1.Define terms of capital market. 2.Write about capital market reforms.
TERMS RELATED TO CAPITAL MARKET:-
¤ corporate bonds :
The term corporate bonds reffered includes all debts securities issued by institution such as banks ,PUSs ,municipal corporation,bodies corporates and companies having a tenure of more than 365days .A corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons such as to ongoing operations, M&A, or to expand business. The term is usually applied to longer-term debt instruments, with maturity of at least one year. Such an issue of bonds , if offered to the public ,shall require to comply with theSEBI ,2000.
A broker is a member of a recognized stock exchange, who is permitted prades on the screen based trading system of different stock exchanges, who is permitted to do trades on the screen based trading system of different stock exchanges he is enrolled as a member with the concerned exchange and is registered with the SEBI. In other words an agent who buys or sells for a principal on a commission basis without having title to the property. a person who functions as an intermediary between two or more parties in negotiating agreements, bargains, or the like.
A sub broker is aperson who is registered with theSEBI as such and is affiliated to a member of a recognized stock exchange. A ‘Sub-Broker’ is any person who is not a Trading Member of a Stock Exchange but who acts on behalf of a Trading Member as an agent or otherwise for assisting investors in dealing in securities through such Trading Members.
¤ Risk disclouser document :
In order to acquint the investers in the markets of the various risks involved in trading in stock market, the members of the exchange have been required to sign a risk disclosure document with their client. Informing them of various risk like risk of volatility, risks of lower liquidity, risk of higher spread, risk of new announcements, risk of rumours ,etc,.
¤ securities transaction tax:
securities transaction tax is a task being lived on all transactions Dun on the stock exchanges at rates described by the central government from time to time.Securities Transaction Tax is a tax payable in India on the value of securities transacted through a recognized stock exchange. Pursuant to the enactment of the finance act ,2004, the Government of India notified the Security Transaction Tax rules 2004, and STTcame into effect from 1 October 2004.
¤ account period settlement:
an account period settlement is a settlement where the trades pertaining to A period stretching over more than one day are settled. An account period settlement is asettlement where the trades pertaining to a period stretching over more than one day are settled.For example, trade for the period Monday to Friday are settle together . The obligation for the account period are settled on a net basis. Account period settlement has been discontinued since 1 January2002. Pursuant to SEBI directives.
☆ Rolling settlement:
In a rolling settlement trades executed during the day are settled based on the net obligations for the day.presently the trades pertaining to the rolling settlement are settled on a T+2 day basis where T stands for the trade day . and Trades executed on a Monday had typically settled on the following Wednesday. the funds and securities pay in and payout are carried out on T+2 day.
☆ pay in day and pay out day:
Pay in day is the day when the brokers shall have make payment or delivery of securities to the exchange. pay out day is the day when the exchange makes the payment for the delivery of securities to the broker. settlement cycle is on the T+2 rolling settlement basis with effect from 1st April 2003 .the exchanges have to ensure that the payout of funds and securities to the clients is done by the broker within 24 hours of the pay out. the exchanges will have to issues press releases immediately after the payout.
The exchange purchases the requisite quantity in the auction market and gives them to the buying trading members .the shortages are met through auction process, and the differences in the price indicates that the contract note and price received through auction is paid by the member to the exchange which is then liable to be recovered from the client.
☆ margin trading facility:
Margin trading is a trading with borrowed funds and securities .it is essentially leveraging mechanism which enables investors to take the exposure in the market over and above what is possible with their own resources.
you can invest in stocks of value higher than what you can afford at that given time. You bring in the 50% and we lend you the other 50%.the SEBÌ has been prescribing eligibility conditions and procedural details for allowing the margin trading facility from time to time.
The margin can be given in the form of cash or shares as collateral depending upon the availability with the respective investor. In short, it can be termed as leveraging a position in the market with cash or collateral by the investor. In this transaction the broker funds the balance amount. Corporate brokers with net worth of least rupees 3 Crore eligible for providing margin trading facility to their clients subject their entering into an agreement to that effect before providing margin trading facility to a client the member and the client have been mandated to sign an agreement for this purpose in the format specified by the SEBI it has also been specified that the client shall not avail the facility from more than one broker to anytime.
The facility of the margin trading is available for the group 1 securities and 2 securities which are offered in the initial public offer and meet the conditions for entry inclusion in the derivative segment of the stock exchange.
For providing the margin trading facility a broker should use his own funds aur borrow from the scheduled commercial banks or nbfcs regulated by the Reserve Bank of India. A broker is not allowed to borrow the funds from any other source.
☆ SEBI risk management systems:
The primary focus of risk management by Securities and exchange board of India has been to address the market risks, operational risks and systemic risks. To this effect, Securities and exchange board of India has been continuously reviewing its policies and drafting risk management policies to mitigate these risks, thereby enhancing the level of investor protection and catalyzing market development.
☆ Short selling:
Short selling means selling of a stock that the seller does not own at a time of trade .
It is an advanced strategy that should only be undertaken by experienced traders and investors. Short selling can be done by borrowing the stock through clearing corporation or clearing house of a stock exchange with is registered as approved intermediaries short selling can be done by retail as well as institutional investors.
Traders may use short selling as speculation, and investors or portfolio managers may use it as a hedge against the downside risk of a long position in the same security or a related one. Speculation carries the possibility of substantial risk and is an advanced trading method. Hedging is a more common transaction involving placing an offsetting position to reduce risk exposure. All the short sales must result in delivery and information on shot sale has to be disclosed to exchange by End of day by retail investors and at the time of trade For institutional investors. The securities lending and borrowing mechanism and allows short sellers to borrow securities for making delivery securities in the f&o segment are eligible for the short selling.
Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court. The trading members and their clients in respect of trades done on the exchange.
☆ BSE indo next :
Regional stock exchanges have registered negligible business during the last few years and thus small and medium-sized companies listed there find it difficult to raise fresh resources in the absence of price discovery of their securities in the secondary market. As a result, investors also do not find exit opportunity in case of such companies. BSE IndoNext has been formed to benefit such small and medium size companies , the investors in these companies and capital markets at large. It has been set up as a separate trading platform under the present BSE Online Trading system of the BSE. It is a joint initiative of BSE and the Federation of Indian Stock Exchanges.
☆ corporatization of stock exchanges:
Corporatization is the process of converting the organisational structure of the stock exchange from an on corporate structure to the corporate structure traditionally some of the stock exchanges in India was established as association of person for example BSE and the bar Stock Exchange and Madhya Pradesh stock exchange corporatization of the exchange is the process of converting them into incorporated companies.
☆ Demutualization of stock exchanges:
Demutualization refers to the transition process of an exchange from a mutually owned association to a company owned by shareholders .in other words transforming the legal structure of exchange from a mutual form or to a business corporation form is referred to as Demutualization the above in effect means that after Demutualization the ownership the management and the trading rights at exchange are secreted from one another.
☆ Day trading:
Day trading refers to the buying and selling of the securities within the same trading day such that all position will be closed before the market close of the trading day in the Indian security market only retail investors are allotted to day trade.
☆ direct market access:
Direct market access refers to access to the electronic facilities and order books of financial market exchanges that facilitate daily securities transactions. Direct market access requires a sophisticated technology infrastructure and is often owned by sell-side firms. Rather than relying on market-making firms and broker-dealers to execute trades, some buy-side firms use direct market access to place trades themselves. Some of the advantages offered by the direct market access are direct control of clients over orders faster execution of client order reduced risk of errors associated with manual order entry greater transparency increased liquidity lower impact cost for large orders better audit trails and better use of hedging and arbitrage opportunities through the use of decision support tools or algorithms for tradingExchanges are organized marketplaces where stocks, commodities, derivatives, and other financial instruments are traded. Some of the most well-known exchanges are the New York Stock Exchange , the Nasdaq, and the London Stock Exchange .
■ CAPITAL MARKET REFORMS:
Capital market reforms initiated by government after 1991.Inducement for investor claims through consume courts and redressal forum of investor associationsPermission of the foreign equity participationWith the permission of Reserves bank of India, NRIs were permitted to invest in the equity shares and debenturesNorms relaxed for the Indian firms to raise financial resources.
☆ Introduction of dematerialization:
Dematerialization is the move from physical certificates to electronic bookkeeping. Actual stock certificates are then removed and retired from circulation in exchange for electronic recording. It share certificates printed on paper resulting in operational cost and risk. Theft and counterfeiting of share certificates gave rise to criminal activities. In order to solve this problem the national securities Depository services Limited was set up in November 1996 the depositary maintains a computer record of ownership of securities and dispenses with physical share certificate this form of trading is known as Demat.
☆ Derivatives trading:
Derivatives are contract whose values is derived from the underlying assets the underlying asset can be equity or foreign exchange or any other financial asset derivatives help in transferring the price is either partially or fully by locking in asset prices. By doing so derivatives minimise the impact of asset price fluctuations on profitability and cash follow status of investors who are averse To risk. Derivatives meeting in equities begin in India in June 2004 equity derivatives product in India they are stock option stock future index option and its features derivatives trading take place only in the NSE and the BSE.