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Role of a Stock Exchange in buying and selling shares?

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Presentation on theme: "Role of a Stock Exchange in buying and selling shares?"— Presentation transcript:

1 Role of a Stock Exchange in buying and selling shares?
Trading platform provided by NSE is an electronic one and there is no need for buyers and sellers to meet at a physical location to trade.

2 Demutualisation of stock exchanges
Legal structure of an exchange whereby the ownership, the management and the trading rights at the exchange are segregated from one another. How a demutualised exchange different from a mutual exchange? The broker members of the exchange are both the owners and the traders on the exchange and they further manage the exchange as well.

3 Listing of Securities A company can seek listing on more than one stock exchange but its compulsory to list on the regional stock exchange near its registered office. A co. can seek listing if at least 10% of the securities subject to a minimum of Rs.20 Lakh offered to public for subscription. Stock Exchanges levy annual listing fees.

4 Trading Arrangements Screen Based Trading: NSE introduced a nationwide, on-line, fully automated screen based trading system (SBTS) where a member can punch into the computer the quantities of a security and the price at which he would like to transact, and the transaction is executed as soon as a matching sale or buy order from a counter party is found.

5 Types of Trading Systems
Order driven trading system: Orders from all over the country are entered into an electronic system and matched directly & continuously without the involvement of a jobber. Quote driven system: Market Makers offers buy and sell quotes and are willing to buy and sell any quantity.

6 Trading & Settlement In a trading cycle, trades accumulated till the end of a specified period and the positions were settled in the form of payment of cash & delivery of securities. Under the rolling system, the transactions in trading cycle are settled in no. of days available. Eg: T+2 basis.

7 Dematerialization of Securities
An electronic book entry form of holding & transferring securities. Securities issued through initial public offer can be settled only in dematerialized form. Two depositories: National Security Depository Limited (NSDL) & Central Depository Service Limited (CDSL).

8 Stock Market Index It is a barometer of market behaviour indicating market direction & day-to-day fluctuations in stock prices. A good market index incorporates a set of scrips which have high market capitalization & high liquidity. BSE Sensex is a weighted average of prices of 30 companies & S&P CNX Nifty of 50 select stocks.

9 Methodologies for Calculating Index
Market Capitalized Weighted (a) Full Market Capitalization Method: S&P 500 Index in USA, BSE Sensex and S&P CNX Nifty. (b) Free Float Market Capitalization Method:

10 Major Indicies in India
BSE Sensex: Large Market Capitalisation. Other criteria like number of trades, average value of shares traded per day. Scrip selection on balanced representation of industry, leadership position, Continuous dividend paying. S&P CNX Nifty: Owned & managed by IISL (India Index services and products Ltd.)

11 Bombay Stock Exchange It is voluntary, non-profit-making association of broker members. Following BOLT ( BSE on-line Trading System) Earlier BOLT was limited to Mumbai only but 1996 SEBI allowed BSE to use BOLT system nationwide.

12 Listing Categories A Group: Large Turnover with large market capitalization ( Blue-Chip Companies). At present there are 150 scrips in the group. B1 Group: Quality companies with an equity above Rs.3crore with high growth potential & trading frequency. (1083 scrips) B2 Group: Group consisting of Low trading volume scrips with equity below Rs.3crore. (3219 Scrips)

13 New Listing Norms Minimum networth of Rs.20crore
Profit making track record of three years Minimum market capitalization at two times its paid-up capital Dividend track record for three consecutive years with minimum dividend at least 10% Two year track record of being listed on regional stock exchange.

14 National Stock Exchange of India
It was incorporated in 1992 To establish a nationwide trading facilities for equities & debt instruments. To ensure all investors all over the country having equal access through an appropriate communication network. To provide a fair, efficient and transparent securities market to investors through an electronic system.

15 National Securities Clearing Corporation Limited
To undertake clearing & settlement at the exchange. It operates with a well-defined settlement cycle, aggregates trades over a trading period, nets the position to determine the liabilities of the members, and ensures movement of funds & securities to meet respective liabilities.

16 Market Making System To provide liquidity to illiquid scrips, market makers are required who will continuously provide two way quotes i.e. buy quote and sell quote Market Maker is allowed to buy and sell at a different rate with the differential rate ranging from 3% to 10%.

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