Till a few years ago trading on a stock exchange took place through a public outcry or auction system. This has been replaced by an online screen-based electronic trading system as almost all exchanges have become electronic. Trading has, therefore, shifted from the stock market floor to the brokers’ office where trades are executed through a computer. Brokers are members of stock exchange through whom trading of securities is done. Brokers may be individuals, partnership firms or corporate bodies. They are the intermediaries between the buyers and sellers. Earlier these members owned, controlled and managed the exchanges. The ownership and management of stock exchanges by brokers often led to a conflict of interest between the brokers and their clients. This led to the ‘demutualization’ of stock exchanges. Demutualization separates the ownership and control of stock exchanges from the trading rights of members. This reduces the conflict of interest between the exchange and the brokers and the chances of brokers using stock exchanges for personal gains. A company’s securities can be traded on stock exchange only if they are listed or quoted on it. Companies have to fulfill a stringent set of requirements to get their securities listed on a stock exchange. This ensures that the interest of the shareholders is adequately looked after. Transactions on a stock exchange may be carried out on either cash basis or a carryover basis. The carryover basis is also called badly and is a unique feature of Indian stock markets, particularly the BSE. A stock exchange year is divided into periods called ‘accounts’ which vary from a fortnight to a month. All transactions made during one account are to be settled by payment for purchases and by delivery of share certificates in the case of sales on notified days of the clearing program of a given stock exchange. A share certificate is proof of ownership of securities by an individual. Purchase and sale transactions in securities involved the exchange of money in return for the share certificate. This led to problems of theft, forgery, transfer delays and time involved in paperwork. To eliminate these problems an electronic book-entry form of holding and transferring securities has been introduced. This is referred to as the ‘dematerialization of securities’.
The National Stock Exchange is the latest, most modern and technology-driven exchange. It was incorporated in 1992 and was recognized as a stock exchange in April 1993. It started operations in 1994, with trading on the wholesale debt market segment. Subsequently, it launched the capital market segment in November 1994 as a trading platform for equities and the futures and options segment in June 2000 for various derivative instruments. NSE has set up a nationwide fully automated screen-based trading system. The NSE was set up by leading financial institutions, banks, insurance companies, and other financial intermediaries. It is managed by professionals, who do not directly or indirectly trade on the exchange. The trading rights are with the trading members who offer their services to the investors. The board of NSE comprises of senior executives from promoter institutions and eminent professionals, without having any representation from trading members.
OBJECTIVES OF NSE
The Exchange provides trading in the following two segments:
The OTCEI is a company incorporated under the Companies Act 1956. It was set-up to provide small and medium companies access to the capital market for raising finance in a cost-effective manner. It was also meant to provide investors with a convenient, transparent and efficient avenue for capital market investment. It is a fully computerized, transparent, single-window exchange ‘which commenced trading in 1992. This exchange is established on the lines of NASDAQ (National Association of Securities Dealers Automated Quotations) the OTC exchange in the USA. It has been promoted by UTI, ICICI, IDBI, IFCI, LIC, GIC, SBI Capital markets and Can Bank Financial Services. Over the counter market may be defined as a place where buyers seek sellers and vice-versa and then attempt to arrange terms and conditions for purchase/sale acceptable to both the parties. It is a negotiated market place that exists anywhere as opposed to the auction market place, represented by the activity on securities exchanges. Thus, in the OTC exchange, trading takes place when a buyer or seller walks up to an OTCEI counter, taps on the computer screen, finds quotes and effects a purchase or sale depending on whether the prices meet their targets. There is no particular market place in the geographical sense. The objectives of OTCEI are to provide quick liquidity to securities at a fixed and fair price, liquidity for less traded securities or that of small companies, a simplified process of buying and selling and easy and cheaper means of making the public sale of new issues.
Advantages of OTC Market:
NSE was setup with the following objectives
The OTCEI is a company incorporated under the Companies Act, 1956. It was set up to provide small and medium companies an access to the capital market for raisinq finance In a cost effective manner. It is fully computerised, transparent, single window exchange which commenced trading in 1992. This exchange is established on the lines of NASOAO the OTC exchange in USA. If has been promoted by UTI, ICICI, lOBI, IFCI, LIC, GIC, SBI capital markets and can bank financial services.
It is a negotiated market place that exists any where as opposed to the auction market place, represented by the activity on securities exchange. Thus, in the OTC exchange, trading takes place when a buyer or seller walks up to an OTCEI counter, taps on the computer screen, finds quotes and effects a purchase or sale depending on whether the prices meet their target.