Guidelines for Listing

Listing means admission of securities to dealings on a recognised stock exchange.

The securities may be of any public limited company, Central or State Government, quasi
governmental and other financial institutions/corporations, municipalities, etc.
The objectives of listing are mainly to :
• provide liquidity to securities;
• mobilize savings for economic development;
• protect interest of investors by ensuring full disclosures.
The Bombay Stock Exchange (BSE) has a dedicated Listing Department to grant approval
for listing of securities of companies in accordance with the provisions of the Securities
Contracts (Regulation) Act, 1956, Securities Contracts (Regulation) Rules, 1957,
Companies Act, 1956, Guidelines issued by SEBI and Rules, Bye-laws and Regulations of
BSE.

BSE has set various guidelines and forms that need to be adhered to and submitted by the
companies. These guidelines will help companies to expedite the fulfillment of the various
formalities and disclosure requirements that are required at various stages of
• Public Issues
o Initial Public Offering
o Further Public Offering
• Preferential Issues
• Indian Depository Receipts
• Amalgamation
• Qualified Institutions Placements

Minimum Listing Requirements for New Companies

The following eligibility criteria have been prescribed effective August 1, 2006 for
listing of companies on BSE, through Initial Public Offerings (IPOs) & Follow-on Public
Offerings (FPOs):

1. Companies have been classified as large cap companies and small cap companies.
A large cap company is a company with a minimum issue size of Rs. 10 crore and
market capitalization of not less than Rs. 25 crore. A small cap company is a
company other than a large cap company.

a. In respect of Large Cap Companies

i. The minimum post-issue paid-up capital of the applicant company
(hereinafter referred to as "the Company") shall be Rs. 3 crore; and
ii. The minimum issue size shall be Rs. 10 crore; and
iii. The minimum market capitalization of the Company shall be Rs. 25
crore (market capitalization shall be calculated by multiplying the
post-issue paid-up number of equity shares with the issue price).

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 b. In respect of Small Cap Companies
i. The minimum post-issue paid-up capital of the Company shall be Rs.
3 crore; and
ii. The minimum issue size shall be Rs. 3 crore; and
iii. The minimum market capitalization of the Company shall be Rs. 5
crore (market capitalization shall be calculated by multiplying the
post-issue paid-up number of equity shares with the issue price); and
iv. The minimum income/turnover of the Company shall be Rs. 3 crore
in each of the preceding three 12-months period; and
v. The minimum number of public shareholders after the issue shall be
1000.
vi. A due diligence study may be conducted by an independent team of
Chartered Accountants or Merchant Bankers appointed by BSE, the
cost of which will be borne by the company. The requirement of a
due diligence study may be waived if a financial institution or a
scheduled commercial bank has appraised the project in the
preceding 12 months.

2. For all companies :

a. In respect of the requirement of paid-up capital and market capitalization,
the issuers shall be required to include in the disclaimer clause forming a
part of the offer document that in the event of the market capitalization
(product of issue price and the post issue number of shares) requirement of
BSE not being met, the securities of the issuer would not be listed on BSE.
b. The applicant, promoters and/or group companies, shall not be in default in
compliance of the listing agreement.
c. The above eligibility criteria would be in addition to the conditions
prescribed under SEBI (Disclosure and Investor Protection) Guidelines,
2000.

Minimum Listing Requirements for Companies already Listed on Other Stock

Exchanges

The listing norms for companies already listed on other stock exchanges and seeking
listing at BSE, made effective from August 6, 2002, are as under:
1. The company shall have a minimum issued and paid up equity capital of Rs. 3
crore.
2. The company shall have a profit making track record for the preceding last three
years. The revenues/profits arising out of extra ordinary items or income from any
source of non-recurring nature shall be excluded while calculating the profit making
track record.
3. Minimum net worth shall be Rs. 20 crore (net worth includes equity capital and free
reserves excluding revaluation reserves).
4. Minimum market capitalisation of the listed capital shall be at least two times of the
paid up capital.

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 5. The company shall have a dividend paying track record for at least the last 3
consecutive years and the dividend should be at least 10% in each year.
6. Minimum 25% of the company's issued capital shall be with Non-Promoter
shareholders as per Clause 35 of the Listing Agreement. Out of above Non-
Promoter holding, no single shareholder shall hold more than 0.5% of the paid-up
capital of the company individually or jointly with others except in case of
Banks/Financial Institutions/Foreign Institutional Investors/Overseas Corporate
Bodies and Non-Resident Indians.
7. The company shall have at least two years listing record with any of the Regional
Stock Exchanges.
8. The company shall sign an agreement with CDSL and NSDL for demat trading.

Minimum Requirements for Companies Delisted by BSE seeking Relisting on BSE

Companies delisted by BSE and seeking relisting at BSE are required to make a
fresh public offer and comply with the extant guidelines of SEBI and BSE regarding initial
public offerings.

Permission to Use the Name of BSE in an Issuer Company's Prospectus

Companies desiring to list their securities offered through a public issue are
required to obtain prior permission of BSE to use the name of BSE in their prospectus or
offer for sale documents before filing the same with the concerned office of the Registrar of
Companies.

BSE has a Listing Committee , comprising of market experts, which decides upon the
matter of granting permission to companies to use the name of BSE in their
prospectus/offer documents. This Committee evaluates the promoters, company, project ,
financials, risk factors and several other aspects before taking a decision in this regard.

Decision with regard to some types/sizes of companies has been delegated to the Internal
Committee of BSE.

Submission of Letter of Application

As per Section 73 of the Companies Act, 1956, a company seeking listing of its
securities on BSE is required to submit a Letter of Application to all the stock exchanges
where it proposes to have its securities listed before filing the prospectus with the Registrar
of Companies.

Allotment of Securities

As per the Listing Agreement, a company is required to complete the allotment of

securities offered to the public within 30 days of the date of closure of the subscription list

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and approach the Designated Stock Exchange for approval of the basis of allotment.

In case of Book Building issues, allotment shall be made not later than 15 days from the
closure of the issue, failing which interest at the rate of 15% shall be paid to the investors.

Trading Permission

As per SEBI Guidelines, an issuer company should complete the formalities for
trading at all the stock exchanges where the securities are to be listed within 7 working
days of finalization of the basis of allotment.
A company should scrupulously adhere to the time limit specified in SEBI (Disclosure and
Investor Protection) Guidelines 2000 for allotment of all securities and dispatch of
allotment letters/share certificates/credit in depository accounts and refund orders and for
obtaining the listing permissions of all the exchanges whose names are stated in its
prospectus or offer document. In the event of listing permission to a company being denied
by any stock exchange where it had applied for listing of its securities, the company cannot
proceed with the allotment of shares. However, the company may file an appeal before
SEBI under Section 22 of the Securities Contracts (Regulation) Act, 1956.

Requirement of 1% Security

Companies making public/rights issues are required to deposit 1% of the issue

amount with the Designated Stock Exchange before the issue opens. This amount is liable
to be forfeited in the event of the company not resolving the complaints of investors
regarding delay in sending refund orders/share certificates, non-payment of commission to
underwriters, brokers, etc.

Payment of Listing Fees

All companies listed on BSE are required to pay to BSE the Annual Listing Fees by
30th April of every financial year as per the Schedule of Listing Fees prescribed from time
to time.

The schedule of Listing Fees for the year 2009-10, prescribed by the Governing Board of
BSE, is given here under:

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SCHEDULE OF LISTING FEES FOR THE YEAR 2009-10

Securities *other than Privately Placed Debt Securities

Sl. Amount
Particulars
No. (Rs.)
1 Initial Listing Fees 20,000.00
2 Annual Listing Fees
(i) Companies with listed capital* upto Rs. 5 crore 10,000.00

(ii) AboveRs. 5 crore and upto Rs. 10 crore 15,000.00

(iii)Above Rs. 10 crore and upto Rs. 20 crore 30,000.00

Companies which have a listed capital* of more than Rs. 20 crore are
required to pay an additional fee @ Rs. 750 for every additional Rs. 1
crore or part thereof.
NOTE: In case of debenture capital (not convertible into equity shares) ,
the fees will be
25% of the above fees.
*includes equity shares, preference shares, fully convertible debentures, partly convertible
debentures and any other security convertible into equity shares.

Privately Placed Debt Securities

Sl.
Particulars Amount (Rs.)
No.
1 Initial Listing Fees NIL

Rs.2,500.00
Annual Listing Fees
(i)Issue size up to Rs.5 crore Rs.3,750.00

(ii)Above Rs.5 crore and up to Rs.7,500.00

Rs.10 crore
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(iii)Above Rs.10 crore and up to
Rs.20 crore
Additional fee of Rs.200.00 for every additional
Above Rs.20 crore Rs.1 crore or part thereof

Subject to a maximum of Rs.30,000.00 per

instrument.
The cap on the annual listing fee of debt instruments per issuer is Rs.5,00,000.00 per

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annum.

Mutual Funds
Particulars Amount (Rs.)
Initial listing fee Nil
Annual Listing Fee: Full Year Less than 6 months
Issue size up to Rs.100 Crores 32,000 16,000
Above Rs.100 Crores and up to Rs.300 Crores. 58,000 29,000
Above Rs.300 Crores and up to Rs.500 Crores. 94,000 47,000
Above Rs.500 Crores and up to Rs. 1000 Crores 1,56,000 78,000
Above 1000 Crores 2,50,000 1,25,000

APPLICABILITY

The above schedule of Listing Fee is uniformly applicable for all companies
irrespective of whether BSE is the designated stock exchange or not.

PAYMENT DATE

The last date for payment of Listing Fee for the year 2009-10 is April 30, 2009.
Failure to pay the Listing Fee (for equity and/or debt segment) by the due date will attract
interest @ 12% per annum w.e.f. May 1, 2009.

SERVICE TAX

Service Tax is payable on the listing fee at the applicable rates.

Compliance with the Listing Agreement

Companies desirous of getting their securities listed at BSE are required to enter
into an agreement with BSE called the Listing Agreement, under which they are required to
make certain disclosures and perform certain acts, failing which the company may face
some disciplinary action, including suspension/delisting of securities. As such, the Listing
Agreement is of great importance and is executed under the common seal of a company.
Under the Listing Agreement, a company undertakes, amongst other things, to provide
facilities for prompt transfer, registration, sub-division and consolidation of securities; to
give proper notice of closure of transfer books and record dates, to forward 6 copies of
unabridged Annual Reports, Balance Sheets and Profit and Loss Accounts to BSE, to file
shareholding patterns and financial results on a quarterly basis; to intimate promptly to the
Exchange the happenings which are likely to materially affect the financial performance of
the Company and its stock prices, to comply with the conditions of Corporate Governance,
etc.
The Listing Department of BSE monitors the compliance by the companies with the
provisions of the Listing Agreement, especially with regard to timely payment of annual

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listing fees, submission of results, shareholding patterns and corporate governance reports
on a quarterly basis . Penal action is taken against the defaulting companies.

Cash Management Services (CMS) - Collection of Listing Fees

In order to simplify the system of payment of listing fees, BSE has entered into an
arrangement with HDFC Bank for collection of listing fees from 141 locations all over the
country.Details of the HDFC Bank branches are available on our website site
www.bseindia.com as well as on the HDFC Bank website www.hdfcbank.com This facility
is being provided free of cost.
Companies intending to utilize this facility for payment of listing fee should furnish
the information (as mentioned below) in the Cash Management Cash Deposit Slip. These
slips are available at all the HDFC Bank branches.

S.No HEAD INFORMATION TO BE PROVIDED

1. Client Name Bombay Stock Exchange Limited
2. Client Code BSELIST
3. Cheque No. mention the cheque No & date
4. Date date on which payment is being deposited with the bank.
state the name of the company and the company code No.The last
digits mentioned in the Ref. No.on the Bill is the company code No.
5. Drawer
e.g If the Ref. No in the Bill is mentioned as : Listing/Alf-
Bill/2004- 2005/4488, then the code No of that company is 4488
6. Drawee Bank state the bank on which cheque is drawn
Drawn on
7. Mention the location of the drawee bank.
Location
Pickup
8. Not applicable
Location
9. No. of Insts Not applicable

The cheque should be drawn in favour of Bombay Stock Exchange Limited , and should be
payable locally. Companies are requested to mention in the deposit slip, the financial
year(s) for which the listing fee is being paid. Payment made through any other slips would
not be considered. The above slips will have to be filled in quadruplicate. One
acknowledged copy would be provided to the depositor by the HDFC Bank.

STOCK EXCHANGE

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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.

Some of the Stock Exchanges are

--New York Stock Exchange (NYSE)
--National Stock Exchange (NSE)
--Bombay Stock Exchange (BSE)
--Regional Stock Exchange (RSE)

Stock Exchange being a very vast topic, we are focusing on

BOMBAY STOCK EXCHANGE (BSE).

BOMBAY STOCK EXCHANGE (BSE)

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The Bombay Stock Exchange Limited, (formerly, the Stock
Exchange, Mumbai; popularly called as BSE) is the oldest Stock
Exchange in Asia with a rich heritage. It is located at Dalal Street,
Mumbai, India.

BSE was established in 1875 as “The Native Share & Stock

Brokers”. It was the first Stock Exchange in the country to obtain
permanent recognition in 1956 from The Government of India
under The Securities Contracts (Regulation) Act 1956. There are
around 3500 Indian companies listed with Stock Exchange and has
a significant trading volume.

The Exchange is professionally managed under the over all

direction of the Board Of Directors. The Board comprises eminent
professional, representative of Trading Members and the Managing
Directors of the Exchange. The Board is inclusive & is designed to
benefit from the participation of market intermediaries.

As of July ’05, the market Capitalization of BSE was about

Rs.20 Trillion (US $466 Billion). As of 2005, it is among the five
biggest Stock Exchanges in the world in terms of transactions
volume. Along with NSE, the companies listed on BSE have a
combined market Capitalization of US $125.5 Billion.

NEED FOR BSE

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 BSE 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 economy 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 is paid to the
State Government. The annual revenue from this source ranges from Rs
75 – 100 crores

With 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.

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With no doubt we can clearly state without BSE, the Indian Economy
would have been a complete different story. Various companies wouldn’t
have been a strong and successful as they are today and the brokers
and traders would have been elsewhere.

BSE is an asset to our country and its existence plays a vital role in
many people’s life who depends on it. Indeed, BSE has made a major
contribution to the industrial and economic development of India.

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 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.

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.

Act of Magic:
Most of the investors are interested in short-term investments. The
requirements of companies are, however, long-term in nature—they
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.

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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.

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 company’s performance is more
‘visible’ in the eyes of public. Such a public exposure normally
induces companies to raise their standard of performance.

Guidance of Cost of Capital:

The market value of the securities of company are 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.

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LISTING OF THE COMPANIES ON STOCK
EXCHANGE

Public Limited Company.

• Public Listed Company
• Public Non-listed Company

‘Listed Company’ means a public ltd Co which is

--Listed on any one or more recognized stock exchanges in
India.
--Securities (shares: debentures) of such company are traded on
such stock exchanges.

‘Unlisted company’ therefore means a company whose securities

are not listed on any of recognized stock exchanges in India.

Why Companies get Listed with Stock Exchange?

Companies get listed with Stock Exchange for following reasons:

--Securities are freely transferable.

--Easy liquidity of securities.
--Easy availability of prices of securities.
--Reputation, Image, Goodwill.
--Public awareness.
--More transparency.
--Helps in obtaining loans from Banks/Institutions.
--Helps in marketing its Products.

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In order to list securities of a company & get its shares traded on
any recognized stock exchanges, the Public Ltd Company may
either come out wit ha public issue (i.e. to offer further securities
to public) or make an offer for sale of existing securities to
public. This can be done by issuing of Prospectus & Complying
with all The Provinces of Company Act 1956.

Each stock exchange has its own criteria for listing securities
which should also be met.
Eg: If company intends to get listed its securities in Bombay
Stock Exchange, Mumbai post issue capital (paid up capital after
proposed public issue) of such companies should be Rs. 10
Crores atleast.

The Company enters into a listing agreement with concerned

stock exchange & on receipt of permission from concerned Stock
Exchange, company is listed and securities are thereafter traded
on such stock exchange.

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 TRADING & SETTLEMENT

Demat Account is a compulsory Account for traders who want to

trade in stock market. This account is mainly used for buying and
selling of shares.

Trading:

Each Stock Exchange has listed and permitted securities that are
traded on it. There are two ways of organizing the trading activity.

Open Outcry System

Under the open outcry system traders shout and resort to signals
on the trading floor of the exchange which consists of several
‘notional’ trading posts for different securities. A member (or his
representative) wishing to buy or sell a certain security, reaches the
trading post where the security is traded. Here, he comes in contact
with others interested in transacting in that security. Buyers make
their bid and sellers make their offers and bargains are closed at
mutually agreed-upon prices. In stock where jobbing is done, the
jobber plays an important role. He stands ready to buy or sell on
his account. He quotes his bid (buying) and ask (selling) prices. He
provides some stability and continuity to the market.

Screen Based System

In the screen-based system the trading ring is replaced by the

computer screen and distant participants can trade with each other
through the computer network. A large screen based trading
system (a) enhances the informational efficiency of the market as
more participants trade at a faster speed; (b) permits the market
participants to get a full view of the market, which increases their
confidence in the market; and (c) establishes transparent audit
trails.

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Settlement:

The settlement of transactions is done on a settlement period basis.

Earlier, the settlement period on the Indian Stock Exchanges was 7
days, but now it is T+1 settlement. T+1 includes the day of trade
and an additional day. During a settlement period, buying and
selling transactions in a particular security can be squared up.
Square off is a same day settlement cycle. At the end of settlement
period, transactions are settled on net basis. Since the settlement
period used to be 7 days and the settlement is for the net position,
most of the transactions are squared within the settlement period.
Clearly these transactions are motivated by a desire to profit from
price variations within the settlement period.

Traditionally, trades have been settled by physical delivery. This

means that the securities have to physically move from the seller to
the seller’s broker, from the seller’s broker to the buyer’s broker
(through the clearing house of the exchange or directly), and from
the buyer’s broker to the buyer. Further the buyer has to lodge the
securities with the transfer agents of the company and the process
of the transfer may take one to three months. This leads to high
paperwork cost and creates bad paper risks.

To mitigate the cost and the risks associated with the physical
delivery, settlement in the developed securities market is mainly
through electronic delivery facilitated by depositories. A ‘depository’
is an institution which immobilizes physical certificates (of
securities) and effect transfers of ownership by electronic book
entry. A beginning in the direction of electronic delivery has been
made in India with the establishment of the National Securities
Depository Limited (NSDL), India’s first depository, in 1996. As
NSDL expands its operations and as new depositories come into
being, settlement will progressively be done more by electronic
delivery and less by physical delivery.

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 INVESTMENT

Investment means the use of money for the purpose of making

more money, to gain income or increase capital, or both.

• Short Term Investment

• Long Term Investment

Short Term Investment:

It is more risky
A successful short term trading mindset instead requires iron
discipline, intense focus and steely devotion.
Short term trading can be divided in 3 sections
• Day Trading
• Swing Trading
• Position Trading

Day Trading

Day traders buy and sell stocks throughout the day in the hope that
the price of the stocks will fluctuate in value during the day,
allowing them to earn quick profits. A day trader will hold a stock
anywhere from a few seconds to few hours, but will always sell all
of those stocks close of the day. The day trader will therefore not
own any position at the close of the each day, and there is
overnight risk. The objective of day trading is to quickly get in and
out of any particular stock for profits anywhere from few cents to
several points per share on an intra-day basis. Day trading can be
further sub-divided into number of styles, including.

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Scalpers: This style of day trading involves the rapid and repeated
buying and selling of a large volume of stocks within seconds or
minutes. The objective is to earn a small per share profit on each
transaction while minimizing the risk.
Momentum Traders: This style of day trading involves identifying and
trading stocks that are in a moving pattern during the day, in an
attempt to buy stocks at bottoms and sell at tops.

Swing Trading

The principal difference between day trading and swing trading is that
swing traders will normally have a slightly longer time horizon than day
traders for holding a position in a stock. As is the case with day traders,
swing traders also attempt to predict the short term fluctuation in a
stock’s price. However swing traders are willing to hold the stocks for
more than one day, if necessary, to give to stock price some time to
move or to capture additional momentum in the stock’s price. Swing
traders will generally hold on to their stock positions anywhere from a
few hours to several days.
Swing trading has the capability of providing higher returns than day
trading. However, unlike day traders who liquidate their positions at the
end of each day, swing traders assume overnight risk. There are some
significant risks in carrying positions overnight. For example news
events and earnings warnings announced after the closing bell can
result in large, unexpected and possibly adverse changes to a stock's
price

Position Trading

Position trading is similar to swing trading, but with a longer time

horizon. Position traders hold stocks for a time period anywhere from
one day to several weeks or months. These traders seek to identify
stocks where the technical trends suggest a possible large movement in
price is likely to occur, but which may not be fully played out for several
weeks or months.

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Long Term Investment:

A successful long term trading mindset requires, above all, patience and
perseverance. These are more difficult attributes to develop in the
average trader. Too often the average short-term trader succumbs to
the markets lure and develops a frantic, get-it-now mindset believing
every price blip represents a trading opportunity. As this attitude is
fanned by the media and brokerage industry, more and more long term
traders have become aggressive swing traders and swing traders
become rabid day traders - more often than not with disastrous
consequences.

Long term trading results in less trades with fewer mistakes and lower
commission and slippage costs because overtrading is one of the biggest
sources of losses facing both new and established traders. Why is this
so? Obviously, more trades mean more commissions and more slippage.
Few short-term traders realize, however, that their total commission
and slippage costs in any year often exceed their total losses for the
year. In other words, many losing short-term traders would have
actually made money on an annual basis had they not incurred the
exorbitant commission and slippage costs of trading throughout the
year. Fewer trades mean fewer mistakes.

Long term trading unlike short term requires dramatically reduced time
for analysis and trading. If you are trading using weekly data, only one
to two hours each weekend are required to implement a sophisticated
long term trading system for 21 or more commodities. This includes the
time to completely download your quotes and update your data files,
verify which are the correct months to trade for each commodity, figure
out if you have any positions to rollover, generate your trading signals,
and write down orders to your broker. On the contrary a typical
successful day trader literally becomes a slave to their quote machines
during market hours.

20
 FACTORS AFFECTING BSE

There are various factors that affects BSE:

(a) THE KETAN PAREKH SCAM

Ketan Parekh was a graduate from HR College and CA by profession.

Ketan Parekh’s 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 alike.

This 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 India
KP’s scam was one of the major scam in India after Harshad Mehta
which lost the confidence of investors in investing in share market. KP’s
scam is also regarded as one mans army scam.

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(b) FOREIGN INSTITUTIONAL INVESTORS (FII)

Foreign investment refers to investments made by

residents of a country in another country’s 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.
According to Michael Frenkel and Lukas Menkhoff, “FIIs are
beneficial for an economy under specific institutional conditions. It
is defining characteristic of an emerging market that these
conditions are often not met”.

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.

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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.

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 TRANSFORMATION OF THE STOCK
EXCHANGE, MUMBAI TO BSE LTD.

The change in the name of Asia's oldest stock exchange, from the Stock
Exchange, Mumbai to the Bombay Stock Exchange Ltd., (BSE Ltd.) is of
more than cosmetic significance. Along with the change in name comes
a new perspective, one brought about by a comprehensive change in its
ownership and management. Until now, the BSE like most other
exchanges in India was owned and managed by brokers, who also had
the sole right to trade in the exchanges. Conflicts of interest were bound
to arise in such situations. Until the advent of the National Stock
Exchange in 1994, the BSE was India's pre-eminent exchange,
accounting for an overwhelmingly large proportion of the share market
transactions of the country. Companies wherever located were advised
to seek a listing of their shares on the BSE so that they could have
access to its large reservoir of capital and investor base. Legally
speaking, it was enough if they listed their shares on any one of the
regional stock exchanges, closest to their registered office. This last
rule, like so many others connected with the securities market, had to
be discarded in the wake of the sweeping changes in the financial
markets since the 1990s. Perceptions of both investors and regulators
changed dramatically forcing the stock exchanges to overhaul
themselves.

A series of securities scams through the 1990s in which brokers were

invariably held accountable, the inability of the broker-dominated
exchanges to check malfeasance, and a vastly expanding role for the
capital market in the national economy necessitated a thorough review
of the age-old stock market structure. In the new demutualised and
corporatised exchanges that came about as part of a major capital
market reform a time-bound program for 10 other exchanges has since
been announced — the right to trade is segregated from the right to
own and manage the exchange. The transition is not going to be easy as
it involves the imparting of a much greater degree of professionalism.
Stock market professionals from outside the broking community are
reportedly in short supply. By far the biggest unknown factor relates to
the future ownership of the exchange. Brokers will cede control and
investors including retail ones will hold a substantial portion of the
exchange's equity. Apart from this being totally new to India, it does
raise the possibility of other conflicts of interest including the one
connected with the listing of its own shares.

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 CONCLUSION

With the increasing Globalization, the Stock Exchange’s 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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