MDU BBA NOTES
SEMESTER-1
Business Organisation
Stock Exchange in India
Stock Exchange in India
A number of stock exchanges are in operation in India which cannot perform their all activities themselves. Some institutions or individuals are appointed for performing their activities which are known as the functionaries of stock exchanges. These functionaries include stock brokers, sub-brokers, portfolio consultants, financial institutions, non-resident Indians, depositories, market makers, etc.
These functionaries function as a link between the stock exchanges and clients. The activities of these functionaries are regulated by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI).
Stock Exchange in India
FUNCTIONARIES OF THE STOCK EXCHANGE
An explanation of the functionaries appointed for the smooth functioning of the stock exchanges is as follows:-
Stock brokers
Stock brokers are the persons who perform the function of selling and purchase of securities in the stock exchange. These stock brokers are the members of the stock exchange. For this function, the stock brokers necessarily have to obtain a certificate from SEBI and they have to follow the directions issued by it. The members of the stock exchange can function as stock brokers and traders.
Sub-brokers
A sub-broker is not a member of the stock exchange rather he functions as the agent of the stock broker. He helps the investors in the sale and purchase of securities. There must be an agreement between the stock brokers and sub-brokers with regard to the liabilities, so that, they can have a knowledge of their rights and duties.
The sub-broker functions as an intermediary between the brokers and investors. The sub-broker must also get themselves registered with SEBI for the sale and purchase of securities but they have to meet certain conditions for registration with SEBI. Moreover, they must also follow the rules, sub-rules, and provisions laid down by SEBI from time to time.
Market Makers
The market makers are specialists in some special types of securities. They perform the function of the auction as well as the offer of the securities at the same time. The prices at which the securities are sold to the prospective sellers are known as bid prices and the prices charged by the prospective buyers are known as offer prices. There must be a difference at least 10% between the offer and bid prices. The market makers receive the return for their functions in two ways. The first is by the extension of the bid offer and the other is by the positioning of the speculators.
If the market makers have an expectation of a rise in prices in the future, then they increase their shareholding and if they have an expectation of a fall in prices in the future, then they decrease or eliminate their shareholding. As a result of a high number of transactions, the expansion of bid and offer also gets decreased. The expansion of bids and offer gets affected by the cost of transactions in securities and risk. The cost of transactions and risk depend on the frequency and size of transactions.
According to the listing contract, a company that has trading activities of less than two years and which has total paid-up capital between 3 crores to 5 crores, should appoint a market maker at the time of issue of securities. The market maker should have complete knowledge of the rules, sub-rules, and regulations of the stock exchange. In addition to it, the market maker should offer two-way quotes or prices within a period of 18 months from the date of trading on the stock exchange for a specified stock. At the time of allotment, the market marker must have at least 5% of the total issued capital.
Jobbers
A jobber is a person who is capable of trading in an active as well as a relatively less active market. They offer two-way quotes or prices at very little difference for the clients which provides liquidity to the market. In this way, they perform the function of market makers also.
Portfolio Consultants
The combination of various types of securities like bonds, stocks, money market instruments, etc. is termed a portfolio. The companies or firms which undertake the responsibility of management and control of the securities on behalf of their clients who bought the securities, and give consultancy and guidance are termed, portfolio consultants. These can be discretionary or non-discretionary.
Institutional Investors
These investment institutions which mobilize the savings of the public are termed, institutional investors. These institutions invest these savings in various securities. These institutions include insurance institutions, mutual funds (Public Sector and Private Sector) as well as foreign institutional investors.
Non-resident Indians
Such Indian persons who reside outside India for the purpose of business, profit, service, or any other employment, are called non-resident Indians. The following are included under the non-resident Indians:-
- A person who has gone out of India for an indefinite period with the objective of trade, service, or profit earning.
- The Indian citizens perform the function of the regulator with a foreign government or government agencies or an international agency like IMF, World Bank, etc.
- The official of the Central Government or State Government or Public Sector Enterprises debuted abroad, etc.
According to the Income Tax Act, a person who has resided in India for a period of fewer than 60 days in the first year of getting citizenship in a foreign country and has resided for a period of fewer than 150 days in the second year, can visit India any time in next 8 years after residing in the foreign country for a period of 2 years. If he resides in India for a period of more than 150 days in any year, then he will become a resident of India but he will not be termed as a normal resident.
