and create an unfair playing field.
Information Asymmetry: Not all investors have access to the
same level of information. Institutional investors and professionals may have
access to research, analysis, and insider information that individual investors
may lack. This information asymmetry can put individual investors at a
disadvantage.
Speculative Behavior: The stock market can attract
speculative investors who focus on short-term trading and rapid profit-making.
Speculation can lead to excessive volatility, price bubbles, and market
inefficiencies.
Lack of Control: When investing in stocks, investors
relinquish direct control over the management and decision-making of the
company. Shareholders have limited influence over corporate actions and
strategic decisions.
Market Timing Challenges: Timing the market and predicting its
movements accurately is extremely challenging. Investors may find it difficult
to consistently buy or sell stocks at the most opportune moments, potentially
impacting their investment returns.
Market Manipulation: While stock exchanges have measures
to prevent market manipulation, it remains a concern. Manipulative practices,
such as pump and dump schemes, can mislead investors and artificially inflate
or deflate stock prices.
It is
important for investors to be aware of these disadvantages and conduct thorough
research, diversify their portfolios, and exercise caution when investing in
the stock market.
Q.4. Explain about the various stock exchanges in India?
Ans. India has several stock exchanges,
but the major ones are the National Stock Exchange (NSE) and the Bombay Stock
Exchange (BSE). Here's an overview of these two prominent stock exchanges:
National Stock Exchange
(NSE): Established in 1992, the NSE is the
largest stock exchange in India in terms of trading volume and market
capitalization. It is a fully automated electronic exchange based in Mumbai.
The NSE operates on a nationwide basis and provides a platform for trading
various financial instruments such as equities, derivatives, bonds, and ETFs.
It is known for its advanced technology, robust trading infrastructure, and
extensive product range.
Bombay Stock Exchange
(BSE): Founded in 1875, the BSE is the oldest
stock exchange in Asia and one of the largest in India. It is located in Mumbai
and offers a platform for trading equities, derivatives, mutual funds, and debt
instruments. The BSE operates both an electronic trading system (BOLT) and a
traditional open outcry trading system (BSE Trading Ring). It is known for its
Sensex index, which tracks the performance of 30 major stocks listed on the
exchange.
In addition
to these major exchanges, there are a few regional stock exchanges in India,
although their significance has diminished over the years. These include:
Calcutta Stock Exchange
(CSE): Located in Kolkata, it was one of the
oldest stock exchanges in India but has seen a decline in its operations and trading
volumes in recent years.
Madras Stock Exchange
(MSE): Based in Chennai, it was established
in 1937 and has faced challenges in maintaining active trading.
Ahmedabad Stock Exchange
(ASE): Located in Ahmedabad, it was
established in 1894 but has experienced a significant decline in trading
activity and listings.
Metropolitan Stock Exchange
of India (MSEI): Formerly
known as the MCX Stock Exchange, it is based in Mumbai and primarily focuses on
currency derivatives trading.
It's
important to note that over time, regulatory measures and changes in market
dynamics have led to consolidation, with the NSE and BSE emerging as the
dominant exchanges in India.
Q.5.What do you understand by NSEI?
Ans. "NSEI" is an acronym that
is commonly used to refer to the National Stock Exchange of India (NSE). The
NSE is the leading stock exchange in India and plays a crucial role in the
country's capital market. It is a fully automated electronic trading platform
that provides a transparent and efficient marketplace for trading various
financial instruments, including equities, derivatives, bonds, and ETFs. The
NSE is regulated by the Securities and Exchange Board of India (SEBI) and
operates on a nationwide basis. It is known for its advanced technology,
extensive product range, and high trading volumes.
Q.6.What do you understand by OTCEI? Write functions of
OTCEI?
Ans. OTCEI stands for Over-The-Counter
Exchange of India. It was established in 1990 as the first screen-based stock
exchange in India. Here are some functions of OTCEI:
Facilitating Trading: OTCEI provides a platform for trading
securities, primarily catering to small and medium-sized enterprises (SMEs). It
allows these companies to raise capital by issuing securities and provides
investors with an avenue to trade these securities.
Promoting Small and Medium
Enterprises: OTCEI
focuses on promoting the growth and development of small and medium-sized
enterprises by providing them with easier access to the capital market. It
allows these companies to raise funds through public offerings, improving their
financial standing and expanding their operations.
Listing and Capital
Formation:
OTCEI offers companies
the opportunity to list their securities on the exchange. Listing on OTCEI
provides companies with visibility, credibility, and access to a broader
investor base, which helps them raise capital and fund their business expansion
plans.
Transparent Trading
Mechanism:
OTCEI operates on a
screen-based trading system, ensuring transparency in transactions. The
exchange provides real-time quotes, market data, and order matching, enabling
fair and efficient trading of securities.
Investor Protection: OTCEI follows strict regulatory
guidelines to protect the interests of investors. It promotes transparency,
fair trading practices, and disclosure norms to ensure that investors have
access to relevant information and can make informed investment decisions.
Market Development: OTCEI plays a role in the overall
development of the capital market in India. By providing a platform for SMEs to
raise capital, it fosters economic growth, encourages entrepreneurship, and
contributes to the diversification and expansion of the Indian securities
market.
It's
important to note that since its establishment, the trading activity on OTCEI
has significantly reduced, and it is not as active as the major stock exchanges
like the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in
India.
Q.7. Why is OTCEI important for investors?
Ans. OTCEI (Over-The-Counter Exchange of
India) was an important exchange for investors, particularly during its active
period, due to the following reasons:
Access to SMEs: OTCEI focused on providing a platform
for trading securities of small and medium-sized enterprises (SMEs). This
allowed investors to explore investment opportunities in emerging companies
that may have had limited presence or visibility in other major exchanges.
Investing in SMEs offered the potential for higher returns, as these companies
often had growth prospects and the potential to appreciate in value over time.
Capital Appreciation: By investing in securities listed on
OTCEI, investors had the opportunity to benefit from capital appreciation. As
SMEs grew and their businesses expanded, the value of their securities could
increase, leading to potential gains for investors.
Diversification: OTCEI allowed investors to diversify
their investment portfolios. By including securities from SMEs listed on OTCEI,
investors could spread their investment across different sectors and companies,
reducing the concentration risk associated with investing in only large-cap stocks
or established companies.
Early-Stage Investment: Investing in SMEs listed on OTCEI
provided investors with the chance to participate in early-stage investment
opportunities. By identifying promising companies at their early stages,
investors could potentially benefit from their growth and success in the long
run.
Supporting Economic Growth: OTCEI played a role in fostering
economic growth by providing a platform for SMEs to raise capital and expand
their businesses. By investing in these companies, investors indirectly
contributed to job creation, innovation, and overall economic development.
It's worth
noting that OTCEI is not as active as it once was, and its significance has
diminished over time. Investors now primarily focus on major exchanges like the
National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in India for
a wider range of investment opportunities and liquidity.
Q.8. Explain SEBI what are its objectives and functions?
Ans. SEBI stands for the Securities and
Exchange Board of India. It is the regulatory authority responsible for
overseeing and regulating the securities market in India. The primary
objectives of SEBI are to protect the interests of investors, ensure the
development and regulation of the securities market, and promote healthy and
fair practices within the market. Here are the key functions and objectives of
SEBI:
Investor Protection: SEBI aims to safeguard the interests
of investors by ensuring fair and transparent practices in the securities
market. It formulates regulations to prevent fraud, manipulation, and insider
trading, and takes actions against entities involved in unfair practices.
Market Regulation and
Development: SEBI's
objective is to create a well-regulated and efficient securities market in
India. It formulates rules and regulations for securities exchanges,
intermediaries, and other market participants. SEBI continuously monitors the
market, enforces compliance, and promotes transparency and integrity in the
market.
Promoting Fair Practices: SEBI works towards promoting fair
practices in the securities market. It establishes a code of conduct for market
intermediaries and takes measures to prevent malpractices such as price
manipulation, insider trading, and fraudulent activities. SEBI also encourages
disclosures and transparency in corporate governance.
Supervision and
Surveillance: SEBI
exercises oversight and surveillance over the securities market to detect any
market manipulation or misconduct. It has the authority to investigate and take
action against any violation of securities laws, regulations, or guidelines.
Regulation of
Intermediaries: SEBI
regulates various market intermediaries such as stockbrokers, merchant bankers,
portfolio managers, and credit rating agencies. It grants licenses, sets
eligibility criteria, and establishes codes of conduct for these intermediaries
to ensure their compliance with regulatory standards.
Investor Education and
Awareness:
SEBI aims to enhance
investor education and awareness about investing in the securities market. It
conducts investor education programs, disseminates information about investment
risks, and promotes financial literacy to empower investors to make informed
investment decisions.
Research and Training: SEBI conducts research and studies on
various aspects of the securities market and undertakes initiatives to improve
market infrastructure. It also provides training and certification programs for
market participants to enhance their knowledge and skills.
In summary,
SEBI plays a vital role in regulating and developing the securities market in
India. Its objectives include protecting investors, promoting fair practices,
regulating intermediaries, and ensuring the overall integrity and efficiency of
the securities market.
Q.9. Explain the features and functions of stock
exchange?
Ans. Features of Stock Exchange:
Organized Marketplace: Stock exchanges provide an organized
and regulated marketplace for buying and selling securities. They establish
rules, regulations, and procedures to ensure fair and transparent trading
activities.
Listing of Securities: Stock exchanges facilitate the
listing of securities issued by public companies. By listing on an exchange,
companies can offer their shares to the public for trading, providing liquidity
to investors and enabling them to become shareholders.
Trading Mechanism: Stock exchanges provide a platform
for the trading of securities, where buyers and sellers can come together to
execute transactions. They offer various types of trading mechanisms, such as
open outcry, electronic trading, or a combination of both, depending on the
exchange's structure.
Price Discovery: Stock exchanges play a crucial role
in price discovery, determining the fair market value of securities. Through
the continuous buying and selling of securities, supply and demand dynamics
contribute to the formation of market prices.
Regulation and Oversight: Stock exchanges are subject to
regulatory oversight by relevant authorities, such as the Securities and
Exchange Board of India (SEBI). They must adhere to rules and regulations
designed to maintain market integrity, protect investors, and prevent market
manipulation.
Functions
of Stock Exchange:
Facilitating Trading: The primary function of a stock
exchange is to provide a platform for the trading of securities. It enables
investors to buy and sell stocks, bonds, derivatives, and other financial
instruments, allowing for liquidity and price discovery.
Listing and Delisting of
Securities: Stock
exchanges facilitate the process of listing securities issued by companies.
They establish criteria and guidelines for companies seeking to list their
securities on the exchange. Conversely, exchanges also oversee the delisting of
securities when companies no longer meet the listing requirements.
Market Surveillance: Stock exchanges monitor trading
activities to detect and prevent market manipulation, insider trading, and
other fraudulent practices. They employ surveillance systems and conduct
investigations to ensure fair and transparent trading.
Providing Market
Information: Stock
exchanges disseminate real-time market information, including prices, trading
volumes, and other relevant data. This information helps investors make
informed investment decisions and allows market participants to assess market
trends and conditions.
Settlement and Clearing: Stock exchanges provide settlement
and clearing services to ensure the smooth transfer of securities and funds
between buyers and sellers. They facilitate the clearing and settlement of
trades, minimizing counterparty risk and ensuring the fulfillment of
contractual obligations.
Market Regulation: Stock exchanges play a regulatory
role by establishing rules and regulations that govern market participants'
conduct. They enforce compliance with listing requirements, disclosure norms,
and trading regulations to maintain market integrity and protect investor
interests.
Market Development: Stock exchanges contribute to the
development of the capital market by encouraging companies to raise capital,
facilitating investment opportunities, and promoting economic growth. They
support the growth of the securities market by introducing new products,
improving trading infrastructure, and fostering investor confidence.
Overall,
stock exchanges serve as vital institutions that enable the efficient
functioning of the securities market, providing a platform for trading, price
discovery, and market regulation.
Q.10. Explain the features and objectives of NSE?
Ans. Features of the National Stock Exchange
(NSE):
Automated Trading: NSE is a fully automated electronic
exchange that operates on a nationwide basis. It uses advanced technology and
trading systems to provide a seamless and efficient trading experience to
investors.
Nationwide Presence: NSE has a wide reach across India,
with trading terminals located in various cities and towns. It allows investors
from all over the country to participate in the securities market.
Diverse Product Range: NSE offers a diverse range of
financial instruments for trading, including equities, derivatives (such as
futures and options), bonds, and exchange-traded funds (ETFs). This allows
investors to diversify their portfolios and manage their risk.
Market Indices: NSE is known for its benchmark
indices, such as the Nifty 50 and Nifty Bank, which track the performance of
key stocks listed on the exchange. These indices serve as indicators of the
overall market sentiment and provide a basis for investment strategies.
Robust Trading
Infrastructure: NSE has
established a robust trading infrastructure that supports high-speed trading,
efficient order matching, and quick execution of trades. This ensures that
investors can access real-time market information and execute transactions
promptly.
Objectives
of the National Stock Exchange (NSE):
Provide Efficient Market
Infrastructure: NSE aims to
provide a technologically advanced and efficient trading infrastructure to
facilitate seamless trading and settlement of securities. It focuses on
continuous innovation and upgrades to improve market operations.
Ensure Fair and Transparent
Market: NSE's objective is to maintain a fair
and transparent market for investors. It implements strict rules and
regulations to prevent market manipulation, insider trading, and other unfair
practices. NSE promotes disclosure norms and transparency in corporate
governance.
Protect Investor Interests: NSE is committed to protecting the
interests of investors. It aims to provide a secure trading environment and
enforces investor protection measures. NSE educates investors, promotes
financial literacy, and ensures access to relevant information for making
informed investment decisions.
Foster Market Development: NSE plays a significant role in the
development of the securities market in India. It strives to introduce new
products, enhance market liquidity, and attract domestic and international
investors. NSE supports the growth of capital market activities and contributes
to the overall development of the economy.
Promote Investor Education: NSE focuses on investor education and
awareness. It conducts various investor education programs, workshops, and
seminars to enhance financial literacy and educate investors about market
risks, investment strategies, and regulatory compliance.
Collaborate with Market Participants: NSE collaborates with various market
participants, including brokers, intermediaries, and listed companies, to
foster a conducive market ecosystem. It works closely with regulatory
authorities, such as SEBI, to ensure compliance and promote market integrity.
In summary,
NSE aims to provide a technologically advanced, fair, and transparent trading
platform for investors. It strives to protect investor interests, foster market
development, and promote financial literacy, contributing to the growth and
stability of the Indian securities market.
Q.11. Distinguish between NSE and OTCEI?
Ans. NSE (National Stock Exchange) and
OTCEI (Over-The-Counter Exchange of India) are two stock exchanges in India,
but they differ in several aspects:
Market Structure: NSE is a nationwide electronic
exchange that operates on a centralized trading platform. It provides a
platform for trading various financial instruments, including equities,
derivatives, bonds, and ETFs. On the other hand, OTCEI was established as the first
screen-based stock exchange in India, but it is not as active as NSE. OTCEI
primarily focused on providing a platform for trading securities of small and
medium-sized enterprises (SMEs) and has a limited presence.
Focus and Target Companies: NSE is a general-purpose exchange
that caters to a wide range of companies and investors. It lists securities of
large-cap companies as well as small and medium-sized enterprises. OTCEI,
however, specifically targeted SMEs and aimed to provide them with easier access
to the capital market. It focused on promoting the growth and development of
SMEs by allowing them to raise capital through public offerings.
Trading Mechanism: NSE operates on a fully automated
electronic trading system, facilitating fast and efficient order matching and
execution. It offers real-time trading, transparency, and high liquidity. In
contrast, OTCEI operated as a screen-based exchange, using technology to
facilitate trading but with limited trading volumes compared to NSE.
Market Presence: NSE has a significant nationwide
presence with trading terminals located across various cities and towns in
India. It has become the largest stock exchange in India in terms of trading
volumes and market capitalization. OTCEI, on the other hand, witnessed a
decline in trading activity over time and is not as active or prominent as NSE.
Regulatory Oversight: Both NSE and OTCEI are regulated by
the Securities and Exchange Board of India (SEBI), which is the regulatory
authority for the securities market in India. They are subject to SEBI's rules
and regulations, ensuring compliance and investor protection.
In summary,
NSE is a well-established nationwide stock exchange that provides a wide range
of financial instruments and caters to a diverse set of companies and
investors. OTCEI, while it was the first screen-based exchange in India,
targeted SMEs and aimed to provide them with easier access to capital. However,
over time, OTCEI's trading activity declined, and it is not as active or
prominent as NSE in the current market scenario.
Q.12. Explain various types of operators at stock
exchange?
Ans. At a stock exchange, there are
different types of market participants or operators who play different roles in
the trading and functioning of the market. Here are some of the key types of
operators at a stock exchange:
Investors: Investors are individuals or
institutions who participate in the stock market by buying and selling
securities for investment purposes. They include retail investors,
institutional investors, mutual funds, hedge funds, and other entities looking
to earn returns on their investments.
Traders: Traders are market participants who
engage in frequent buying and selling of securities with the aim of profiting
from short-term price fluctuations. They may include individual day traders,
proprietary trading firms, and algorithmic trading entities. Traders take
advantage of market volatility and seek to make profits through quick trades.
Brokers: Brokers act as intermediaries between
buyers and sellers in the stock market. They facilitate the execution of trades
on behalf of their clients, whether they are individuals or institutional
investors. Brokers provide services such as order placement, trade execution,
market research, and advisory assistance to investors.
Market Makers: Market makers are entities, typically
brokerage firms or specialized trading firms, that provide liquidity to the
market. They continuously quote bid and ask prices for specific securities,
ensuring that there is always a ready market for those securities. Market
makers help maintain market efficiency and liquidity by facilitating trading
activities.
Clearing and Settlement
Agents: Clearing and settlement agents, often
associated with clearinghouses or clearing corporations, play a vital role in
the post-trade processes of the stock exchange. They ensure the efficient and
smooth settlement of trades by validating and reconciling the transaction
details, managing the transfer of securities, and facilitating the transfer of
funds between the parties involved in the trade.
Regulators: Regulators, such as the Securities
and Exchange Board of India (SEBI), oversee and regulate the operations of the
stock exchange. They enforce rules and regulations, monitor market activities,
and ensure fair practices and investor protection. Regulators play a crucial
role in maintaining market integrity and stability.
It's
important to note that these operators may overlap in their functions, and some
entities may perform multiple roles within the stock exchange ecosystem. The
interactions between these operators contribute to the liquidity, efficiency,
and stability of the stock market.
Q.13. Describe the functions of stock exchange?
Ans. The stock exchange performs several important functions in
the financial market ecosystem. Here are the key functions of a stock exchange:
Facilitating Trading: The primary function of a stock
exchange is to provide a platform for the buying and selling of securities. It
brings together buyers and sellers, enabling them to trade in a fair,
transparent, and regulated environment. The exchange provides a centralized
marketplace where investors can execute their trades.
Price Discovery: Stock exchanges play a crucial role
in price discovery. Through continuous buying and selling activities, the
supply and demand dynamics help determine the market price of securities. The
exchange provides a platform where buyers and sellers can interact, negotiate,
and agree on prices, leading to efficient price discovery.
Listing and Delisting of
Securities: Stock
exchanges facilitate the listing of securities issued by companies. Listing
allows companies to offer their shares to the public for trading, raising
capital and providing liquidity to investors. Exchanges establish listing
criteria and regulations that companies must meet to be listed. Conversely,
exchanges oversee the delisting process when companies no longer meet the
listing requirements.
Market Regulation: Stock exchanges have regulatory
functions to maintain market integrity and protect investor interests. They
establish rules and regulations that govern the behavior of market
participants, including listed companies, brokers, and traders. Exchanges
conduct surveillance and monitoring activities to detect market manipulation,
insider trading, and other fraudulent practices.
Market Information
Dissemination: Stock
exchanges provide timely and accurate market information to investors and
market participants. This includes stock prices, trading volumes, company
announcements, financial statements, and other relevant data. The dissemination
of information helps investors make informed investment decisions and fosters
transparency in the market.
Clearing and Settlement: Stock exchanges facilitate the
clearing and settlement of trades. They ensure the smooth transfer of
securities and funds between buyers and sellers, reducing counterparty risk and
ensuring the fulfillment of contractual obligations. Clearinghouses or clearing
corporations associated with the exchange handle the clearing and settlement
processes.
Market Development: Stock exchanges contribute to the
development and growth of the capital market. They create opportunities for
companies to raise capital, promoting economic growth and entrepreneurship.
Exchanges introduce new products, enhance trading infrastructure, and attract
domestic and international investors to foster market development.
Investor Education and
Protection: Stock
exchanges often undertake initiatives to educate and protect investors. They
conduct investor awareness programs, disseminate educational materials, and
promote financial literacy. Exchanges work towards ensuring fair and
transparent practices, enforcing regulations, and safeguarding investor
interests.
By
performing these functions, stock exchanges provide a regulated and efficient
marketplace that facilitates capital formation, trading activities, and
investor participation in the financial markets.
Q.14. Discuss types of speculators?
Ans. Speculators
are market participants who engage in trading activities with the aim of making
profits from short-term price movements in securities, commodities, or other
financial instruments. They take calculated risks and rely on their analysis of
market trends, information, and price patterns to anticipate price
fluctuations. Here are some common types of speculators:
Trend Followers: Trend followers are speculators who
base their trading decisions on identifying and following market trends. They
believe that securities or other financial instruments that have been
experiencing an upward or downward trend will continue to do so in the near
future. Trend followers may use technical analysis tools and indicators to
identify trends and enter trades accordingly.
Contrarian Speculators: Contrarian speculators take positions
opposite to prevailing market sentiment. They believe that when the market is
excessively bullish or bearish, it may be an opportunity for a reversal in the
opposite direction. Contrarian speculators aim to profit from market reversals
by taking positions against the prevailing trend.
Day Traders: Day traders are speculators who
engage in short-term trading, typically within a single trading day. They aim
to profit from small price movements and may enter and exit multiple trades
during the day. Day traders rely on technical analysis, market volatility, and
short-term price patterns to make quick trading decisions.
Scalpers: Scalpers are speculators who focus on
making small, quick profits from frequent trades. They take advantage of small
price differentials and liquidity imbalances in the market. Scalpers may enter
and exit trades within seconds or minutes, aiming to capture small profits from
each trade.
Arbitrageurs: Arbitrageurs are speculators who seek
to profit from price discrepancies between different markets or exchanges. They
exploit temporary pricing inefficiencies by simultaneously buying and selling
the same or similar securities in different markets to lock in risk-free
profits. Arbitrageurs rely on their speed, technology, and access to multiple
markets to execute trades quickly.
Options Traders: Options traders are speculators who
focus on trading options contracts rather than the underlying securities. They
may engage in various options strategies, such as buying or selling call
options, put options, or complex options spreads, to profit from anticipated
price movements or volatility in the market.
It's
important to note that speculators take on higher risks compared to long-term
investors and may use leverage or derivatives to amplify their potential
returns or losses. Speculation can contribute to market liquidity, but it also
carries inherent risks, and successful speculation requires knowledge, skill,
and careful risk management.
Q.15. One of the functions of securities and Exchange Board
of India is promotion of fair practices and code of conduct in securities
market state the category to which this function belongs and state any two
other functions of this category?
Ans. The function of the Securities and
Exchange Board of India (SEBI) to promote fair practices and a code of conduct
in the securities market falls under the category of "Investor Protection
and Education." This category focuses on ensuring the protection of
investors' interests and promoting a transparent and fair market environment.
Two other functions in this category are:
Investor
Grievance Redressal: SEBI works to address investor grievances and complaints
related to the securities market. It establishes mechanisms and processes for
investors to file complaints and seeks to resolve them in a timely and
efficient manner. SEBI aims to protect investors from unfair practices, market
manipulation, and fraud.
Investor
Education and Awareness: SEBI plays a significant role in educating and
creating awareness among investors. It conducts investor education programs,
workshops, and campaigns to enhance financial literacy and educate investors
about market risks, investment products, and their rights and responsibilities.
SEBI's objective is to empower investors with knowledge and information to make
informed investment decisions.
Overall, the
category of "Investor Protection and Education" emphasizes the
importance of safeguarding investor interests, resolving grievances, and
promoting investor education and awareness in the securities market. SEBI's
efforts in this category contribute to building trust, confidence, and
integrity in the market and ensuring a level playing field for all
participants.
Q.16. State exchange not only contributes to the economic
growth, but also performs many other functions Explain any three such
functions?
Ans. In addition to contributing to
economic growth, stock exchanges perform several other functions. Here are
three important functions of stock exchanges:
Liquidity Provision: Stock exchanges provide liquidity to
the market, allowing investors to buy and sell securities with ease. By
bringing together buyers and sellers in a centralized marketplace, exchanges
ensure that there is a ready market for securities. This liquidity improves
market efficiency and enables investors to enter and exit positions as per
their investment goals. Liquidity also helps in price discovery, as it
facilitates fair and transparent pricing of securities.
Capital Formation: Stock exchanges play a crucial role
in facilitating capital formation for companies. By allowing companies to raise
capital through initial public offerings (IPOs) and subsequent offerings,
exchanges provide an avenue for businesses to access funds from the investing
public. This capital can be utilized for various purposes such as business
expansion, research and development, acquisitions, and infrastructure
development. The availability of capital through stock exchanges encourages
entrepreneurship, job creation, and economic growth.
Risk Management: Stock exchanges help in managing and
mitigating risks associated with investments. They provide a regulated and
transparent marketplace with standardized rules and regulations. Exchanges
implement risk management mechanisms such as circuit breakers, price limits,
and margin requirements to prevent excessive price volatility and protect
market participants. The clearing and settlement functions performed by
exchanges reduce counterparty risks and ensure the completion of trades in a
secure and efficient manner.
These
functions of stock exchanges contribute to the stability, efficiency, and
development of the financial markets. They foster investor confidence, attract
domestic and international investments, and facilitate the growth of businesses
and the overall economy.
Q.17. State any three development functions of securities
and Exchange board of India (SEBI)?
Ans. Here
are three development functions performed by the Securities and Exchange Board
of India (SEBI):
Regulation and Oversight: SEBI regulates and oversees various
entities in the securities market, including stock exchanges, intermediaries
such as brokers and mutual funds, and listed companies. Through its regulatory
framework, SEBI aims to create a fair and transparent market environment,
protect investor interests, and ensure compliance with securities laws and
regulations. SEBI's oversight includes monitoring market activities, conducting
inspections and audits, and taking enforcement actions against non-compliant
entities.
Market Development: SEBI plays a pivotal role in the
development of the securities market in India. It introduces reforms, policies,
and initiatives to enhance market infrastructure, trading mechanisms, and
investor participation. SEBI promotes the introduction of new products and
instruments, encourages the use of technology and electronic trading platforms,
and facilitates the expansion of the market to attract more domestic and
international investors. These measures foster market growth, improve
liquidity, and diversify investment opportunities.
Investor Protection: SEBI is committed to protecting the
interests of investors in the securities market. It formulates rules and
regulations that ensure transparency, disclosure, and fair treatment of
investors. SEBI promotes investor education and awareness through various
initiatives, including investor grievance redressal mechanisms, dissemination
of information, and investor education programs. SEBI also takes actions
against fraudulent activities, market manipulation, and insider trading to
maintain the integrity of the market and safeguard investor trust.
By
performing these development functions, SEBI aims to create a robust and
well-regulated securities market that attracts investments, protects investor
interests, and fosters market growth and stability.
Q.18. State any three protective functions of securities
and exchange board of India (SEBI)?
Ans. Here are three protective functions performed by the
Securities and Exchange Board of India (SEBI):
Prevention of Insider
Trading: SEBI's primary protective function is
to prevent insider trading in the securities market. It formulates and enforces
regulations that prohibit trading of securities based on unpublished
price-sensitive information by individuals who have access to such information.
SEBI monitors and investigates suspected cases of insider trading and takes
appropriate actions, such as imposing penalties and initiating legal
proceedings, to deter and punish those involved in such activities. This
protective measure ensures fair and equal opportunities for all investors and
maintains market integrity.
Prohibition of Fraudulent
and Unfair Trade Practices: SEBI
takes measures to protect investors from fraudulent and unfair trade practices.
It formulates regulations that prohibit market manipulation, fraudulent
schemes, and misleading statements that can deceive investors. SEBI conducts
regular surveillance and monitoring activities to detect such practices and
takes enforcement actions against the individuals or entities involved. By
preventing fraud and unfair practices, SEBI safeguards investor interests and
maintains the credibility of the securities market.
Investor Grievance
Redressal:
SEBI provides a platform
for investors to register complaints and grievances related to securities
market activities. It establishes a robust mechanism for the redressal of
investor grievances and ensures prompt resolution. SEBI investigates the
complaints and takes necessary actions to provide relief to affected investors.
This protective function ensures that investors have a recourse mechanism and
can seek justice and compensation in case of any misconduct or violation of
their rights.
By
performing these protective functions, SEBI aims to maintain a fair,
transparent, and orderly securities market. It protects investors from insider
trading, fraud, and unfair practices, and provides avenues for grievance
redressal, thereby fostering investor confidence and trust in the market.
Q.19. Explain SEBI write its functions?
Ans. SEBI, which stands for the Securities
and Exchange Board of India, is the regulatory authority for the securities
market in India. It was established in 1988 and operates under the jurisdiction
of the Ministry of Finance. The primary objective of SEBI is to protect the
interests of investors and promote the development and regulation of the
securities market. Here are some of the key functions performed by SEBI:
Regulation and Oversight: SEBI formulates rules, regulations,
and guidelines for various entities in the securities market, including stock
exchanges, intermediaries such as brokers and mutual funds, and listed
companies. It ensures compliance with securities laws and regulations and
conducts inspections, audits, and investigations to monitor market activities.
SEBI's oversight includes taking enforcement actions against non-compliant
entities to maintain market integrity and protect investor interests.
Investor Protection: SEBI's core function is to protect
the interests of investors in the securities market. It promotes fair
practices, transparency, and disclosure norms by listed companies and market
participants. SEBI works to educate investors, enhance financial literacy, and
create awareness about investment risks and rights. It establishes mechanisms
for investor grievance redressal and takes necessary actions against fraudulent
activities, market manipulation, and insider trading to safeguard investor
confidence.
Market Development: SEBI plays a crucial role in
developing and promoting the securities market in India. It introduces reforms,
policies, and initiatives to enhance market infrastructure, trading mechanisms,
and investor participation. SEBI encourages the introduction of new products
and instruments, such as derivatives and exchange-traded funds (ETFs), to diversify
investment opportunities. It also facilitates the use of technology and
electronic trading platforms to improve market efficiency and accessibility.
Regulation of
Intermediaries: SEBI
regulates various intermediaries in the securities market, including brokers,
merchant bankers, portfolio managers, and credit rating agencies. It
establishes licensing requirements, codes of conduct, and eligibility criteria
for these entities to ensure professionalism, ethical behavior, and compliance
with regulatory standards. SEBI monitors the activities of intermediaries and
takes necessary actions to protect investor interests and maintain market
integrity.
Policy Formulation: SEBI actively engages in policy
formulation related to the securities market. It provides recommendations to
the government on various market-related issues, such as capital market
reforms, market infrastructure development, and investor protection measures.
SEBI also collaborates with other regulatory bodies, both domestic and
international, to coordinate and align regulatory frameworks for effective
market functioning.
These
functions of SEBI collectively contribute to maintaining market integrity,
protecting investor interests, promoting investor education, and fostering the
growth and development of the securities market in India.
LONG ANSWER QUESTIONS
Q.1.What is a stock Exchange Explain its functions?
Ans. A stock
exchange is a regulated marketplace where buyers and sellers come together to
trade stocks and other securities. It provides a platform for companies to
raise capital by issuing and selling their shares to the public, and for
investors to buy and sell these securities. The functions of a stock exchange
are as follows:
Facilitates Trading: The primary function of a stock
exchange is to facilitate the buying and selling of securities. It provides a
centralized and transparent marketplace where investors can trade stocks,
bonds, derivatives, and other financial instruments. The exchange establishes
rules and regulations, such as trading hours, price limits, and order matching
mechanisms, to ensure fair and efficient trading.
Price Discovery: Stock exchanges play a crucial role
in price discovery. By bringing together buyers and sellers, exchanges enable
the determination of fair market prices for securities. The trading activity on
the exchange reflects the supply and demand dynamics, which leads to the
establishment of market prices. Price discovery facilitates efficient
allocation of capital and provides investors with information about the value
of securities.
Liquidity Provision: Stock exchanges provide liquidity to
the market. Liquidity refers to the ease with which securities can be bought or
sold without causing significant price fluctuations. By bringing together a
large number of buyers and sellers, exchanges ensure that there is a ready
market for securities. This liquidity allows investors to enter and exit
positions easily, enhances market efficiency, and reduces transaction costs.
Market Regulation: Stock exchanges play a vital role in
market regulation. They enforce rules and regulations to ensure fair and
orderly trading. Exchanges establish listing requirements for companies to
ensure they meet certain standards of financial health and corporate
governance. They also monitor market activities, detect fraudulent practices,
and take necessary actions to maintain market integrity and protect investor
interests.
Market Information
Dissemination: Stock
exchanges provide information and data related to market prices, trading volumes,
and other relevant financial information. This information is disseminated to
investors, traders, and the general public through various channels. It helps
investors make informed investment decisions and fosters transparency in the
market.
Overall,
stock exchanges serve as essential institutions in the financial system,
providing a platform for trading securities, facilitating price discovery,
ensuring market liquidity, enforcing regulations, and disseminating market
information. These functions contribute to the efficient functioning and growth
of the securities market.
Q.2. Discuss the services rendered by stock exchanges to
investors companies and society?
Ans. Stock exchanges provide various
services to investors, companies, and society as a whole. Here are some of the
key services rendered by stock exchanges:
Services
to Investors:
Trading Platform: Stock exchanges provide a regulated
and transparent trading platform where investors can buy and sell securities.
They offer a centralized marketplace with efficient order matching mechanisms,
ensuring fair and timely execution of trades.
Liquidity: Stock exchanges enhance liquidity by
bringing together a large number of buyers and sellers. This allows investors
to easily buy or sell securities without significant price disruptions.
Liquidity enables investors to enter or exit positions quickly and reduces
transaction costs.
Price Discovery: Stock exchanges facilitate price
discovery by providing a platform for buyers and sellers to determine fair
market prices for securities. The trading activity on the exchange reflects the
supply and demand dynamics, allowing investors to make informed decisions based
on market prices.
Investment Opportunities: Stock exchanges offer a wide range of
investment opportunities. Investors can access a variety of stocks, bonds,
derivatives, and other financial instruments listed on the exchange. This
diversification allows investors to allocate their funds across different
sectors, industries, and asset classes.
Services to Companies:
Capital Raising: Stock exchanges enable companies to
raise capital by issuing and selling shares to the public. Through initial
public offerings (IPOs) and subsequent offerings, companies can access a
broader base of investors and raise funds for expansion, research and
development, and other business activities.
Enhanced Visibility and
Credibility: Listing on a
stock exchange enhances a company's visibility and credibility. It provides
exposure to a wider investor base and improves the company's image and
reputation. Being listed on a recognized stock exchange can instill confidence
in investors, suppliers, and customers.
Market Valuation: Stock exchanges provide a platform
for the market valuation of listed companies. The stock price of a company is
influenced by market forces and reflects investors' perception of its value.
Market valuation can help companies gauge their performance, attract investors,
and benchmark against industry peers.
Services
to Society:
Capital Formation: Stock exchanges contribute to the
overall economic development by facilitating capital formation. Companies raise
funds through stock exchanges, which are then invested in productive
activities, such as infrastructure development, research and innovation, and
job creation. This promotes economic growth and prosperity.
Wealth Creation and
Distribution: Stock
exchanges offer opportunities for wealth creation to investors. When companies
perform well, shareholders benefit from capital appreciation and dividend
payouts. Stock exchanges provide a mechanism for wealth distribution by
allowing individuals to participate in the success of companies.
Corporate Governance and
Transparency: Stock
exchanges enforce corporate governance standards, requiring listed companies to
adhere to regulations and disclosure requirements. This promotes transparency,
accountability, and responsible corporate behavior. Improved corporate
governance enhances investor confidence and fosters trust in the market.
Overall,
stock exchanges provide crucial services to investors, companies, and society
by facilitating trading, enhancing liquidity, enabling capital formation,
promoting transparency, and contributing to economic growth. They play a
significant role in the functioning and development of the financial system.
Q.3.What is NSEI how does it operate?
Ans. NSEI stands for National Stock
Exchange of India, which is one of the prominent stock exchanges in India. It
was established in 1992 and is headquartered in Mumbai. NSEI operates as a
fully automated electronic exchange and is recognized as the largest stock
exchange in India in terms of trading volume and market capitalization.
The operation of NSEI can be summarized as follows:
Trading Platform: NSEI operates a technologically
advanced trading platform known as the National Exchange for Automated Trading
(NEAT). It is an electronic trading system that enables investors to trade
securities in a transparent and efficient manner. NEAT provides a fair and
equal opportunity for investors to place buy and sell orders and ensures timely
execution of trades.
Market Segments: NSEI operates multiple market
segments to cater to different types of securities and investors. It includes
the Equity Market, where equity shares of listed companies are traded; the Futures
and Options (F&O) Market, where derivative contracts based on underlying
securities are traded; and the Currency Derivatives Market, where currency
futures and options are traded.
Membership and Regulation: NSEI has a membership-based model
where market participants, such as brokers and trading members, become members
of the exchange. These members comply with the rules, regulations, and
standards set by NSEI and are responsible for executing trades on behalf of
investors. NSEI acts as a self-regulatory organization (SRO) and regulates its
members to ensure fair and orderly trading.
Clearing and Settlement: NSEI operates a robust clearing and
settlement system through its subsidiary, National Securities Clearing
Corporation Limited (NSCCL). It ensures the timely and efficient settlement of
trades by guaranteeing the financial obligations of the members. NSCCL acts as
the counterparty to all trades and settles the obligations through a process of
clearing, settlement, and risk management.
Technology and Infrastructure: NSEI heavily relies on technology for
its operations. It has a state-of-the-art trading platform, real-time
surveillance systems, and risk management mechanisms to ensure a secure and
efficient trading environment. NSEI has established a nationwide network of
servers and data centers to handle a large volume of transactions and provide uninterrupted
trading services.
Investor Services and
Education:
NSEI focuses on investor
protection and education. It provides various investor services, such as
investor grievance redressal, dispute resolution mechanisms, and investor
education programs. NSEI aims to create awareness among investors about market
risks, investment strategies, and regulatory aspects to empower them in making
informed investment decisions.
Overall,
NSEI operates as an electronic exchange, leveraging technology to provide a
transparent, efficient, and secure trading platform. It regulates its members,
ensures timely settlement of trades, and promotes investor protection and
education. NSEI plays a crucial role in the development and growth of the
Indian securities market.
Q.4.What do you understand by OTCEI Discuss its
importance?
Ans. OTCEI stands for Over-the-Counter
Exchange of India. It is a stock exchange in India that was established in 1992
with the objective of providing a platform for small and medium-sized
enterprises (SMEs) to raise capital and access the securities market. Here are
some key points to understand the importance of OTCEI:
SME Focus: OTCEI primarily focuses on SMEs that
may not meet the stringent listing requirements of other major stock exchanges
in India. It provides these companies with an avenue to raise funds through the
issue of securities and allows investors to participate in their growth
potential. By catering specifically to SMEs, OTCEI promotes entrepreneurship
and encourages the development of small-scale industries.
Ease of Listing: OTCEI offers simplified listing
requirements compared to other stock exchanges. This makes it easier for SMEs
to get listed and access the capital market. The exchange has relaxed criteria
for issues such as minimum net worth, track record, and profitability, which
are typically more lenient than those of larger exchanges. This flexibility
widens the scope for SMEs to raise funds and expand their operations.
Transparent and Regulated
Trading: OTCEI operates as a regulated
exchange, ensuring transparency and fair trading practices. It provides a
platform for investors to buy and sell securities in a transparent manner, backed
by regulatory oversight. This helps build investor confidence and fosters trust
in the market.
Investor Protection: OTCEI places emphasis on investor
protection. It enforces regulations and standards to ensure that companies
provide accurate and timely information to investors. This includes disclosure
requirements, corporate governance norms, and regular reporting obligations. By
enforcing such measures, OTCEI aims to safeguard the interests of investors and
maintain market integrity.
Market Access: OTCEI provides investors with access
to a diverse range of investment opportunities beyond those available on larger
stock exchanges. The exchange offers securities of SMEs, which may have unique
growth prospects and potential for higher returns. Investors can diversify
their portfolios and participate in the growth of these companies.
Regional Development: OTCEI operates in various cities
across India, including smaller towns and cities that may not have a presence
of major stock exchanges. This decentralization allows for regional development
by facilitating local companies to raise capital and contribute to the economic
growth of their respective regions.
Overall, the
importance of OTCEI lies in its focus on SMEs, simplified listing requirements,
transparent trading practices, investor protection measures, access to diverse
investment opportunities, and regional development. It provides a platform for
smaller companies to raise capital and offers investors an avenue to
participate in the growth potential of these companies.
Q.5.Explain SEBI Discuss its functions?
Ans. SEBI stands for the Securities and
Exchange Board of India. It is the regulatory body responsible for overseeing
and regulating the securities market in India. SEBI was established in 1988 as
an independent statutory body to protect the interests of investors and promote
the development and regulation of the securities market. Here are the key
functions of SEBI:
Regulation and Supervision: SEBI acts as the regulatory authority
for the securities market in India. It formulates regulations and guidelines to
ensure fair and transparent practices in the market. SEBI regulates various
market participants, including stock exchanges, brokers, merchant bankers, and
mutual funds, among others. It supervises their activities to ensure compliance
with the regulations and promotes investor protection.
Investor Protection: One of the primary functions of SEBI
is to protect the interests of investors. SEBI works to create a transparent
and safe investment environment by enforcing rules related to disclosure,
insider trading, fraudulent and unfair trade practices, and market
manipulation. SEBI also sets standards for corporate governance and encourages
companies to adopt best practices to safeguard investor rights.
Market Development: SEBI plays a crucial role in the
development of the securities market. It formulates policies and initiatives to
enhance market efficiency, liquidity, and transparency. SEBI encourages the
introduction of new financial products and instruments, such as derivatives and
exchange-traded funds, to provide investors with a wider range of investment
options. It also promotes technological advancements in trading and settlement
systems to facilitate smooth market operations.
Regulation of Intermediaries: SEBI regulates various intermediaries
in the securities market, including stockbrokers, sub-brokers, depository
participants, and investment advisers. It sets eligibility criteria, code of
conduct, and operational guidelines for these intermediaries to ensure ethical
practices, fair dealing, and investor protection. SEBI conducts inspections,
audits, and investigations to monitor the compliance of intermediaries with the
prescribed regulations.
Surveillance and
Enforcement: SEBI has
surveillance mechanisms in place to monitor market activities and detect any
potential violations. It uses advanced technology to track market movements,
identify irregularities, and take necessary actions to maintain market
integrity. SEBI has the authority to investigate suspected violations, impose
penalties, and take legal action against entities involved in fraudulent or
manipulative activities.
Investor Education and
Awareness:
SEBI aims to educate and
create awareness among investors about market risks, investment products, and
regulatory aspects. It conducts investor awareness programs, publishes
educational materials, and disseminates information to empower investors in
making informed investment decisions. SEBI's objective is to enhance financial
literacy and protect investors from falling prey to fraudulent schemes or
misinformation.
Overall,
SEBI plays a critical role in regulating and developing the securities market
in India. Its functions encompass regulatory oversight, investor protection,
market development, supervision of intermediaries, surveillance, enforcement,
and investor education. Through its efforts, SEBI aims to maintain a fair,
transparent, and efficient securities market and foster investor confidence.
Q.6. In today’s commercial word the stock exchange
performs many vital functions which lead the investors towards positive
environment Explain how by giving any four reasons?
Ans. In today's commercial world, stock
exchanges play a crucial role in creating a positive environment for investors.
Here are four reasons that highlight the vital functions performed by stock
exchanges:
Market Liquidity: Stock exchanges provide a platform
for investors to buy and sell securities, such as stocks and bonds, easily and
quickly. This liquidity is vital as it ensures that investors can enter or exit
investments with relative ease. A liquid market encourages participation and
facilitates fair pricing, reducing the risk associated with illiquid
investments.
Price Discovery: Stock exchanges facilitate price
discovery by bringing together buyers and sellers, allowing them to determine
the fair value of securities through the forces of supply and demand.
Transparent price information provided by exchanges enables investors to make
informed decisions about buying or selling securities based on their assessment
of the market value.
Investor Protection: Stock exchanges play a significant
role in safeguarding the interests of investors. They establish and enforce
rules and regulations to ensure fair trading practices, disclosure
requirements, and corporate governance standards. By imposing listing
requirements and monitoring the compliance of listed companies, exchanges
promote transparency and reduce the risk of fraudulent activities, enhancing
investor confidence.
Capital Formation: Stock exchanges are instrumental in
facilitating capital formation. Companies can raise capital by issuing shares
to the public through initial public offerings (IPOs) or subsequent offerings.
By providing a regulated marketplace for the buying and selling of these
securities, stock exchanges create an environment where investors can invest in
businesses and contribute to their growth. This process supports economic
development by enabling companies to finance expansion plans, research and development,
and other capital-intensive projects.
Overall,
stock exchanges foster an environment that encourages investment, ensures fair
trading practices, facilitates price discovery, and promotes capital formation.
These functions are critical in creating a positive investment climate,
attracting investors, and supporting the growth of businesses and economies.
Q.7. Keeping in mind the emerging nature of the
securities market in India securities and Exchange board of India (SEBI) was
entrusted with the twin task of regulation and development of securities market
out of this state the development functions of securities and Exchange Board of
India (SEBI)?
Ans. The Securities and Exchange Board of
India (SEBI) was entrusted with the twin tasks of regulation and development of
the securities market in India. While regulation focuses on establishing rules
and guidelines to ensure fair and transparent market practices, the development
functions of SEBI are aimed at promoting the growth and efficiency of the securities
market. Here are some of the key development functions performed by SEBI:
Promoting Market
Efficiency: SEBI takes
measures to enhance the efficiency of the securities market by introducing
reforms and policies. It continuously works towards creating a level playing
field for all participants, improving transparency, and reducing transaction
costs. By promoting market efficiency, SEBI aims to attract more investors and
facilitate better price discovery.
Investor Education and
Awareness:
SEBI plays a significant
role in educating and creating awareness among investors. It conducts various
investor education programs, disseminates information, and publishes
educational material to enhance investors' understanding of the securities
market. By promoting investor education, SEBI aims to empower investors to make
informed investment decisions and protect their interests.
Developing Market
Infrastructure: SEBI works
towards developing and strengthening the infrastructure of the securities
market. It collaborates with market intermediaries, such as stock exchanges,
depositories, and clearing corporations, to enhance their efficiency,
reliability, and technology infrastructure. This helps in creating a robust
market ecosystem that can handle increasing trade volumes and ensure smooth
transactions.
Introducing New Investment
Products: SEBI encourages the introduction of
new investment products and instruments in the securities market. It assesses
the feasibility and potential risks associated with these products and formulates
regulations to govern their issuance and trading. By diversifying the range of
investment options available to investors, SEBI aims to attract more participants
and increase market depth.
Facilitating Market
Innovation: SEBI
supports market innovation by fostering an environment conducive to new ideas
and concepts. It encourages research and development initiatives and allows for
experimentation with new trading mechanisms, technologies, and financial
instruments. This helps in keeping the securities market dynamic and responsive
to changing investor needs.
Through its
development functions, SEBI strives to create a vibrant and inclusive
securities market in India. By promoting market efficiency, investor education,
infrastructure development, introduction of new investment products, and market
innovation, SEBI plays a crucial role in shaping the growth and development of
the securities market, while ensuring investor protection and market integrity.
Q.8. Explain the trading procedure on a stack exchange?
Ans. The trading procedure on a stock
exchange generally follows a standardized process. Here is a simplified
explanation of the trading procedure on a stock exchange:
Market Opening: The trading day on a stock exchange
begins with the market opening. The exchange determines the specific time for
market opening, usually in the morning. At this point, trading systems and
platforms are activated, and orders start flowing in.
Placing Orders: Investors, through their registered
brokers or trading accounts, place buy or sell orders for specific securities
they wish to trade. These orders specify the quantity, price, and type of order
(e.g., market order or limit order).
Order Matching: Once orders are placed, the stock
exchange's trading system matches buy and sell orders based on specific rules
and regulations. The matching process aims to find the best available price and
execute trades accordingly. This is usually done through an automated system
that matches compatible orders based on price and time priority.
Trade Execution: After matching, the trading system
executes the trades. The exchange notifies the involved parties, i.e., the
buyer and the seller, about the trade details, including the executed price and
quantity. The trade is considered completed at this stage.
Trade Confirmation: The exchange provides trade
confirmation to the brokers or trading accounts of the buyers and sellers.
These confirmations serve as official records of the executed trades and
include important details such as the trade date, time, security name,
quantity, price, and trade ID.
Settlement: Following trade execution, the
settlement process begins. Settlement involves the transfer of securities from
the seller's account to the buyer's account and the transfer of funds from the
buyer's account to the seller's account. This process is typically facilitated
by central depositories and clearinghouses, ensuring smooth and secure
transfers.
Market Closing: At the end of the trading day, the
stock exchange announces the market closing. Trading systems are deactivated,
and no further trades can be executed. The closing price of each security is
determined based on the last traded price or other predefined criteria.
It's
important to note that the trading procedure can vary slightly across different
stock exchanges and may involve additional steps or regulations specific to
each exchange. The above steps provide a general overview of the trading
process on a stock exchange, highlighting the key stages from market opening to
market closing and trade settlement.
A.
One Word or One Line Questions
Q. 1. What is stock exchange?
Ans. Stock exchange refers to such an
institution which provides a common platform for sale and purchase of existing
securities.
Q. 2. Name the most
important stock exchange in India.
Ans. Bombay Stock Exchange.
Q. 3. Give the full form of
SEBI.
Ans. Securities and Exchange Board of
India.
Q. 4. Name various
speculators at a stock exchange.
Ans. Bull, bear, stag, lame duck.
Q. 5. Who is a bear speculator?
Ans. Bear is that speculator who is a
pessimist and who expects that price of the securities will fall in the future.
Q. 6. Who is a stag speculator?
Ans. Stag is a cautious speculator.
He expects that he can earn profit by selling securities at a higher price.
Q. 7. Who are jobbers?
Ans. Those traders of securities who
purchase and sell securities for themselves only, are known as jobbers.
Q. 8. Who are brokers?
Ans. Those traders of securities who
purchase and sell securities for those persons who are not the members of stock
exchange, are known as brokers.
Q. 9. Who are tarawaniwalas?
Ans. Tarawaniwala is that operator at
the stock exchange who can work both, as a jobber and a broker.
Q. 10. What are main
objectives of SEBI according to the SEBI Act?
Ans. (a) To protect the interest of
the investors (b) To promote the development of, and to regulate the working of
securities market.
B.
Fill in the Blanks
1. SEBI was established to protect
the interests of investors.
2. NSEI provides facilities for trading in debt, capital and
futures & options.
3. SEBI is empowered to regulate the working of financial
intermediaries.
4. A stock exchange is a part of secondary market.
5. Head office of SEBI is at Mumbai.
C.
True or False Statements
1. SEBI regulates stock exchange
transactions in India. True
2. A bear is a cautious speculator. False
3. Tarawaniwala is a broker. False
4. Brokers purchase and sell
securities for themselves. False
D.
MCQ
1. SEBI has made it
compulsory that trading of shares of all the companies listed in the stock
exchanges will take place in demat form with effect from:
(a) 2nd January 2001 (b) 2nd January 2002
(c) 2nd February 2001 (d) 2nd February
2002.
Ans. (b) 2nd January 2002
2. A bear is also called:
(a) Mandiwala (b)
Speculator
(c) Tejiwala (d)
All the above.
Ans. (a) Mandiwala
3. A struggling bear is
also called:
(a) Jobber (b)
Tarawaniwala
(c) Lame duck (d) Owner.
Ans. (c) Lame duck
4. Who applies for shares
in new companies and expects to sell them at a premium if he gets the allotment:
(a) Lame duck (b)
Stag
(c) Bear (d) Bull.
Ans. (b) Stag
5. Securities Contracts
[Regulation] Act, 1956; was passed in:
(a) 1956 (b)
1958
(c) 1960 (d)
1978.
Ans. (a) 1956
Two
Marks Questions:
Q. 1. What is a stock
exchange?
Ans. Stock exchange refers to such an
institution which provides a common platform for sale and purchase of existing
securities. It is such an organised and controlled market where existing securities
i.e. old securities can be purchased and sold by following specific rules and
laws.
Q. 2. Who is a jobber?
Ans. Those traders of securities who
purchase and sell securities for themselves only, are known as jobbers. Jobbers
work as independent operators and earn profit due to change in the prices of
securities. They cannot purchase or sell securities in place of anyone else. In
fact, jobbers are expert speculators and they trade in securities in limited
number. They trade in securities to earn profit, and not to get commission.
Q. 3. Who is tarawaniwala?
Ans. Tarawaniwala is that operator at
the stock exchange who can work both, as a jobber and a broken As a jobber, he
can purchase and sell securities for himself only and as a broker, he can purchase
and sell securities for others as well. Generally, whenever the prices of the
securities rise, then he sells his own securities to others and when the prices
of the securities fall, then he himself purchases the securities. Hence,
tarawaniwala earns both, commission and profit.
Q. 4. What is SEBI?
Ans. SEBI was set-up the Government
of India on April 12, 1988. On January 30, 1992; SEBI was given constitutional
status through an ordinance. Later on, 'Securities and Exchange Board of India
Act', 1992 was passed by the Indian parliament in place of this ordinance.
Hence, at present, SEBI is a constitutional body. It is such a corporate body
which has a legal existence and which also has a continuous succession. The
primary objective behind its establishment was to create such an environment in
the country in which efficient mobilization and allocation of financial
resources may be done through the capital market
Four
Marks Questions:
Q. 1. Write any four
features of stock exchange.
Ans. 1. It is that part of financial
market where existing securities are sold and purchased.
2. Stock exchange is an association
of persons which may be or may not be incorporated.
3. Only listed securities can be
purchased or sold in a stock exchange.
4. Sale and purchase of securities in
a stock exchange takes place in accordance with strict rules and laws.
Q. 2. Write any four
functions of stock exchange.
Ans. 1. Active Market for Trade in Securities: Stock
exchange provides active market for sale and purchase of securities. It is such
an active market where sale and purchase of existing securities can be done any
time.
2.
Safe and Fair Transactions: While dealing in securities at stock
exchange, strict rules and laws are followed. Hence, stock exchange ensures
safe and fair transactions of securities.
3.
Optimum Utilization of Savings: Such persons who have surplus funds
in the form of savings, they can invest these funds in the securities through
stock exchange. With this, optimum utilization of their surplus funds takes
place and they earn return also.
4.
Contribution to Economic Development: Stock exchange
provides liquidity to securities. As a consequence, there is never shortage of
funds for economic development and capital formation in the country. Hence,
stock exchange promotes capital formation and economic development in the
country.
Q. 3. Write features of
NSEI.
Ans. 1. NSEI is a national level
stock exchange. Any investor from all over India can trade in securities
through NSEI.
2. NSEI is a commercial organisation
which functions as a company to earn profit.
3. It has three main parts which
provide facilities for trading in debt, capital and futures and options.
4. NSEI uses modern information
technology based system for trading in securities due to which its functioning
is efficient and transparent.
5. NSEI has ensured promptness in the
settlement process.
6. Every transaction that takes place
under NSEI has the backing of the guarantee of NSCCL.
Q. 4. Write any four
advantages of NSEI.
Ans. 1. Wide Scope: NSEI has a wide scope. Securities
can be traded through it from anywhere in the whole country.
2.
Use of Modern Technique: For trading in securities, NSEI
makes use of up-to-date information technology techniques based on computer and
internet. This has had multi-dimensional benefits for all the parties concerned
with capital market.
3.
Secrecy: In trading of securities through
NSEI, the identity of the investors is kept secret. In such a situation, no
person can influence the price of securities.
4.
Transparency: Another advantage of trading in
securities through NSEI is transparency in trading process. There is no
possibility of fraud, dishonesty or any other malpractice in it.
Q. 5. Give any four
functions of OTCEI.
Ans. 1. To Provide Liquidity to Securities: Main
objective of OTCEI is to provide liquidity to securities of small and medium
enterprises. In order to do so, it provides facilities for trading in the
securities of small and medium enterprises.
2.
Development of An Alternative Stock Exchange: Another objective of
OTCEI is to develop a national level stock exchange for trading in securities
of small and medium enterprises. The securities of small and medium enterprises
can only be traded on it.
3.
Development of A Modern Trading System: One of its objective
is to develop a modern trading system for trade in securities, In order to do
so, it has promoted screen based trading and floorless trading.
4.
Availability of Funds: By providing liquidity to the
securities of small and medium enterprises, to make available requisite funds
to these enterprises is another objective of OTCEI This liquidity promotes the
investors to make investment in these enterprises
Q. 6. Write any four
objectives of SEBI.
Ans. 1. Primary objective of SEBI is
to protect the interests of the investors. In order to do so, SEBI provides
requisite information to them and guides them as well.
2. Second main objective of SEBI is
to regulate the working of capital market. In order to do so, SEBI strictly
regulates the frauds and scams concerning trading at stock market.
3. To promote the growth of capital
market is also an important objective of SEBI, In order to do so, SEBI issues
requisite directions and frames rules etc. from time to time.
4. It is also an objective of SEBI to
ensure an appropriate behaviour for the issuers of the securities and develop
such a capital market for them where they may get requisite funds at the lowest
possible cost.
Q. 7. Write any four
importance of OTCEI.
Ans. 1. It provides facility for
trading in securities of small and medium enterprises. The enterprises which
cannot be listed on big stock exchanges, can be benefitted from its services.
2. It provides the facility of
obtaining requisite funds at low cost. The cost of issuing new shares and
trading in securities through it is less.
3. New shares can be issued through
OTCEI and existing securities can also be traded through it. It provides the
facility of both, primary market and secondary market to the enterprises.
4. It provides a great deal of
freedom to investors regarding choice for making investment. Investors can make
investment in several types of different securities in primary market and
secondary market through it.