About Trading or Share Market

Introduction :

The issue of securities by corporate units in India is as old as the introduction of joint stock enterprises by British Government. The 18^th and 19^th centuries saw the emergence of cotton and jute textiles and tea plantation industries in India. Many companies were setup as joint stock with liability limited by shares.

Shares and stocks were introduced centuries ago. They are still in existence and new financial instruments are being introduced in to the market regularly. This is to address the needs of investors. The investors are demanding the fast and beneficiary service. This is because of the rapid developments in the field of information technology due to this the financial market is able to introduce innovative financial service to the investors of levels.

Meaning of Securities:

Securities are the Financial Instruments which are all claims on money. There are different types of financial instruments with different features and very in nature. According to the securities Contract Act 1956, securities defined as inclusive of shares, scripts, stock, bonds, debentures stock or any debentures of a company or body corporate, the Government and Semi Government body etc.

The securities contract (regulation) Act, 1956 (SCR Act) is the basis for the regulation of Securities Contract and Exchange in India. It was enacted in 1956. It regulates the business of trading on stock exchange and options trading and provides for recognition of stock exchange and related matter like listing of securities, transfer of securities etc. The rules and bye laws of the stock exchange also governs the regulation of trading.

In this study there is more importance given to the derivatives and information is furnished in detail.

Securities Market:

It is a broad term embracing a number of markets in which securities are bought and sold or the market in which the securities are dealt, which is called the securities market, like debt market, equity market etc. These markets help the issues of securities investors, intermediaries and the national economy as a whole who are all involved in the operation. Firstly, the issuer will benefit as they can raise fund through this method for financing their operations secondly, for investor the markets provide an avenue for channeling their saving and liquidity is imparted from them for their operation of investment and disinvestment.

The financial intermediaries like bank, brokers, etc., provide a host of services, to both investor and issuers and bring them together and enable saving and investment to meet on a common ground. The nation and the economy as a whole will benefit as these markets promote saving and capital formation in the country leading to industrial growth and economic development with a multiplier effect on income, employment and output.

One way in which securities market may be classified in the types of securities bought and sold there. The broadest classification is based upon whether the securities are new issues are already outstanding and owned by investors. New, issues are made available in the primary market. Securities that are already outstanding and owned by investor are usually bought and sold through the secondary markets. Another classification is based on maturities, securities with maturities of one year or less normally trade in the money market; those with maturities of more than one year bought and sold in the capital market need less to say classification system has many variations.

Brief History of Stock Exchanges:

The brief history of stock exchanges in India dates back to the 1840’s. There were 50-60 brokers led by the legendary Premachand, Roychand. They formed the back bone of share floatation by the East India Company and a few commercial banks. In 1875, the Bombay stock Exchange, the oldest Asia, made its beginning under the name, native share and stock brokers Association. A voluntary non profit association of persons, it mobilized funds for industrial growth and government securities, especially of Bombay Port Trust and Bombay municipality. A similar organization was set up in Ahmadabad in 1894. As a result of the swadeshi movement and the coal boom of 1904-08, Kolkatta became another major centre of share trading and an exchange was set up in 1908. During inter war years, as the demanded and new ones were floated. Yet other stock exchange was started in Madras in 1920. The stock Exchanges in Hyderabad and Delhi started operations in the years 1943 and 1947, respectively. At the time of independence, there seven stock exchanges functioning in major cities of the country.

From the seven stock exchanges in 1946, the country moved to form a total of 19 stock exchanges by 1990. There were 5,698 companies listed as against 1,125 in 1946. The paid up capital of these companies multiplied many fold form Rs. 270 crores in 1946 to 27,761 corers in 1990. The market capitalization of listed companies pumped for Rs. 971 crores in 1946 to 70,521 crores in 1990.

Form the nineties, started the current phase under which Indian stock exchanges are undergoing a rapid transition to be at par with stock exchange in the developed world. Before 1990, the trading system was the open outcry system with scripts classified as (in which carry towards or badla facility was available) and non-specified or cash scripts that that were compulsorily settled with delivery at the end of the settlement.

Present there are 23 recognized stock exchanges with 6000 stock brokers.

Capital Market:

Capital market is generally understood as the market for long-term funds. This market supplies funds for financing the fixed capital requirement of trade and commerce as well as the long-tem requirement of the Government. The long-term fund is made available through various instruments such as debentures preference shares and common shares. The capital market can be local, regional or international.

The capital market is classified into two categories viz.,

Primary market or new issue market and

Secondary market or stock market

As a rule, only when a country’s primary market is alone, it is possible to ensure a good degree of activity in the secondary market because it is the primary market which endures a continuous flow of securities to the secondary market. On the contrary, if secondary market is only active but not transparent and disciplined. This is because the liquidity which the secondary market imparts to such investments in the hands of the investors is adversely affected.

New issue Market / primary Market:

The new Issue market deals with the new securities which were not previously tradable to the investing public. The market thus derives its name form the fact that it makes available new securities for public subscription. In other words, new Issue Market deals with rising of fresh capital either for cash or for consideration other than cash by companies and encompass all institutions dealing in the issue of fresh debt. The form in which this debt is incurred are equity shares, preference shares, debentures, right deposits, bonds, miscellaneous loans etc., of both public and private companies. All the financial institutions in the capital market who contribute, underwrite or directly subscribe are part of the new issue market.

Secondary Market:

It is a market for securities trading which are already issued by the issuers to the investors. In other words, it is market for secondhand shares, which provides liquidity i.e., the investors can realize their funds invested in securities into cash. The Government, Semi-Government and public sector undertakings and companies for borrowing funds and raising resources issues these securities. Securities are defined as any monetary claims (promissory notes or I.O.U) and include shares, debentures, bonds etc under the Securities Contract Act of 1956, the central Government regulates security trading and such trading can takes place only in stock exchanges recognized by government of India. Under this act, the major exchanges like Bombay, Calcutta, Delhi, Chennai, Hyderabad, Bangalore etc., are permanently recognized while a few are temporarily recognized. The above Act has laid down that trading in approved contracts should be done through registered members of the exchange. As per the rules made under the above Act, trading in securities permitted to be trade would be in normal trading hours (9:00 am to 3:30p.m working days very from exchange to exchange) in the trading ring, as specified for trading purpose.

There are different types of grades which are given to the securities. Such as A, B, C, D, Z etc. It depends upon the firm value and profitability of the firm value and profitability of the company. The company having high firm value and high profitability graded with A and the like. The interesting thing here is that the security trading doesn’t affect the company in any manner except in certain conditions. But the performance of the company and economic conditions which prevailed in the market affects the prices of the securities.

Contracts of approved to trade are the following:

Spot delivery deals are for delivery deals of shares on the same day or the next day as the payment is made.

Hand delivery deals for delivering shares, within as period of 3 to 4 days form the date of the contract.

Special delivery deals for specific shares.

Thanks to FERA dilution in the late 1970’s investor interest in capital market was stimulated. The real growth and change however occurred from mid-1980 and more particularly from the early 1990’s in the wake of liberalization initiative for the government. As a result of this the capital market in India has been veritably transformed. This is reflected in the following.

Expended Role in Resource Mobilization:

Till the end of 1980’s the capital market played minor role in allocating the financial resources. From 1990 onwards, the relative importance of the capital market has increased. Since then, the number of capital issues by the type of security and the type of issues had been increased.

CONTROL OVER SECONDARY MARKET:

Secondary market control is exercised through the following three important process.

Recognition of Stock Exchange.

Listing of Securities.

Registration of Brokers.

Recognition Of Stock Exchange

Stock Exchanges are the important ingredient of the capital market. They are the theatres of trading in securities and as such they assist and control the buying and selling of securities.

Function/Services Of Stock Exchanges

Stock Exchanges performs several economic functions and renders invaluable services to the investors companies and to the economy as a whole as per follows.

Liquidity and Market Ability of Securities

Stock Exchange facilitate in buying and selling of securities at listed prices by providing continuous market ability to the investors in respect of securities they hold or intend to hold. Thus, they create a ready out let for dealing in securities.

Safety of Funds

Stock Exchanges ensure safety of funds invested because they have to function under strict rules and regulation and the buy-laws and rules are meant to ensure safety of ingestible funds. This would strengthen the investor’s confidence and promote larger investments.

Supply of Long Term Funds

Securities are negotiable and transferable in character and such as transferred with minimum of formalities from one hand to another so when a security translated on investor is substituted by another but the company is assured of long term availability of funds.

Flow of Capital to Profitable Ventures

The profitability and popularity of companies are reflected in stock prices. The prices quoted indicate the relative profitability and performance of companies. Funds tend to be at trailed towards securities profitable companies and this facilitates the flow of capital into profitable channels.

Motivation for Improved Performance

The performance of a company is reflected on the prices quoted in the stock market. These prices are more visible in the eyes of the public. Stock market provides room for this price. Quotation for those securities listed by it. This public exposure makes a motivation to improve its performance further.

Promotion of Investment

Stock Exchange mobilizes the savings of the public and promote investment through capital formation.

Reflection of Business Cycle

The changing business conditions in the economy are immediately reflected on the stock exchanges. Booms and depressions can be identified through the dealings on the stock exchanges and suitable monetary and fiscal policies can be taken by the government.

Marketing of New Issues

If the new issues are listed they are readily acceptable to the public since, listing presupposes their evaluation by concerned stock exchange authorities cost of underwriting such issues would be less. Public response to such new issue would be relatively high. Thus a stock market helps in the marketing of new issues also.

Miscellaneous Services

Stock-Exchange supplies securities of different kinds with different maturities and yields. In enable the investors to diversify their risks by wider portfolio of investment. It also inculcates saving habits among the community and paves the way for capital formation. It guides the investors in choosing securities by supplying the daily quotation of listed securities and by disclosing the trends of dealings on the stock exchange. It enables companies and the government to raise resources by providing a ready market for their securities.

Listing of Securities

Listing of securities means that the securities are admitted for trading on a recognized stock exchange. It is a green signal given to selected securities to get the trading privileges of the stock exchange concerned. Securities become eligible for trading only through listing.

Listing is compulsory for those companies which intend to offer shares or debentures to the public for subscription by means of issuing a prospectus. Moreover the SEBI insists on listing for granting permission to a new issue by a public limited company.

The listed shares are generally divided into two categories namely.

GROUP - A Shares (Specified shares or cleared securities).

GROUP - B Shares (Non-specified shares or Non-cleared securities).

GROUP - A Equity bases Rs. 10 crores

market capitalization of Rs. 25-30 Crores

public holding of Rs. 35-40%

share holding population of 15000 to 20000.

GROUP - B Dived into B1 & B Shares

B shares in the Bombay stock exchange

B shares represent well traded scrips any the B group is they have weekly settlement.

GROUP - C Only odd lots and permitted securities are included.

REGISTRATION OF STOCK BROKERS:

A broker is none other then a commission agent who transacts business in securities on behalf of his clients who are non-members of a stock exchange. Thus non-members can purchase and sell securities only through a broker who is a member of the stock exchange to deal in securities on recognized stock exchanges, the broker should register his name as a broker with SEBI.

METHOD OF TRADING IN A STOCK EXCHANGE

The stock exchange operations at floor level are highly technical in nature. Non-members are not permitted to enter in to the stock market. Hence various stages have to be completed in executing a transaction is a stock exchange these are:

Choice of a Broker

The prospective investor who wants to buy shares or the investor who wants to sell his shares cannot enter into the hall of the exchange and transact business so, first task in transacting business on a stock exchange is to choose a broker of repute or a banker.

Placement of Order

The next step is the placing of order for the purchase or sale of securities with the broker. The order is usually placed by telegraph, Telephone, letter, Fax etc or in person to avoid delay it is placed generally over the phone or personally came and place the order.

The orders may take any one of the following forms:-

At Best Order

It is an order which does not specify any price. It must be executed immediately at the best possible price. The client may also fix a time frame within which the order has to be executed.

E.g.:- “Buy 100 Essar steal at best”.

Limit Order

It is an order for the purchase or sale of securities at a fixed price. Specified by the client.

E.g.:- “Sell 100 Cipla @ Rs. 175”.

Immediate or Cancel Order

It is an order for the purchase or sale of securities immediately at the quoted price. If the order could not be executed at the quoted prices immediately. It should be treated as cancelled.

E.g.:- “Buy 100 cipla @ 175 immediate or cancel”

Discretionary Order

It is an order to buy or sell shares at whatever price the broker thinks reasonable. This is possible only when the client has complete faith on the broker.

Open Order

It is an order to buy or sell without fixing any time limit or price limit on the execution of the order. It is similar to discretionary order.

Stop loss Order

It is an order to sell as soon as the price falls up to a particular level or to buy when the price rises up to a specified level. This is mainly to protect the clients against a heavy full or rise in prices so this they may not suffer more than the pre-specified amount.

Execution of Order

Orders are executed in the trading ring of stock exchange on all working days from Monday to Friday and a special one hour session on Saturday. Trading out side the trading hours are called “Kerb Dealings”.

Preparation of Contract Note

The authorized clerks enter the particular of the business transacted during a particular day in the ‘Kacha Sauda Book’ from the rough Note-books at the close of that working day, from kacha souda books, they are transferred to ‘pucca sauda books’ which are maintained separately for the ready delivery contracts and forward delivery contracts. Then the broker or authorized clerk prepares a contract note.

Settlement of Transaction

Finally settlement of transaction is made by means of delivering the share certificates along with the transfer deed but now clients having Demat account. The quantity of shares and price of the share is directly credited to personal account only.

GENUINE TRADING Vs SPECULATIVE TRADING

Investors can deal with stock exchange securities either for a genuine trading purpose or for the purpose of speculative trading. Genuine Investors generally give take delivery of shares with no intention to postpone the settlement to the next period. Their primary motive is to get long term gains in the other hand speculators do not take or give delivery of shares. They deal in differences in the purchases and sale prices. Their main intention is to carry forward the transactions and get short-term gains due to price difference.

Innovation in Financial Instruments:

Till 1992, corporate had limited freedom in designing and pricing financial instruments with the enunciation of new guidelines on capital issues by SEBI in 1992, corporate, were given considerable latitude in the design of financial instruments. Thanks to this freedom, a number of new instruments like deep discount bonds, potable-cum-callable bonds, floating rate bonds and index bonds have been introduced.

Emergence of Numerous Capital Market intermediaries:

Many new capital market intermediaries have encouraged, while there was only one mutual fund (UTI) in existence till 1986, a number of new mutual funds have come in to bearing since then.

Establishment of new stock Exchange and Growth in Trading:

Stock exchanges are the pivot of capital market. They serve as the channels through which primary issues are offered to the investing public and they provide the mechanism through which outstanding securities are traded. While there was only a recognized stock exchanges in 1980’s the number has gone up to 22 by the end of 1997. The most important event, of course, those been establishment of NSE in November 1994. Within a short period, it has emerged as the principal stock exchange in the country.

Adoption of screen Based Trading:

NSE and OTCEI were set up ab-initio, as computerized exchanges to have switched or are in the process of switching from traditional open outcry system of trading to screen-based system of trading. This has been a major development in the secondary market in India.

A major innovation in Indian capital market is introduction of screen based trading in place of open-outcry trading system where traders shout and resort to signal and trading of flour of exchange in replaced by screen-based trading. It is a systems where distract participation can trade with each other through computer network.

The traditional system of trading i.e., buying and selling is taken place through share brokers of the stock exchange is the auction market. In the auction market, the market and an auction system based on a current high bid low offer. Those not meeting either of these prices may not participate in the auction. In The auction system the buy and sell orders are automatically matched with specialist filling in the gap when an imbalance occurs. The specialist system emerged precisely because in a continuous auction market where broker trade with each other there is no guarantee of a simultaneous coincidence of buyer and seller. This system of trading having lots of drawbacks to overcome this new system of trading was introduced namely screen-based system or online-trading.

Emerging Derivatives Market Structure in India

Apart from traditional financial market, two more markets are emerging; namely the derivatives market has came into being recently and the bank assurance market, which is likely to emerge in an important way once banks start undertaking insurance business derivatives in the Indian Financial markets are of recent origin barring trade related toward contracts in the foreign exchange. Exchange trade derivatives tend to be more standardized and offer greater liquidity than OTC contract, which are negotiated between counter parties and tailored to meet the needs of the parties to the contract, exchange traded derivatives also offer centralized limits on individual positions and has formal rules for risk and burden sharing while one exchange traded derivative viz., stock index futures was introduced by the two largest stock exchange in June 2000.

The most notable development concerning the secondary segment of the Indian capital market is the introduction of derivatives trading in June 2000. SBI approved derivatives trading based on futures contract at both BSE and NSE in accordance with the rules or by laws. And regulations of the stock exchanges BSE and NSE have made a beginning with equity derivatives with the introduction of stock index futures.

Derivatives

A derivative instrument broadly is a financial contract whose payoff structure is determined by the value of an underlying commodity, security interest rate, share price index, exchange rate, oil price and the like. Thus, a derivative instrument by itself does not constitute ownership. It is, instead, a promise to convey ownership.

All derivatives are based on some ‘Cash’ Products. The underlying basis of a derivative instrument may be any product including:

Commodities including grain, coffee, beans, orange, jute etc.

Precious metals like gold and silver

Foreign exchange rate

Bonds of different types, including medium to long term negotiable debt securities issued by governments, companies etc.

Short term debt securities such as T-bills and

Over the – counter (OTC) money market products such as loans or deposit.

There are many kinds of derivatives including futures options, interest swaps and mortgage derivatives.

Types of derivatives:

Option

Forward

Future

Swaps

Option:

Options are basically derivatives in the nature of legal contracts. They are derived from underlying assets which could be stocks, bonds or currencies. An option contract gives the holder the right to buy or sell the underlying stock at a price on a future date. This price is referred to as the strike price. Depending on whether the holder is a buyer or seller, the options are termed put and call.

Put option:

A put option conveys the right of the holder to sell. The buyer of the holder gets the right as laid down in the option, while the writer is the one who has the obligation to honor the terms when the option is exercised. Option trading had a good market in India since there is enough scope for speculation.

Call option:

A call option conveys the right of the holder to buy a specified quantity of the stock.

Forwards:

Forwards are the oldest of all the derivatives. Forwards contract refers to an agreement between two parties to exchange an agreed quantity of an asset for cash at a certain date in future at a predetermined price in that agreement the promised asset may be currency, commodity instrument etc.

In a forward contract a user (holder) who promises to buy the specified asset at an agreed price at a fixed future date is said to be the `Long Position’ on the other hand, the user (holder) who promises to sell at an agreed price at a future is said to be in `Short Position’. Thus `Long Position’ and `Short Position’ take from the `buy’ and `sell’ in the forward contract.

Futures:

A future contract is essentially a series of forward contracts. There are two types of people who deal in futures – speculators and hedgers. Speculators buy and sell futures for the sole purpose of marketing a profit by selling them at a price that is higher than their buying price. Such people neither produce nor use the assets in the ordinary course of business. In contrast, hedgers buy and sell futures to offset an otherwise risky position in the spot market. In the ordinary course of business, they either produce or use the asset. In a forward contract, the trader who promises to buy is say to be in ‘long position’ and the one who promises to sell is said to be in ‘short position’ is future. The long position in a future contract is the agreement to take delivery and short position in a future contract is the legally binding agreement to deliver.

Traders in Futures and Options market:

Hedgers

Speculator

Arbitrageurs

The derivative instruments are used for various purposes. As indicated earlier, they are primarily used for purpose of managing risk by those managing funds. The trading to these instrument also allows the market participants the opportunities of making profits either by taking risk i.e., speculation or simultaneously taking opposite positions in the spot and future markets or in the futures market alone, to take advantage of price differentials i.e., arbitrage. Accordingly there are varied types of traders who trade in the futures and options markets. These three constitute major clues of trade in the futures and options markets. These three constitute major clues of traders.

Swap:

Swap is yet another exciting trading instrument in fact. It is a combination of forward by to counter parties. It is arranged to reap the benefits arising from the functions in the markets either currency market or interest rate market or any other market for that matter.

World Derivative Market:

The past three decades have witnessed a singular rise in the development and growth of derivatives markets. The world over Futures and Options trading has registered a phenomenal rise and new products have been evolved. Futures and Options exchanges and OTC derivative markets are integral parts of the virtually all the economies which have reached advance stage of economic development. Such markets are likely to become important parts of developing economies as well, when they move into advanced stages of development with passage of time.

Apart from USA, UK and several European countries Japan and Singapore amongst others which have well-developed futures and options markets, a large number of other countries have well developed futures and options markets, a large number of other countries have also developed are in the process of developing such markets. The countries and markets include Argentina, Brazil, India, Indonesia, Korea, Malaysia, Mexico, Philippines, Poland, Portugal, Russia, and Slovak republic, Slovenia, South Africa, Thailand and Turkey.

Introduction of Futures and options in India:

In India futures and options have been introduced in the recent past for example exchanges like the stock exchange, Mumbai and Vadodara stock exchanges showed their willingness in introducing trading in Futures and options. But the initiative in this direction was made by the National Stock Exchange (NSE) in the July, 1995 when it considered to introducing derivatives trading, mainly futures and options. Within a very short time, the NSE developed a system of options and futures trading for modifying the carry forward system to include of options and futures in its scope. The NSE started work on the scheme of options and futures in its scope. The NSE started work on the scheme of such trading very first month of 1996. In March 1996, it made a presentation to SEBI on its plans to commence trading in futures and options. The exchange proposed to start with index based futures, and index based options, which are seen as comparatively safer from of derivatives.

Before allowing the derivatives trading, the SEBI set up a committee headed by Prof. L.C. Gupta to suggest the various policies and regulatory measures required to be undertaken.

Placing orders on the trading system:

For both the futures and the option market. While entering to identify the orders as being proprietary or client orders proprietary should be identified as `Pro’ and those of clients should be identified as `cli’ trades the client account number should also be provided.

Market spread / Combination Order Entry:

The NEAT, F & O trading system also enables the uses to input two or more orders simultaneously in the market. These orders will have the condition attached to it that unless and until the whole batch of orders finds a counter market they shall not be traded.

National Stock Exchange (NSE)

The national Stock Exchange (NSE) was set up by IDBI and other All Indian Financial Institutions in Bombay in November 1992 with a paid-up equity of Rs. 25 cores.It was set up strengthen the move towards professionalization of the capital market as also to provide nationwide securities trading facilities to investors. Another important stock exchange is the Bombay stock Exchange (BSE). The Bombay Stock Exchange of India has during the last few years taken various measures to improve the quality of secondary market in Indian and to make India in attractive destination for both domestic and foreign investors. Bombay Stock Exchange had been elements be its brokers / investors or listed companies.

Objectives of NSE:

The objectives of NSE can be listed as:

To establish a nationwide trading facility for equities, debt instruments and hybrids

To ensure equal access to investors all over the country through an appropriate communication network.

To provide a fair efficient and transparent securities market to investors using electronic systems.

To enable shortening settlement cycles and book entry settlement system.

To meet the current International standards of securities market.

Over the Counter Exchange of India (OTCEI):

Over the counter Exchange of India (OTCEI), a different kind of stock exchange was launched in 1992, under the section 25 of the Companies Act 1956 with the objective of providing an opportunity to small companies to access public funds at low cost. It is also recognized as a stock exchange under the section of Securities Contract Act, 1956 enabling the listed companies to be treated as companies in which the public is substantially interested. OTCEI was promoted by UTI, ICICI, IDBI. IFCI. LIC, GIC and its subsidiaries, SBI Capital Market Ltd, Canara Bank Financial Service Ltd. It is registered with an authorized capital of Rs.8.00 crores. OTCEI is a ring less, electronic and National Stock Exchange designed for investor convenience. Equity Shares, preference shares, debentures, bonds, Warrants and EXIM scripts are traded in OTCEI. The minimum issued capital of companies listed in OTCEI enjoyed the same status as available to other companies listed on any other stock exchange in the country except that they cannot be listed or traded on any other stock exchange in India.

Securities and Exchange Board of India (SEBI):

The SEBI was established on April 12, 1988 through an administrative order, but it became a statuary and really powerful organization only since 1992. The CICA was repealed and the office of the CCI was abolished in 1992 and the SEBI was set up on 21^st February 1992 through an ordinance issued on 30 January 1992. The ordinance was replaced by the SEBI Act on 4^th April 1992. Certain powers under certain securities of SCRA and CA have been delegated to the SEBI. The regularity powers of the SEBI were increased through the securities laws (Amendment) ordinance of January 1995 which was subsequently replaced by an Act of parliament, the SEBI is under the overall control of the ministry of Finance, and had its head office at Mumbai. It has now become a very important constituent of the financial regulatory frame work in India.

The philosophy underlying the creation of the SEBI is that multiple regulatory bodies for securities industry mean that the regulatory system gets divided causing confusion among the market participants as to who is really in command. In a multiple regulatory structure, there is also in overlap of functions of different regulatory bodies through the SEBI, the regulation in entrusted to a single highly visible and independent organization which is backed by a statute and which is accountable to the participant and in which investors can have trust.

Objectives and Regulatory Approach:

The overall objective of the SEBI, as enshrined in the Preamble of the SEBI Act, 1992 is “to protect the interest of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto”. To elaborate, the SEBI regulates stock exchanges and securities industry to promote their ordinary functioning. It protects the rights and interest of investors, particularly individual investors, and guides or educates them. It prevents trading malpractices and aims at achieving a balance between self-regulation by securities industry and it statutory regulation.

Having regard to the emerging nature of the securities markets in India, the SEBI necessarily has the twin task of regulation and development. Its regulatory measure is always meant to be subservient to the needs of the market development. Underlying those measures is the logic that rapid and healthy market development is to outcome of well-regulated structures. In this spirit, the SEBI endeavors to create an effective surveillance mechanism and encourage responsible and accountable autonomy on the part of all players in the market, who are expected and required to discipline themselves and observe the rules of the market.

The SEBI also aims at facilitating an efficient mobilization and allocation of resources through the securities markets, stimulating competition, and encouraging innovations. Its regulation is expected to be flexible, cost-effective and confidence-inspiring. To investors, the SEBI provides a high degree of protection of their rights and interest through adequate accurate and authentic information and disclosure of such information on a continuous basis. To issuers, it provided a market place in which they can confidently raises all the finance they need in any easy, fair and efficient manner, to the market intermediaries, it officer a competitive, professionalism and expanding market with adequate and efficient infrastructure so that they can render better and more responsible service to the investors and issuers.