Secondary Market
• Secondary Market refers to the network /
system for the subsequent sale and
purchase of securities.
• A security emerges or takes birth in the
primary market but its subsequent
movements take place in the secondary
market.
• The secondary market is represented by
the stock exchanges in any capital market.
History
• In India, the only stock exchanges operated in the 19th
century were those of Mumbai in 1875 and Ahmedabad
in 1894.
• Both stock exchanges were organized as voluntarily
nonprofit making associations of brokers. The main
intention and objectives is to regulate and protect their
interests.
• Bombay Securities Control Act, 1925, which was
recognized the Bombay Stock Exchange in 1937 and
Ahmedabad in 1937.
• It may be noted that out of 23 stock exchanges, only 2,
i.e., the NSE and the OTCEI, have been established by
the All India Financial Institutions while other stock
exchanges are operating as associations or limited
companies.
Functions of Stock Exchanges
• Liquidity & Marketability of Securities
• Safety of Funds
• Supply of long term funds
• Flow of Capital to profitable Ventures
• Motivation for improved performance
• Promotion of investment
• Reflection of business cycle
• Marketing of new issues
• Miscellaneous services
Liquidity & Marketability of Securities
• Stock exchanges provide buying and selling of
securities. Stock exchange provide liquidity to
securities since securities can be converted into
cash at any time according to the discretion of
investor by selling them at the listed price. This
facility is providing continuous marketability to
the investors in respect of securities they hold or
intend to hold.
Safety of Funds
• Over trading, illegitimate speculation etc.,
are prevented through carefully designed
set of rules, regulations and the byelaws
are meant to ensure safety of investible
funds. Therefore, stock exchange is
protected investors fund.
Supply of Long term Funds
• In security market, securities are
transferable from one person to another
with minimum formalities. When security is
sold, one investor is substituted by
another. However, the company is
assured availability of long term funds.
Flow of Capital to Profitable
Venture
• The profitability and popularity of companies are
reflected in terms of hike in stocks.
• According to Husband and Dockeray “ Stock
exchanges function like a traffic signal,
indicating a green light when certain fields offer
the necessary inducement to attract capital
blazing a red light when the outlook for new
investments is not attractive”.
Motivation for Improved
Performance
• The performance of a company is
reflected in terms of prices quoted in the
stock market. Stock exchange always
encourages to improve performance of
companies. Because public can expect to
invest in growth companies.
Promotion of investment
• Stock exchanges mobilizes the savings
from the public into effective production
purpose. In this way, stock exchange can
promote investment through capital
formation.
Reflection of Business Cycle
• The changing economic and business
conditions are immediately reflected on
the stock exchanges. Stock exchange
identifies the booms & depressions of the
economy. The government can take
suitable monetary and fiscal policies which
can help to investors.
Marketing of New Issues
• If the new issues are listed in stock
exchange. Stock exchanges ready to
accept and their evaluation by concerned
stock exchange authorities. Stock market
always helps in marketing of new issues.
Miscellaneous Services
• Common Platform
• Safe in price determination
• Tight regulations.
Regulatory Developments During
2009-10
1. The SEBI (Delisting of Equity Shares) Regulations
2009 notified on June 10, 2009 provide a mechanism
for voluntarily as well as compulsory delisting of equity
shares of a company and listing of delisted equity
shares.
2. The SEBI (Issue of Capital & Disclosure
Requirements) Regulations 2009 provide for, inter alia,
offer for sale by listed companies and stipulate that the
allotment / refund period in public issues should be 15
days and the issue period for all types of issuers 10
days. Under this regulations, exemption from eligibility
norms for making an IPO earlier available, to a banking
company, corresponding new bank and infrastructure
companies, and firm allotment in public issues has
been removed.
3. In order to facilitate the issuance of IDRs, SEBI
has laid down a regulatory structure by carrying
out suitable amendments to the SEBI (Custodian
of Securities) Regulations 1996 (to enable the
custodian to undertake the activity of domestic
depository for IDRs), SEBI (Depository
Participants) Regulations 1996 (to make IDRs
eligible as security for dematerialization), SEBI
(Foreign Institutional Investors Regulations 1995
(to allow FIIs also to invest in IDRs).
4. The fees payable by some of the intermediaries
and market participants, namely custodian of
securities, FIIs, Mutual Funds and Stock Brokers
and Sub brokers, have been modified.
5.The SEBI (Mutual Funds) Regulation 1996 have
been amended in April and June 2009 to make
listing of close-ended schemes mandatory and
to provide that the units under close-ended
schemes shall not be re-purchased before
maturity. Close-ended debt schemes have been
allowed to invest in securities of initial or residual
maturities not exceeding their own maturity.
Furthermore, a mutual fund scheme can invest
only up to 30% of its net assets in money market
instruments of an issuer. However, this limit is
not applicable to investments in government
Securities, T-Bills and collateralized borrowing
and lending obligation.
National Stock Exchange
• Inaugurated in 1994, the national Stock
Exchange seeks to:
1. Establish a nation-wide trading facility for
equities, debt and hybrids;
2. Facilitates equal access to investors across
the country;
3. Impart fairness, efficiency, and transparency to
transactions in securities;
4. Shorten settlement cycle;
5. Meet international securities market standards.
The Distinctive features of NSE, as its
functions currently, are as follows:
The NSE is a ringless, national, computerized exchange.
The NSE has 4 segments: The Capital Market, the
Wholesale Debt Market segment, Futures & Options
Segment and the Currency Derivatives Segment. The
Capital Market segment covers equities, convertible
debentures, and retail trade in non-convertible
debentures. The wholesale debt market segment is a
market for high values transactions in Government
Securities, PSU bonds, Commercial Papers and other
Debt instruments.
The NSE has opted for an order driven system. When an
order is placed by a trading member, the computer
automatically generates a unique order number and the
member can take a print of order confirmation slip
containing the number.
The trading members in Capital Market
segment are connected to the central computer
in Mumbai through a satellite link-up, using
VSATs (Very Small Aperture Terminals).
Incidentally, NSE is the 1st exchange in the world
to employ the satellite technology. This enabled
the NSE to achieve a nation-wide reach. The
trading member in Wholesale Debt Market
segment are linked through dedicated high
speed lines to the central computer in Mumbai.
When a trade takes place, a trade confirmation
slip is printed at the trading member’s work
station. It gives details like quantity, price, code
number of counterparty, and so on.
• The identity of trading members is not revealed
to others when he / she places an order or when
his pending orders are displayed. Hence, large
orders can be placed on NSE.
• Members are required to deliver securities and
cash by a certain day. The payout day is the
following day.
• All trades on NSE are guaranteed by the
National Clearing Corporation (NSCC). This
means that when ‘A’ buys from ‘B’, NSCC
becomes the counterparty to both legs of the
transaction. In effect, NSCC becomes the seller
to ‘A’ and buyer from ‘B’. This eliminates
counterparty risk.
Bombay Stock Exchange
• Established in 1875, the Bombay Stock Exchange
(BSE) is one of the oldest organized exchanges in the
world with a long, colorful, history. Its distinctive
features are as follows:
1. The BSE switched from the open outcry system to the
screen-based system in 1995 which is called BOLT
(BSE On Line Trading). It accelerated its
computerization programme in response to the threat
from the NSE.
2. In October 1996, SEBI permitted BSE to extend its
BOLT network outside Mumbai. In 2002, subsidiary
companies of 13 regional exchanges became members
of BSE and through them members of regional
exchanges now serve as sub-brokers of BSE. This has
expanded the reach of BSE considerably.
3. To begin with, BOLT was a ‘quote-driven’ as
well as ‘order-driven’ system, with jobbers
(specialists) feeding two-way quotes and
brokers feeding buy or sell orders. This hybrid
system reflected the historical practice of BSE
where jobbers played an important role. A
Jobber is a broker who trades on his own
account and hence offers a two-way quote or a
bid-ask quote. The bid price reflects the price at
which the jobber is willing to buy and the ask
price represents the price at which the jobber is
willing to sell. From August 13, 2001, however,
BSE, like NSE, became a completely order-
driven market.
