FINACIAL MARKET (BSE)

FINACIAL MARKET (BSE)

1. What IsStock?Imagine you wanted to start a retail store with members of your family. You decide you need Rs.100, 000 to get the business off the ground so you incorporate a new company. You divide the company into 1,000 pieces, or "shares" of stock. (They are called this because each piece of stock is entitled to a proportional share of the profit or loss). You price each new share of stock at Rs.100. If you can sell all of the shares to your family members, you should have the Rs.100,000 you need (1,000 shares x Rs.100 contributed capital per share = Rs.100,000 cash raised for the company).If the store earned Rs.50,000 after taxes during its first year, each share of stock would be entitled to 1/1,000th of the profit. You'd take Rs.50,000 and divide it by 1,000, resulting in Rs.50.00 earnings per share (or EPS). You could call a meeting of the company's Board of Directors(these are the people the stockholders elected to watch over their interest since they couldn't run the business) and decide to use the money to paydividends, repurchase, or expand the company by reinvesting in the retail store.At some point, you may decide you want to sell your shares of the family retailer. If the company is large enough, you could trade on a stock exchange. That's what is happening when you buy or sell shares of a company through astock broker. You are telling the market you are interested in acquiring or selling shares of a certain company and Wall Street matches you up with someone and takes fees and commissions for doing it. Alternatively, shares of stock could be issued to raise millions, or even billions, of dollars for expansion. When Sam Walton formed Wal-Mart Stores, Inc., the initial public offering that resulted from him selling newly created shares of stock in his company gave him enough cash to pay off most of his debt and fund Wal-Mart's nationwide expansion.

2. STOCK EXCHANGE

STOCK EXCHANGE is an organized market place, either corporation or mutual organization, where members of the organization gather to trade company stocks or other securities.Stock Exchange also facilitates for the issue and redemption of securities and other financial instruments including the payment of income and dividends. The trade on an exchange is only by members and stock broker who have a seat on the exchange.

Name of Indian Stock Exchanges

1. Ahmedabad Stock Exchange2. Bangalore Stock Exchange3. Bhubaneswar Stock Exchange4. Bombay Stock Exchange5. Calcutta Stock Exchange6. Cochin Stock Exchange7. Coimbatore Stock Exchange8. Delhi Stock Exchange Association9. Gawahati Stock Exchange10. Hyderabad Stock Exchange11. Inter-connected Stock Exchange of India

12. Jaipur Stock Exchange13. Ludhiana Stock Exchange14. Madhya pradesh Stock Exchang15. Madras Stock Exchange16. Mangalore Stock Exchange17. National Stock Exchange18. Magadh Stock Exchange (Patna)19. Over The Counter Stock Exchange of India (OTCEI)20. Pune Stock Exchange21. Uttar Pradesh Stock Exchange22. Vadodara Stock Exchange23. Meerut Stock Exchange24. United Stock Exchange (started in June09)25. Saurashtra Stock ExchangeStock Exchange being a very vast topic, we are focusing on BOMBAY STOCK EXCHANGE (BSE).

2.1 INTRODUCTIONBombay Stock Exchange is the oldest stock exchange in Asia What is now popularly known as the BSE was established as "The Native Share & Stock Brokers'Association" in1875.

Over the past 135 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient capital raising platform.

Today, BSE is the world's number 1 exchange in the world in terms of the number of listed companies (over 4900). It is the world's 5th most active in terms of number of transactions handled through its electronic trading system. And it is in the top ten of global exchanges in terms of the market capitalization of its listed companies (as of December 31, 2009). The companies listed on BSE command a total market capitalization of USD Trillion 1.28 as of Feb, 2010.

BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certifications. It is also the first Exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-Line trading System (BOLT). The BSE Index, SENSEX, is India's first and most popular Stock Market benchmark index. Exchange traded funds (ETF) on SENSEX, are listed on BSE and in Hong Kong. Futures and options on the index are also traded at BSE.

BSE continues to innovate: Became the first national exchange to launch its website in Gujarati and Hindi and now Marathi Purchased of Marketplace Technologies in 2009 to enhance the in-house technology development capabilities of the BSE and allow faster time-to-market for new products Launched a reporting platform for corporate bonds christened the ICDM or Indian Corporate Debt Market Acquired a 15% stake in United Stock Exchange (USE) to drive the development and growth of the currency and interest rate derivatives markets Launched 'BSE StAR MF' Mutual fund trading platform, which enables exchange members to use its existing infrastructure for transaction in MF schemes. BSE now offers AMFI Certification for Mutual Fund Advisors through BSE Training Institute (BTI) Co-location facilities for Algorithmic trading BSE also successfully launched the BSE IPO index and PSU website BSE revamped its website with wide range of new features like 'Live streaming quotes for SENSEX companies', 'Advanced Stock Reach', 'SENSEX View', 'Market Galaxy', and 'Members'With its tradition of serving the community, BSE has been undertaking Corporate Social Responsibility (CSR) initiatives with a focus on Education, Health and Environment. BSE has been awarded by the World Council of Corporate Governance the Golden Peacock Global CSR Award for its initiatives in Corporate Social Responsibility (CSR).

Other Awards: The Annual Reports and Accounts of BSE for the year ended March 31, 2006 and March 31, 2007 have been awarded the ICAI awards for excellence in financial reporting. The Human Resource Management at BSE has won the Asia - Pacific HRM awards for its efforts in employer branding through talent management at work, health management at work and excellence in HR through technologyDrawing from its rich past and its equally robust performance in the recent times, BSE will continue to remain an icon in the Indian capital market.

2.3 NEED FOR BSEBSE is one of the factors Indian Economy depends upon. BSE has played a major role in the development of the country. Through BSE, Foreign Investors have invested in India. Due to inward flow of foreign currency the, the Indian economies have started showing the upward trend towards the development of the country.BSE provides employment for many people. Trading in BSE is also a business for a few, their family income depends on it that is the reason why when scandals occur in the stock market it not only affects the companies listed but also affects many families. In the few extreme cases, it is observed that the bread winner of a family tends to suicide due to the losses occurred.In most of major industrial cities all over the world, where the businesses were evolving and required investment capital to grow and thrive, stock exchanges acted as the interface between Suppliers and Consumers of capital. One of the key advantages of the stock exchanges is that they are efficient medium for raising resources and channeling savings from the general public by the way of issue of Equity / Debt Capital by joint stock companies which are listed on stock exchanges.Not to forget that the taxes and other statutory charges paid by BSE are substantial and make a sizeable contribution to the Government exchequer (Financial resources; funds). For example, transactions on the stock exchanges are subject to stamp duties, which are paid to the State Government. The annual revenue from this source ranges from Rs 75 100 croresWith the opening up of the financial markets to Foreign Investors a number of foreign institutional investors and brokers have established a sizeable presence in Mumbai.3 FUNCTIONS OF BSE

The Stock Market is a pivotal institution in the financial system. A well-ordered stock market performs several economic functions: It ensures the measure of safety and fair dealing It performs an act of magic by translating short-term investments into long-term funds for companies. It directs the flow of capital in the most profitable channels. It induces companies to raise their standard of performance. It offers guidance to management about the cost of capital.1. Measure of Safety and Fair Dealing:The stock exchanges operate under a regulatory framework which seeks to protect the interest of investors. The rules, regulations, and bye-laws of a stock exchange, which are approved by the central government, are meant to ensure that a reasonable measure of safety is provided to investors and transactions take place in competitive conditions which are fair to all concerned.2. Act of Magic:Most of the investors are interested in short-term investments. The requirements of companies are, however, long-term in naturethey require equity capital on a more or less permanent basis and debenture capital for 3 to 15 years. Thanks to the negotiability and transferability of securities, through the stock market, it is possible for companies to obtain their long-term requirements from investors with short-term horizons. While one investor is substituted by another when a security is transacted, the company is assured of availability of funds.3. Flow of Capital in the Most Profitable Channels:Companies which have more profitable investment opportunities are normally able to raise substantial funds through the stock market, whereas companies which do not have such opportunities are normally not able to do so. As a result, the stock market facilitates the direction of the flow of capital in the most profitable channels.4. Inducement to Companies to Raise their Standard of Performance: When the equity, capital of a company is listed on a stock exchange, the performance of the company is reflected in the market price of the equity stock, which is readily available for public consumption. Put differently, the companys performance is more visible in the eyes of public. Such a public exposure normally induces companies to raise their standard of performance.5. Guidance of Cost of Capital:The market value of the securities of company is required for computing its cost of capital. Such values can be obtained from stock market quotations. Hence the stock market offers guidance on cost of capital.

4. OBJECTIVES OF BSE1) To safeguard the interest of investing public having dealings on the exchange.2) To establish and promote honorable and just practices in securities transactions.3) To promote, develop and maintain well regulated market in securities.4) To promote industrial development in the country through efficient resource mobilization by the way of investment in corporate securities.FEATURES OF SENSEX1) Sensex is a value weighted index2) Composed of 30 stocks representing various sectors3) These companies accounts for one fifth of market capitalization4) Base value of sensex is 100 (april 1,1979)5) Base year (1978-79)6) Free float capitalization method7) Iconic stature-tracked worldwide8) Index cooperation agreement with deutsche borse has made sensex available to investors in europe and america9) Also available in hong kong

INDICES OF BSE Broad Market Indices1) Sensex 2) Bse 100 3) Bse 200 4) Bse500 5) Bse Mid Cap 6) Bse Small Cap Sectoral Indices1) Bse Auto 2) Bankex 3) Capital Goods4) Consumerable Goods 5) Fmcg 6)IT, Power Dollar Linked Indices

1) Dollex30 2) Dollex100 3) Dollex 20CONSTITUENTS LIST OF BSE SENSEXBombay Stock Exchange has 30 companies scripted1. BHEL2. BHARTI AIRTEL3. DLF UNIVERSAL Ltd.4. GRASIM INDUSTRIES5. HDFC6. HDFC BANK7. HERO HONDA MOTORS Ltd.8. HINDALCO INDUSTRIES Ltd.9. HLL11. ICICI BANK12. INFOSYS13. ITC Ltd.14. JAIPRAKASH ASSOCIATES15. L&T16. M&M Ltd.17. MARUTI UDYOG18. NTPC19. ONGC20. RELIANCE COMMUNICATION 21. RELIANCE INDUSTRIES22. RELIANCE INFRASTRUCTURE23. SBI24. STERLITE INDUSTRIES25. SUN PHARMACEUTICAL INDUSTRIES26. TCS27. TATA MOTERS28. TATA STEEL29. TATA POWER5. WHO SELECTS THE SCRIP1. They are selected by the Index Committee.2. This committee consists of all sorts of individuals including academicians, mutual fund managers, finance journalists,Independent governing board members and Other participants in the financial markets.

SCRIP SELECTION CRITERIA

Market capitalization: The company should have a market capitalization in the Top 100market capitalizations of the BSE. Also the market capitalization of each company should Be more than 0.5% of the total market capitalization of the Index.

Trading frequency: The Company to be included should have been traded on each and every trading day for the last one year. Exceptions can be made for extreme reasons like share suspension etc.

Number of trades: The scrip should be among the top 150 companies listed by average number of trades per day for the last one year.Industry representation: The companies should be leaders in their industry group.

Listed history: The companies should have a listing history of at least one year on BSE.

Track record: In the opinion of the index committee, the company should have an acceptable track record.

KINDS OF SHARES Small Caps (small market Capitalization less lie in between $300 million - $2billion), Large Caps (large Capitalization in between $10billion-$200billion), Mid Caps (lie in between Small & Large)

MARKET CAPITALIZATION It is the worth of the company in terms of shares Based on this market capitalization values onlycompanies are classified into "large-cap", "mid-cap"and "small cap" Market Capitalization = No. of outstanding sharesx Current market price of one share

IN CASE OF BONUS SHARES

Sensex will be based on some adjustment in the total market capitalization Total market capitalization (new) = Total market capitalization(old) x [ New market capitalizationof stock / old market capitalization of stock]

6. BENEFITS OF BSEFROM THE POINT OF VIEW OF COMMUNITY:1. It assist the economic development by providing a body of interested investors.2. it uploads the position of superior enterprises and assist them in raising further funds.3. Government can undertake projects of national importance and social value raising funds through the sale of its securities on the stock exchange.4. It is the stock exchanges that central bank of a country can control credit by undertaking open market operations (purchase and sale of security)

FROM THE COMPANY POINT OF VIEW:1. A company whose shares quoted on stock exchange they enjoy better reputation and credit.2. The market for the shares of such a company is naturally widened.3. The market price of securities is likely to be higher in relation to its earnings, dividends and property values. This raises the bargaining power of the company in the event of a takeover, merger or amalgamation.

FROM THE INVESTORS POINT OF VIEW:1. Liquidity of the investment is increased2.The securities dealt on a stock exchange are goodcollateral security for loans.3. The stock exchange safeguards interests of investors through strict enforcement of rules and regulations.4. The present net worth of investments can be easily known by the daily quotations.7. FACTORS AFFECTING BSEThere are various factors that affect BSE:(a) THE KETAN PAREKH SCAM Ketan Parekh was a graduate from HR College and CA by profession. Ketan Parekhs scam was often referred to as the one-man army or Pentafour Bull. The 176-point Sensex crash on March 1, 2001 came as a major shock for the Government of India, the stock markets and the investors alikeThis sudden crash in the stock markets prompted the Securities Exchange Board of India (SEBI) to launch immediate investigations into the volatility of stock markets.The scam shook the investor's confidence in the overall functioning of the stock markets. By the end of March 2001, at least eight people were reported to have committed suicide and hundreds of investors were driven to the brink of bankruptcy.The first arrest in the scam was of the noted bull, Ketan Parekh (KP), on March 30, 2001, by the Central Bureau of Investigation (CBI). Soon, reports abounded as to how KP had single handedly caused one of the biggest scams in the history of Indian financial markets. He was charged with defrauding Bank of India (BoI) of about $30 million among other charges. KP's arrest was followed by yet another panic run on the bourses and the Sensex fell by 147 points. By this time, the scam had become the 'talk of the nation,' with intensive media coverage and unprecedented public outcry. Bank of India along with Punjab National Bank and SBI were at the receiving end. Madhavapura Bank and Classic Cooperative Bank are the others affected. Ketan Parekh owes around Rs1.3bn to the Bank of IndiaKPs scam was one of the major scam in India after Harshad Mehta which lost the confidence of investors in investing in share market. KPs scam is also regarded as one mans army scam. (b) FOREIGN INSTITUTIONAL INVESTORS (FII)Foreign investment refers to investments made by residents of a country in another countrys financial assets and production processes. After the opening up of the borders for capital movement, foreign investments in India have grown enormously. It affects the productivity factor of the beneficiary or the receiver country and has the potential to create a ripple effect on the balance of payments of that country. In developing countries like India, foreign capital helps in increasing the productivity of labor and to build up foreign exchange reserves to meet the current account deficit. It provides a channel through which these countries can have access to foreign capital.Foreign investment can be of two forms: Foreign direct investment (FDI) and Foreign portfolio investment (FPI).FDI involves direct production activity and has a medium to long term investment plans. In contrast the FPI has a short term investment horizon. They mostly investment in the financial markets which consist of Foreign Institutional Investors (FIIs). They invest in domestic financial markets like money market, stock market, foreign exchange market etc.Foreign institutional investors investments are volatile in nature, and they mostly invest in the emerging markets. They usually keep in mind the potential of a particular market to grow.

FII has lead a significant improvement in India relating to the flow of foreign capital during the period of post economic reforms. The inflow of FII investments has helped the stock market to raise at a greater height according to financial analysts. Sensex touched a new height. It crossed 10000-mark in January 2006, which was 8073 on November 2, 2005, and 9323 in December 2005.FII participation in the Indian stock market triggers its upward movement, but, at the same time, increased liquidity through FII investment inflow increases volatility too.FIIs IMPACT ON THE INDIAN ECONOMY.The Ashok Lahiri Committee Report on encouraging FII Flows (Ministry of Finance, the Government of India) mentions some reasons for the need of FII flows. FII flows supplement and augment domestic savings and domestic investment without increasing the foreign debt of our country. Capital inflows to the equity market increase stock prices lower the cost of equity capital and encourage investment by Indian firms.The Indian stock markets are both shallow and narrow and the movement of stocks depends on limited number of stocks. As FIIs purchases and sells these stocks there is a high degree of volatility in the stock markets. If any set of development encourages outflow of capital that will increase the vulnerability of the situation. The high degree of volatility can be attributed to the following reasons: The increase in investment by FIIs increases stock indices in turn increases the stock prices and encourages further investments. In this event when any correction takes place the stock prices declines and there will be full out by the FIIs in large number as earning per share declines. The FIIs manipulate the situation of boom in such a manner that they wait till the index raises up to a certain height and exit at an appropriate time. This tendency increases the volatility further. So even though the portfolio investment by FIIs increases the flow of money in the economic system, it may create problems of inflation.CAUSES OF PRICE FLUCTUATION:1. DEMAND AND SUPPLY2. BANK RATE3. SPECULATIVE PRESSURE4. ACTIONS OF UNDERWRITERS AND OTHER FINANCIAL INSTITUTIONS5. CHANGE IN COMPANYS BOARD OF DIRECTORS6. FINANCIAL POSITION OF THE COMPANY7. TRADE CYCLE8. POLITICAL FACTORS9. SYMPATHETIC FLUCTUATIONS10. OTHER FACTORS:i) EXPECTED MONSOONii) PERSONAL HEALTH OF HEAD OF GOVERNMENT OR CHAIRMAN OF THE COMPANYiii) OIL PRICES IN THE INTERNATIONAL MARKET.iv) CHANGES IN EXCHANGE RATEv) BORDER TENSIONvi) STOCK BROKERS SCAM LIKE HARSHAD MEHTA AND KETHAN PAREKHvii) STRIKES AND LOCK-OUT OF THE COMPANY.viii) NEW BUDGET PROPOSALSix) LIBERLIZATION AND PRIVATIZATION OF THE COMPANY.

8. SPECULATION:

It involves the buying, holding, selling, short-term selling of stocks, bonds, commodities, currencies, collectible or any valuable financial instrument to profit from fluctuations in its price as opposed to buying it for use or for income via method like dividends or interest.

Kinds of speculation

Bull Market (Tejiwala): In case of that they purchase the shares at current prices to sell at a higher price in the near future and makes a profit if his expectations come true. He is also called a long buyer. Bear Market (Mandiwala): He sells security in the hope that he will be able to buy them back at lesser price. It is also called short selling. Stag: He is that type of speculator who applies for a large number of shares in a new issue with the intention of selling them at a premium. He is bullish and very cautious.

HIGHS AND LOWS OF BSE15,000, July 6, 2007 The Sensex on July 6,2007 crossed the magical figure of 15,000 to touch 15,005 points in afternoon trade. It took seven months for the Sensex to move from 14,000 to 15,000 points.16,000, September 19, 2007 The Sense scaled yet another milestone during early morning trade on September 19, 2007.Within minutes after trading began, the Sensex crossed 16,000, rising by 450 points from the previous close. The 30-share Bombay Stock Exchange's sensitive indextook 53 days to reach 16,000 from 15,00017,000, September 26, 2007 The Sensex scaled yet another height during early morning trade on September 26, 2007.Within minutes after trading began, the Sensex crossed the 17,000-mark .18,000, October 09, 2007 The BSE Sensex crossed the 18,000-mark on October 09, 2007. It took just 8 days to cross 18,000 points from the 17,000 mark. The market set several new records including the biggest single day gain of 789 points at close, as well as the largest intra-day gains of 993.21,000, January 8, 2008 The sensex peaks. It crossed the 21,000 mark in intraday trading after 49 trading sessions. However, it later fell back due to profit booking.15,200, June 13, 2008 The sensex closed below 15,200 mark, Indian market suffer with major downfall from January 21,200814,220, June 25, 2008 The sensex touched an intraday low of 13,731 during the early trades, then pulled back and ended up at 14,220 amidst a negative sentiment.

12,822, July 2, 2008 The sensex hit an intraday low of 12,822.70 on July 2nd, 2008.This is the lowest that it has ever been in the past year. Six months ago, on January 10th, 2008, the market had hit an all time high of21206.70. This is a bad time for the Indian markets, although Reliance and Infosys continue to lead the way with mostly positive results.11801.70, Oct 6, 2008 The sensex closed at 11801.70 hitting the lowest in the past 2years.10527, Oct 10, 2008 The Sensex today closed at 10527,800.51 points down.14284.21, May 18, 2009 After the result of15th Indian general election Sensex gained 2110.79 points from the previous close of 12173.42 these creates a new history in Indian Market. In the Opening Trade itself sensex gains 15% from the previous day close this leads to the suspension of 2 hours trade. After 2 hours sensex again surged thisleads to the suspension of full day trading.Sensex fallsSome major single-day falls of the Sensex have occurred on the following dates January 21, 2008 --- 1,408.35 points Oct 24, 2008---1070.63 points March 17, 2008 --- 951.03 points July 6, 2009 --- 870 points January 22, 2008 --- 857 points February 11, 2008 --- 833.98 points May 18, 2006 --- 826 points October 10,2008 --- 800.10 points

9. PROBLEMS OF PRIMARY AND SECONDARY MARKETRecommendations &problem of capital market problem of new issue market Problem of secondary market Suggestions and recommendations

IT IS ten years since the Securities and Exchange Board of India (SEBI) started to put in place the regulatory framework for the capital market. And investors have certainly benefited from the availability of more information and a contemporary secondary market structure. SEBI began to put in place regulations a decade ago, starting with its Guidelines for Disclosure and Investor Protection (primary markets) in 1992. A fairly broad-based regulatory framework is now in place, though, going forward, SEBI has to make the market a friendlier place for investors by plugging the gaps in its performance, especially in the following areas: Enhancing disclosures Despite a plethora of disclosure requirements, there are still key areas where investors get precious little information of value. This mainly relates to big-ticket corporate action, such as mergers, de-mergers, acquisitions, asset sell-offs, takeovers and inter-corporate investments. In each of these areas, no doubt, the minimum information requiredunder the Companies Act is made available. The disclosure level varies from one instance to another, though a lot of information is made available on the financials and the synergies of a merger. But the manner in which the swap ratio is fixed and what the management thinks of the same is largely taken for granted. The valuation of the two companies and the swap ratio are key aspects in any merger. No doubt, valuation reports are made available for inspection, but access is not easy for all investors. A comprehensive and mandated list of disclosures, like the one that accompanies an IPO or a rights offer, should be made available to all shareholders. Aspects such as risks from these actions, mode of deployment of resources, the benefits, reasons for such action and management perception of the issues involved, can form part of such a disclosure list. SEBI has much to do to make its existing disclosure requirements work better. This can be done only by making all disclosures available freely to every one. Take, for instance, mutual funds. Trustee and asset management companies are required to file monthly/quarterly reports with SEBI. These must be available on the Internet. Only public scrutiny and comment can improve the level of disclosures mandated by SEBI. While this is not a job that SEBI can do on its own, due partly to resource constraints and also because of the varying types of expertise needed, it has made a small beginning with its Web site http://www.edifar.nic.in/ and must make sure as much information as possible is pumped in through this Web site. Quality of decisions The effectiveness of any regulatory body is judged by the quality of implementation, in general, and the rate of convictions achieved in cases where there are violations. What is worrying is the poor rate of conviction in major cases. Virtually every SEBI decision involving major cases such as Sterlite, BPL, Videocon, Anand Rathi and Associates and Hindustan Lever has been overturned by the appeals process (or the Securities Appellate Tribunal). This hardly sends the right signals about SEBI's penal actions when regulations are violated. There is clearly something seriously amiss if the SAT can overturn SEBI orders by pointing to lacunae on almost every possible ground ranging from the merely technical aspects to substantive issues involving the regulator's subjective judgment. This is what happened in the Sterlite, BPL and Videocon cases (they were barred from capital market access for their role in price manipulation in 1998). . Quite clearly, the quality of SEBI's investigative work has to improve considerably so that penal actions stick. Take a larger view There are quite a few instances where shareholders have suffered due to specific corporate actions. Whenever an issue of this kind has come up, , SEBI has generally shied away from taking up the cudgels (unless nudged by some extraneous pressure) on behalf of the investors to ensure that they get a fair deal. In some of the global development-triggered `changes in control', SEBI's actions have been mixed . In some cases, such as Castrol, it has acted with alacrity and ordered open offers. But in quite a few others, its stance has virtually enabled elaborate structures to be created that helped avoid open offers or its actions have come rather late in the day Color Chem-Clariant, for example imposing unfair costs on acquirers and shareholders. There have been a quite a few decisions on whether open offers are triggered by global developments or not, both by SEBI and/or by SAT. But no parameters have been laid down so far and eachissue is handled on a case-by-case basis. When it comes todomestic acquisitions, SEBI's interpretation of `change in control' is questionable. When Gujarat Ambuja picked up the entire 14.4 per cent of the Tatas in ACC, it was clear that effective control had passed. But SEBI offered no view and, only when directed by the court, took the stance that there was `no change in control' on technical grounds. In such situations, SEBI has to come out and clearly say why it thinks there is change in control or not. The absence of a convincing rationale only creates precedents that can be used by others, as happened with Grasim-L & T. Every time there is a major corporate action, SEBI should proactively examine if there are issues of a contentious nature. In most major cases SEBI has tended to take up matters only when there is a referral from a court or investor forum or the government (like in the UTI's assured return schemes). Accounting, audit quality SEBI can now act proactively on the issue of accounting and auditing quality. In several recent instances in the US, such as Enron, WorldCom, Global Crossing, Merck, to name a few, companies put out blatantly false numbers and auditors went along with this charade. In India, hundreds of companies came out with IPOs and vanished subsequently, and in many companies, accounting and audit information has proved to be of poor quality and unreliable. This is where SEBI can step in and work with the government to have special audits done of the top 100 or 200 firms that account for more than 90 per cent of market capitalization and trading. There is no reason to assume that everything is hunky-dory on the accounting-auditing front in Indian companies. Just look at the problems in the finance sector the likes of IFCI, IDBI, UTI and Centurion Bank, to name a few and one cannot help feeling there may be problems elsewhere too. The plethora of inter-corporate investments, intra-company and intra-group transactions, guarantees and contingent liabilities are areas where there is room for considerable concern. A one-time special audit, efforts to ensure that audit assignments are rotated at three- or five-year intervals and fast-tracking the process of accounting standards with relevant authorities are actions that SEBI can pursue before a crisis breaks out on this front.

Perhaps the most significant change in the market in the last decade is the complete transformation of the trading, clearing and settlement infrastructure. From a market burdened with heavy problems of paper and an opaque trading structure (where brokers and sub-brokers ruled the roost), there has been a dramatic transformation to a paperless market and transparent trading system. The last six months or so, all trades on the National Stock Exchange are settled in demat (paperless mode). Full marks to SEBI. No doubt, the process of electronic trading was set off by the NSE, but SEBI too moved rapidly to force other exchanges, especially the Bombay Stock Exchange, to adopt contemporary trading systems. By also moving towards rolling settlement (albeit after a considerable and unnecessary delay), cutting the settlement cycle and now going forward towards a T+1 settlement system, SEBI has made the markets much safer for investors. But when it comes to addressing price manipulation, the story is different. Price manipulation no dent: One area where SEBI has barely made any difference is in the manipulation of stock prices ahead of key corporate actions and even at other times when operator driven activity is rampant. The most recent instance was the manner in which all Ketan Parekh favoured stocks, such as Himachal Futuristic, Global Tele-Systems, SSI, Silverline, surged, recording heavy trading volumes. But one was left completely in the dark on what was behind the sudden spurt in interest in these stocks and the rise in prices (even if not of the 1999-2000 kind). This was the kind of situation where SEBI should have stepped in proactively and told investors what was going in. This would do much more for investors than the mundane investor education programmes talked about often. Price manipulation, informed trading and insider trading with key operators/investors is now routine. This is an area that is difficult to tackle for any regulator. But over the last ten years, SEBI has taken action on such price manipulation in just two cases (Bayer ABS and Amara Raja Batteries). Here, too, the penal action has hardly been stringent. Act on corporate actions: Perhaps as a matter of routine, SEBI should take up all cases of corporate action and subject them to scrutiny for share price behaviour ahead of and after the action. Trading action is generally confined to a small list of 150 stocks, on which SEBI can focus its attention. It can also draw up a list of another 150 stocks of companies with reasonable standing but poor liquidity, for tracking. At the end of the day, SEBI's effectiveness will be enhanced only if it can make a dent in this crucial area. Else, the larger body of shareholders will be shortchanged by such price manipulation. Suggestions and Recommendations India does not have a legacy of employer provided pensions. The OASIS report is right in making the proposed pension system completely portable and independent of employers. India does not also have a legacy of social security, and does not have to contend with the nightmare of politically determined defined-benefit plans. The OASIS report is right in keeping its proposals for pension funds totally on a defined-contribution basis and providing market determined rates of return. The OASIS report is also right in eschewing any attempt to use the pension fund assets as a pool of funds for financing infrastructure or any other socially useful purpose other than on the basis of a competitive risk-return tradeoff decided by the fund manager. The broad framework of the OASIS Committee report therefore has much to be commended.However, it attempts to create a class of financial intermediaries to manage pensions which are isolated from other financial institutions. In any economy, there are institutions like mutual funds and insurance companies that provide services that have similarities to what the pension funds would offer. By keeping them as distinct entities, regulated by a new regulator different from either the capital market regulator (SEBI) or the insurance regulator (IRDA), the OASIS proposals would perhaps impede the full play of scale and scope economies and restrict the pace of financial innovation. Investors would probably have more choice if pension products were fully integrated into the panoply of financial products available in the economy. The financial sector would also be more efficient and vibrant if that were done.In this context, this paper argues that pension fund reforms should be placed in the broader context of capital market development aimed at providing investors with a range of choices on risk, liquidity and maturity. It must be recognized that investors save for life cycle reasons as well as for shorter term income smoothing and for hedging human capital. Since there are no watertight compartments between these various investment needs, artificial barriers between different types of financial products and services do not serve investor interests.

10. CONCLUSIONWith the increasing Globalization, the Stock Exchanges have tremendously affected the financial conditions of India.The stock markets of the future will have a redefined pupose and reinvented architecture due to the advent and widespread use of technology. Information and stock price quotations are available almost instantaneously, and, more importantly, investors can act on this data by executing a trade from anywhere at anytime. This new market will bring benefits to investors, the listed companies, and the economies of the company. Trading will become cheaper, faster and settlement will be simpler wit reduced risk. Raising capital for companies will become easier, thereby contributing directly to the Economic Growth.Already, BSE has shown its proactive response by increasingly using leading edge to technologies to effectively compete in the global environment. In the not too distant future, once full capital account convertibility is permitted in India, one could well witness an expansion of trading volumes and its resultant economic benefits to the thriving and ever young metropolis of Mumbai.Inspite of all these positive predictions, the future of Stock Exchanges is likely to be uncertain and even their survival is a major question mark.

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