CH 17 -SEBI

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.