Business studies project

Stock Exchange:

Stock exchange: an introduction

A stock exchange, also known as a securities exchange or bourse, serves
as a marketplace where stockbrokers and traders engage in buying and
selling various financial instruments, including shares of stock, bonds, and
derivatives. Apart from facilitating trading activities, stock exchanges also
provide services for the issuance and redemption of securities, as well as
for capital events like dividend payments and income distribution.
Securities traded on a stock exchange encompass a wide range of assets,
such as stocks issued by listed companies, unit trusts, derivatives, pooled
investment products, and bonds.

In traditional settings, stock exchanges operated as "continuous auction"

markets, where buyers and sellers conducted transactions via open outcry
at a centralized location, often referred to as the exchange floor. However,
with the advent of electronic trading platforms, modern stock exchanges
have transitioned away from physical trading floors. Instead, electronic
communication networks now facilitate trading, offering advantages such as
increased speed and reduced transaction costs.

For a security to be traded on a specific stock exchange, it must be listed

there. Listing requirements vary among exchanges but typically include
meeting specific financial and regulatory criteria. Once listed, securities
become accessible for trading by approved market participants, typically
brokers who hold membership status with the exchange. These brokers act
as intermediaries, executing trades on behalf of clients and ensuring
compliance with regulatory requirements.

Stock exchanges play a vital role in promoting market liquidity and price
discovery, facilitating capital formation, and providing investment
opportunities for individuals and institutions alike. They serve as
barometers of economic health and investor sentiment, reflecting the
collective beliefs and expectations of market participants. Moreover, stock
exchanges contribute to the overall efficiency and stability of financial
markets, fostering economic growth and development.

In addition to their primary functions of trading and listing securities, stock

exchanges often play a broader role in the financial ecosystem. Many
exchanges offer additional services such as market data dissemination,
clearing and settlement services, and regulatory oversight. These
supplementary functions help ensure the smooth functioning and integrity
of the financial markets, promoting investor confidence and trust.

Despite the evolution of electronic trading platforms, the physical presence

of stock exchanges continues to hold symbolic significance. Exchange
buildings and trading floors serve as iconic landmarks in financial districts
around the world, symbolizing the vibrancy and dynamism of global
financial markets. However, the future of stock exchanges undoubtedly lies
in further technological innovation, as exchanges continue to adapt to meet
the evolving needs and demands of market participants in an increasingly
digital world.

History of the london stock exchange:

The history of the London Stock Exchange (LSE) spans several centuries and is
intertwined with the economic and financial evolution of the United Kingdom and
the world. Established in 1801, the LSE has grown into one of the world's leading
financial markets, playing a pivotal role in global capital formation, investment,
and trading.

1. Early Origins:
The roots of the London Stock Exchange can be traced back to coffee houses
and trading establishments in London during the late 17th century. Merchants
and traders gathered at places like Jonathan's Coffee-House and Garraway's
Coffee-House to conduct business, including buying and selling shares of
joint-stock companies. These informal gatherings laid the groundwork for the
formalization of stock trading in London.

2. Formation of the London Stock Exchange:

In 1801, the London Stock Exchange was officially established with the passing
of the Stock Exchange (Manner of Dealing) Act. This legislation provided a legal
framework for the operation of stock exchanges in London, bringing together
brokers and traders under a regulated environment. The Exchange began its
operations in a rented space at the Royal Exchange and gradually expanded its
activities.

3. Role in Industrial Revolution:

The London Stock Exchange played a crucial role in financing the Industrial
Revolution in Britain during the 19th century. Companies involved in industries
such as textiles, railways, and manufacturing raised capital by issuing shares to
investors through the Exchange. This influx of capital facilitated innovation,
entrepreneurship, and economic growth, contributing to Britain's industrial
expansion.

4. Global Expansion:
Throughout the 19th and 20th centuries, the London Stock Exchange emerged
as a global financial center, attracting investors, companies, and capital from
around the world. The Exchange facilitated international trade, investment, and
capital formation, becoming a hub for listing and trading securities of British and
foreign companies. Its reputation for integrity, transparency, and liquidity further
solidified its position in the global financial landscape.

5. Wars and Economic Challenges:

The London Stock Exchange faced numerous challenges throughout its history,
including wars, economic crises, and regulatory changes. World War I and World
War II disrupted trading activities and led to financial instability. The Great
Depression of the 1930s and subsequent economic downturns also impacted the
Exchange, necessitating regulatory reforms and structural adjustments.

6. Technological Advancements:
The latter half of the 20th century witnessed significant technological
advancements in trading and market infrastructure. The introduction of electronic
trading systems, such as the Stock Exchange Automated Quotation system
(SEAQ) in 1986, revolutionized stock trading by facilitating faster and more
efficient transactions. Subsequent upgrades and innovations, including electronic
order matching systems, further enhanced the Exchange's operational
capabilities.

7. Merger and Globalization:

In 2007, the London Stock Exchange merged with Borsa Italiana, the Italian
stock exchange, to form the London Stock Exchange Group (LSEG). This merger
expanded the Exchange's global reach and diversified its product offerings,
including equities, derivatives, fixed-income securities, and indices. The LSEG
became one of the world's largest exchange groups, with operations spanning
multiple continents.

In conclusion, the history of the London Stock Exchange reflects its evolution
from humble beginnings to a global financial powerhouse. Over the centuries, the
Exchange has played a central role in driving economic growth, fostering
investment, and facilitating capital formation. Despite facing various challenges,
the LSE has remained a symbol of stability, integrity, and innovation in the world
of finance, shaping the course of global markets and economies.

History of Stock Exchanges in India:

The Bombay Stock Exchange (BSE) stands out as one of India's oldest and
most distinguished stock exchanges, boasting a rich history spanning over
a century. Established in 1875, the BSE has been instrumental in shaping
India's capital markets and witnessing significant milestones in the nation's
economic progress.

● Foundation and Early Years:

○ The BSE traces its roots back to the 1850s when stockbrokers conducted
informal trading gatherings under banyan trees in Mumbai's Fort area. The
formal establishment of the Bombay Native Share and Stock Brokers'
 Association in 1875 laid the groundwork for the BSE, initially operating
under a banyan tree before moving to various locations in Mumbai.
● Premises and Infrastructure:
○The BSE relocated to its first official location, Dalal Street, in 1874, and
later to its current site at the Phiroze Jeejeebhoy Towers in 1980. Through
the years, the BSE has modernized its infrastructure, integrating electronic
trading systems and technological advancements to enhance market
efficiency and transparency.
● Corporate Structure and Regulation:
○ Evolving from a broker-led association, the BSE transformed into a
corporate entity upon the establishment of the Bombay Stock Exchange
Limited in 2005. Regulated by the Securities and Exchange Board of India
(SEBI), the Exchange ensures operational compliance, regulatory
adherence, and investor protection.
● Role in India's Economic Development:
○ The BSE has been pivotal in India's economic growth by facilitating capital
raising for companies, fostering investment opportunities, and advocating
corporate governance. It has channeled savings into productive
investments, supported infrastructure projects, and encouraged
entrepreneurship and innovation.
● Index Creation and Benchmarking:
○The BSE has introduced key market indices to evaluate the Indian stock
market's performance, with the BSE Sensex, launched in 1986, serving as
India's primary equity benchmark. Comprising 30 large-cap stocks
representing diverse sectors, the Sensex acts as a gauge of market
sentiment and investor confidence.
● Market Reforms and Regulatory Compliance:
○Adapting to market dynamics and regulations, the BSE has implemented
reforms to boost transparency, liquidity, and risk management.
Collaborating with global exchanges and regulatory bodies, the Exchange
aligns its practices with international standards.
● Technological Advancements:
○ Embracing technological enhancements, the BSE modernized its trading
infrastructure by introducing the BSE Online Trading (BOLT) system in
1995, transitioning from open outcry to electronic trading. Upgrades and
initiatives have streamlined operations and enhanced investor access to
the market.
In essence, the Bombay Stock Exchange has been a driving force in shaping India's
capital markets and economic advancement. Transitioning from its humble beginnings
beneath a banyan tree to a cutting-edge exchange, the BSE remains a cornerstone of
India's financial landscape. With a focus on innovation, transparency, and investor
welfare, the BSE continues to be a key player in India's journey towards economic
prosperity and global integration.

NSE:

The National Stock Exchange of India (NSE) was established in 1992 as the first electronic
stock exchange in the country. It was founded as a response to the need for modernization and
automation of India's stock trading system, replacing the traditional open outcry system with
electronic trading platforms.

1. Formation and Background:

The NSE was promoted by leading financial institutions, including the Industrial Development
Bank of India (IDBI), Industrial Credit and Investment Corporation of India (ICICI), and others, in
collaboration with the Government of India. It was incorporated as a public limited company
under the Companies Act, 1956.

2. Introduction of Electronic Trading:

The NSE introduced electronic trading through the use of advanced technology and
computerized systems. This departure from the traditional floor-based trading system eliminated
the need for physical trading floors and paper-based transactions, making trading faster, more
efficient, and transparent.

3. Benchmark Index - Nifty 50:

 The NSE launched its flagship index, the Nifty 50, in 1996. The Nifty 50 is a benchmark index
comprising 50 actively traded stocks representing various sectors of the economy. It serves as a
barometer of the Indian equity market and is widely tracked by investors and market
participants.

4. Market Structure and Regulations:

The NSE operates as a fully automated electronic trading platform, providing a fair,
transparent, and efficient marketplace for trading in equities, derivatives, currencies, and debt
instruments. It is regulated by the Securities and Exchange Board of India (SEBI), which
oversees its operations, ensures compliance with regulations, and safeguards investor interests.

5. Product Innovation and Expansion:

Over the years, the NSE has introduced several innovative products and services to meet the
evolving needs of investors and market participants. It launched derivatives trading in 2000 with
the introduction of index futures and options, providing investors with risk management tools
and hedging opportunities. The NSE has also expanded its operations internationally, forging
partnerships and collaborations with global exchanges and financial institutions.

6. Technological Advancements:
The NSE has leveraged technology to enhance market infrastructure and improve trading
efficiency. It introduced the National Exchange for Automated Trading (NEAT) system, an
electronic trading platform that enables seamless order matching and execution. Subsequent
upgrades and initiatives have further enhanced the speed, reliability, and resilience of the NSE's
trading systems.

7. Corporate Governance and Transparency:

The NSE places a strong emphasis on corporate governance and transparency in its
operations. It has implemented stringent regulatory frameworks, robust risk management
practices, and investor protection mechanisms to maintain market integrity and instill confidence
among market participants.
*SEBI-

The Securities and Exchange Board of India (SEBI) is the regulatory authority
overseeing the securities markets in India. Established on April 12, 1992, through the
SEBI Act of 1992, SEBI was created to protect the interests of investors and regulate
the securities markets, ensuring transparency, fairness, and efficiency in their
functioning. SEBI operates under the purview of the Ministry of Finance, Government of
India, and its headquarters are located in Mumbai.

SEBI's history traces back to the early 1980s, when the need for a regulatory body to
oversee India's securities markets became increasingly apparent. Prior to SEBI's
establishment, the regulation of securities markets was fragmented and lacked a unified
framework. The stock market was characterised by irregularities, manipulation, and
inadequate investor protection measures, leading to concerns about market integrity
and investor confidence.

In response to these challenges, the Government of India formed the SEBI Committee
in 1988, headed by Mr. S.A. Dave, to propose recommendations for the establishment
of a regulatory authority for the securities markets. Based on the committee's
recommendations, the SEBI Act was enacted in 1992, and SEBI was officially
established as an autonomous regulatory body with statutory powers.

Since its inception, SEBI has played a pivotal role in transforming India's securities
markets into modern, well-regulated, and investor-friendly platforms. The regulatory
authority has been instrumental in introducing reforms aimed at enhancing market
transparency, integrity, and efficiency while safeguarding investor interests.
Over the years, SEBI has implemented several landmark reforms and initiatives to
strengthen India's securities markets. These include the introduction of online trading,
dematerialization of securities, the establishment of the Depository system, and the
rollout of the Securities Appellate Tribunal (SAT), among others.

Functions of SEBI:
The Securities and Exchange Board of India (SEBI) performs a diverse range of functions to
regulate and oversee the securities markets in India. Some of the key functions performed by
SEBI include:

1. Regulation and Supervision: SEBI regulates various entities and segments of the securities
markets, including stock exchanges, brokers, merchant bankers, portfolio managers, mutual
funds, and credit rating agencies. It establishes rules, regulations, and guidelines to ensure
compliance with market integrity and investor protection standards.

2. Investor Protection: SEBI is committed to safeguarding the interests of investors by

implementing measures to prevent fraud, manipulation, and unfair trade practices. It promotes
investor education and awareness initiatives to empower investors with knowledge and
information about their rights and responsibilities.

3. Oversight of Market Intermediaries: SEBI monitors and regulates market intermediaries such
as stockbrokers, sub-brokers, and depository participants to ensure their compliance with
regulatory requirements. It imposes penalties and takes enforcement actions against entities
found violating securities laws or engaging in misconduct.

4. Regulation of Securities Markets: SEBI regulates various segments of the securities markets,
including equity, derivatives, commodities, and debt markets. It formulates rules and regulations
governing market operations, trading mechanisms, and listing requirements for securities.

5. Development of Market Infrastructure: SEBI promotes the development of market

infrastructure by introducing reforms to enhance market efficiency, transparency, and
accessibility. It encourages the adoption of technology-driven solutions and infrastructure
upgrades to facilitate seamless trading and settlement processes.

6. Disclosure and Transparency: SEBI mandates listed companies to adhere to disclosure and
transparency norms by regularly disclosing financial information, corporate governance
practices, and material developments to investors and the public. It ensures transparency in the
disclosure of price-sensitive information to prevent market abuse and insider trading.

7. Regulation of Takeovers and Mergers: SEBI regulates takeovers and mergers of listed
companies to protect the interests of minority shareholders and ensure fair treatment in
corporate restructuring activities. It formulates regulations and guidelines governing takeover
offers, delisting procedures, and shareholder rights.

8. Market Research and Surveillance: SEBI conducts market research and surveillance
activities to monitor market trends, detect market abuses, and identify potential risks to market
integrity and stability. It utilizes advanced surveillance tools and techniques to prevent market
manipulation and maintain investor confidence.

Overall, SEBI plays a pivotal role in ensuring the integrity, transparency, and efficiency of India's
securities markets by performing various regulatory, supervisory, and developmental functions
aimed at promoting investor protection and market integrity.

Trading Procedures:
1. Selection of Broker:

The procedure of trading in securities begins with the selection of a broker. It is

important to note that securities can only be purchased and sold through brokers
who have registered with the Securities and Exchanges Board of India (SEBI)
and are stock exchange members. This is a regulatory measure intended to
ensure the security and reliability of the trading process.
The broker serves as an intermediary between the investor or speculator and the
stock market. They are responsible for purchasing and selling securities on
behalf of their clients. However, before an investor can place an order with a
registered broker, they must provide specific information. This is a standard
procedure for maintaining transparency and accountability in the trading process.
The client registration form requires the following information: PAN number, date
of birth and address, educational qualification and occupation, residential status
(Indian or NRI), bank and depository account details, and client code.

2. Opening Demat Account with Depository:

A Demat Account, or Dematerialized Account, is a digital repository for holding

securities. It’s an essential tool for investors, enabling them to hold securities
such as stocks, bonds, and mutual funds in an electronic format, thereby
eliminating the need for physical certificates.
This digitalization of securities has revolutionised the trading process, making it
more secure and efficient.
Opening a Demat Account involves registering with a central depository, either
the National Securities Depository Ltd (NSDL) or the Central Depository Services
Ltd (CSDL), through intermediaries known as Depository Participants (DPs).
These DPs can be banks, stockbrokers, or financial institutions.
Once opened, the Demat Account is accessed using a unique login ID and
password. Unlike a bank account, there’s no requirement for a ‘minimum
balance’. Each investor is assigned a unique Demat Account number, also
known as a ‘beneficiary ID’, used for identification in all transactions.

3. Placing the Order:

An order consists of instructions to a broker or brokerage firm to purchase or sell

a security on an investor's behalf. An order is the fundamental trading unit of a
securities market. Orders are typically placed over the phone or online through a
trading platform, although orders may increasingly be placed through automated
trading systems and algorithms. When an order is placed, it follows a process of
order execution.

There are multiple types of orders which investors can use in order to ensure
maximum convenience, These include:

● Market Order: This is an order to buy or sell a security at the current

market price. It’s executed based on the next available best price. Market
orders are typically filled quickly, making them suitable for traders who
prioritise speed over price control.
● Limit Order: In a limit order, you set the price at which you want to buy or
sell a security. The order gets executed only at the limit price or a better
price2. This type of order gives you more control over the price at which
your trade is executed but may take longer to fill.
● Stop Order: A stop order allows you to place a limit on how much you’re
willing to pay for a stock. It becomes active for execution once a specified
trigger price is reached. Stop orders can help limit losses and protect
profits.
● Special Order Types: There are also special order types like Robo Order,
used in intraday trading, which allows you to place two more orders along
 with the initial order. This can be used to book profits at specified target
prices and minimise losses at a trigger price.

4.Executing Order

Order placement:The first step to executing a trade is placing an order. An

order can be placed by an investor through a broker or through an online trading
platform provided by the broker. Orders can be placed for buying or selling a
particular stock or commodity at a specific price or at the market price.

Order Matching:Once an order is placed, it is sent to the exchange’s order

matching system. The order matching system matches the buy and sell orders
based on the price, time, and quantity of the order. If a buy order matches a sell
order, a trade is executed.

Execution of Trade for order placement:The trade is executed at the prevailing

market price or the price specified in the order, whichever is lower in the case of
a buy order and higher in the case of a sell order. The exchange’s trading system
sends a confirmation of the trade to the broker and the investor.

Settlement:Settlement is the process of transferring ownership of the securities

and funds between the buyer and the seller. In India, the settlement process
takes place on the T+2 (transaction day plus two business days) basis, which
means that the settlement is completed two business days after the trade is
executed.

Clearing:The clearing process involves the determination of the obligations of

the buyer and the seller, the calculation of the net position, and the transfer of
securities and funds between the clearing members. Clearing ensures that the
obligations of all parties are met.

Custody:The custodian holds the securities on behalf of the investor in a

dematerialized (demat) form. The demat account of the investor is credited or
debited based on the trades executed.
Types of markets:
Any securitie’s exchange can be classified into two main types based on the
current market trend, the two types being:
● Bearish markets
● Bullish markets
In the world of finance, the terms "bull" and "bear" describe the movements and
conditions of the stock market. A "bull market" is characterized by rising prices
and optimistic investor sentiment, whereas a "bear market" is marked by falling
prices and widespread pessimism. Understanding bearish conditions is essential
for anyone interested in investing or studying economics, as these periods
significantly impact investment strategies and economic stability.

Bearish markets:

Bearish Conditions in the Stock Market

What is a Bear Market?

A bear market occurs when the prices of securities, such as stocks, fall by 20%
or more from recent highs over a sustained period, typically two months or more.
This decline is often accompanied by widespread pessimism and negative
investor sentiment. Bear markets can result from various factors, including
economic downturns, geopolitical tensions, changes in interest rates, and loss of
investor confidence.

Characteristics of a Bear Market

1. Declining Stock Prices: The most apparent characteristic of a bear market is a

prolonged decline in stock prices. This decrease reflects a negative outlook on
the economy and corporate profitability.

2. Negative Investor Sentiment: During a bear market, investors become more

risk-averse and prefer to hold safer assets such as bonds or cash. This shift in
sentiment can exacerbate the decline in stock prices.

3. Economic Slowdown: Bear markets are often associated with broader

economic slowdowns or recessions. Indicators such as rising unemployment,
declining GDP, and reduced consumer spending typically accompany bear
markets.

4. High Volatility: Bear markets usually experience higher volatility as investors

react to news and events that could further impact the economy and financial
markets. This can lead to sharp price swings in a short period.

Causes of Bear Markets

1. Economic Recession: A recession, characterized by a decline in economic

activity across the economy, can trigger a bear market. Factors like high
unemployment, decreased consumer spending, and falling business investments
contribute to this scenario.

2. Rising Interest Rates: When central banks raise interest rates to control
inflation, borrowing costs increase. Higher interest rates can slow down
economic growth and corporate profits, leading to falling stock prices.
3. Geopolitical Tensions: Wars, political instability, and other geopolitical issues
can create uncertainty in the markets, causing investors to sell off stocks and
seek safer investments.

4. Corporate Earnings Decline: When companies report lower-than-expected

earnings, it can lead to a loss of confidence among investors, triggering a sell-off
and contributing to a bear market.

Impact of Bear Markets

1. Investor Losses: During a bear market, the value of investments declines,

leading to significant financial losses for investors. This can impact retirement
savings, college funds, and other long-term financial plans.

2. Reduced Economic Activity: The negative sentiment in bear markets can spill
over into the broader economy. As businesses struggle with lower profits, they
may cut back on investments and hiring, leading to higher unemployment and
reduced consumer spending.

3. Increased Borrowing Costs: As stock prices fall, companies may find it more
challenging to raise capital through equity markets, leading to increased reliance
on debt and higher borrowing costs.

4. Panic Selling: Bear markets can induce panic selling, where investors sell off
stocks irrationally out of fear, further driving down prices and exacerbating market
declines.

Conclusion

Bear markets are a natural part of the economic cycle and can significantly
impact investors and the economy. While bear markets can be daunting, they
also present opportunities for savvy investors to buy quality assets at reduced
prices and position themselves for future gains when the market eventually
recovers.
Bullish markets:

What are Bullish Conditions?

Bullish conditions refer to a period in the stock market when prices are rising or
are expected to rise. This term is derived from the behavior of a bull, which
attacks by thrusting its horns upward, symbolizing upward movement in stock
prices. During a bullish market, investors are confident, and the overall sentiment
is positive, leading to increased buying activity and higher stock prices.

Characteristics of a Bullish Market

1. Rising Stock Prices: The most apparent sign of a bullish market is a

consistent increase in stock prices over a period. This trend reflects
growing investor confidence and a healthy demand for stocks.
2. Increased Trading Volume: During bullish conditions, the volume of
trades typically increases as more investors are eager to buy stocks,
expecting prices to go even higher.
3. Strong Economic Indicators: Bullish markets often coincide with positive
economic indicators such as low unemployment rates, high GDP growth,
and strong corporate earnings. These indicators boost investor confidence
and fuel market growth.
4. High Investor Confidence: Investors are more likely to invest in the stock
market during bullish conditions, driven by the expectation of future gains.
This optimism further drives the market upwards.
5. IPO Activity: Companies are more likely to go public and issue Initial
Public Offerings (IPOs) during a bullish market because they can attract
higher valuations and more investor interest.

Causes of Bullish Conditions

1. Economic Growth: Strong economic performance, indicated by metrics

such as GDP growth, low unemployment, and rising consumer spending,
can lead to bullish conditions. When the economy is growing, businesses
tend to perform well, which attracts investors.
2. Corporate Earnings: When companies report strong earnings, it often
leads to higher stock prices. Consistently good earnings reports can create
bullish sentiment as investors anticipate continued growth and profitability.
 3. Low Interest Rates: Central banks may lower interest rates to stimulate
the economy. Lower interest rates make borrowing cheaper, encouraging
businesses to expand and consumers to spend, which can boost stock
prices.
4. Investor Sentiment: Sometimes, bullish conditions are driven simply by
positive sentiment and investor psychology. When investors collectively
believe that the market will continue to rise, their buying behavior can
create a self-fulfilling prophecy.
5. Government Policies: Pro-business policies, tax cuts, and other forms of
government support can create a favorable environment for businesses,
leading to bullish conditions in the stock market.

Impact of Bullish Conditions

1. Wealth Creation: Rising stock prices increase the value of investment

portfolios, leading to wealth creation for investors. This can boost
consumer spending and stimulate economic growth.
2. Increased Investment: Bullish markets attract more investment, not only
from individual investors but also from institutional investors like mutual
funds and pension funds. This influx of capital can drive further economic
expansion.
3. Corporate Growth: Higher stock prices make it easier for companies to
raise capital by issuing new shares. This capital can be used for
expansion, research and development, and other growth initiatives.
4. Market Optimism: Bullish conditions generally create a positive
environment, boosting overall market sentiment. This optimism can lead to
more risk-taking and innovation in the economy.

Conclusion

Bullish conditions in the stock market represent periods of rising stock prices,
high investor confidence, and overall economic optimism. Understanding the
factors that drive bullish markets and their impact can help investors make
informed decisions and navigate the complexities of the stock market effectively.