RECENT REFORMS IN

INDIAN CAPITAL
MARKET
Presentation By:

Manoj Verma

Asstt. Professor (Sr. Scale)

Maharaja Agrasen Institute of Management Studies
E.mail: manoj5980@gmail.com

INDIAN CAPITAL MARKETHISTORICAL PERSPECTIVE

Stock Market was for a Privileged Few
Lack of Transparency High Costs
No use of Technology
Outdated Banking System
Volumes Less than Rs. 300 cr per day
No Settlement Guarantee Mechanism High
Risks

INDIAN CAPITAL MARKETS

CHRONOLOGY
1994:- Equity Trading Commences on NSE
1995:- All Trading goes Electronic
1996:- Depository comes into Existence
1999:- FIIs Participation- Globalization
2000:- Over 80% Trades in Demat Form
2001:- Major Stocks move to Rolling Settlement
2003:- T+2 Settlements in all Stocks
2003:- Demutualization of Exchanges

CONTEMPORARY CAPITAL MARKET AT A

GLANCE
Second fastest growing economies after China with
an average annual growth rate of more than 8 per
cent in the last three years.
Indian companies may issue shares under Employee
Stock Option Scheme to its employees who are
resident outside.
Foreign Institutional Investors are allowed to invest
in India under the Foreign Institutional Investment
scheme.
Private equity is allowed as an alternative form of
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COND
NSE (Indias National Stock Exchange) is the
third largest in the world in the number of trades
after NYSE and NASDAQ.
India has 23 small and 2 big stock exchanges.
The 2 big stock exchanges (National Stock
Exchange and Bombay Stock Exchange) account
for 90 per cent of trade.
Over 7000 listed companies on the stock
exchanges largest in the world.

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COND
39 mutual funds with over 500 schemes for
investment.
There are 86 venture capital funds and 54 foreign
venture capital investors.
FIIs can invest on behalf of their clients through subaccounts.
For normal FIIs, limit for investment in equity is at
least 70 per cent while the rest could be invested in
debt up to a maximum limit of 30 per cent.
9040 brokers in cash segment and 1064 in derivative
segment of the market.
122 investment bankers in the market.
58 under writers to support primary issues.
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34 foreign venture capital funds &120 Portfolio
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MARKET STRUCTURE (JULY 31, 2005)

Over 10000 electronic terminals at over 400
locations all over India.
9108 stock brokers and 14582 sub brokers
9644 listed companies
2 depositories and 483 depository participants
128 merchant bankers, 59 underwriters
34 debenture trustees, 96 Portfolio managers
83 registrars and transfer agents,59 bankers to
issue
4 credit rating agencies

WHY TO INVEST IN
INDIAN
CAPITAL MARKET

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BECAUSE:
Indias accounting standards are closer to
international standards.
SEBI has made corporate governance
guidelines mandatory for listed companies.
Mutual funds are permitted to invest
overseas up to $3 billion.
Almost 100 per cent risk free electronic
settlement through depository system .

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CONTD.
In India the transactions are totally
electronic on a real time basis.
Business Week says that of 100 emerging
market firms which are rapidly globalizing
21 are Indian firms.
Economists project India to become the
third largest economy in the world by 2040.

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FACTS ABOUT CAPITAL MARKET

REFORMS

Extensive Capital Market Reforms were

undertaken during the 1990s encompassing
legislative regulatory and institutional reforms.
Although dematerialisation started in 1997 after
the legal foundations for electronic book keeping
were provided and depositories created the
regulator mandated gradually that trading in
most of the stocks take place only in
dematerialised form.

CAPITAL MARKETS- REFORMS

A series of Reforms 1992/2001
Screen Based Trading through NSE
Capital Adequacy Norms Stipulated
Dematerialization of Shares- Risks of Fraudulent
Paper Eliminated
Entry of foreign Investors
Investor Awareness Programs
Rolling Settlements
Inter- action between Banking and Exchanges

CAPITAL MARKET REFORMS IN INDIA

The 1990s have witnessed the emergence of the
securities market as a major source of finance for
trade and industry in India.
A growing number of companies have been
accessing the securities market rather than
depending on loans from financial institutions /
banks.

CHANGING TIMES
Simple to Complex
Supply > Demand
Information Technology
One world
New Type of Industry
Job Profile Changing
Security to Performance
Eligibility of Jobs

Not Qualification but

Uniqueness

CAPITAL MARKET

Legislations

Capital Issues (Control) Act,1947

SEBI Act, 1992
Securities Contract (Regulation) Act,1956
Depositories Act, 1996
Companies Act, 1956

Regulators

RBI and SEBI

Instruments

Traditional
Modern-Derivatives, Exchange Traded Funds, Euro
Issues etc.

Services

Underwriting, Merchant Banking, Custodial Services

Intermediaries
Underwriter, Broker, Banker, Registrar, Advisors etc.

CAPITAL MARKET REFORMS

Objectives

Improving

Market Efficiency
Enhancing Transparency
Preventing Unfair Trade Practices
Integration with International Markets

Actions

Liberalise
Regulate
Develop

CAPITAL MARKET REFORMS

SEBI ACT,1992

Protect-Promote-Regulate

Disclosure and Investor Protection Guidelines (DIP)

Free Pricing
Book Building
Screen Based Trading
Internet Trading-Mobile Trading

CAPITAL MARKET REFORMS

Trading Cycle
T+5, T+3, T+2, T+1
Derivatives Trading (June 2000)
Demutalisation and Corporatisation
Ownership-Management-Trading Membership
Depositories
NSDL and CDSL
Risk Management
Capital Adequacy, Margin, monitoring,
Trade/Settlement Guarantee Fund
Investor Protection and Education

CAPITAL MARKET REFORMS

Globalisation
ADR,

GDR, FCCBs, ECBs, FIIs, IDRs

Miscellaneous
e-IPOs,

ESOPs,
Buy back,
Private Placement,
Bought out Deals,
OTCEI, NSE, ICSEI,
Regional Stock Exchanges

HOW TRADING MECHANISMS HAVE

CHANGED
Technology has been a change driver
Created Virtual market place
Widened reach
Increased market efficiencies
Competitive market structures

IMPACT OF CHANGES

Reach

Geographical
Made

a distribution framework available

Product Diversity

Efficiencies
Better

order executions
Increased liquidity

IMPACT OF CHANGES(CONTD.)
Price

transparency
Cost reduction
Shorter settlement cycles
Full line service from order capture to settlement and
risk management
Regulatory issues with each new development

MAJOR CHANGES
The open outcry trading system, prevalent till 1995,
was replaced by the On-line screen based electronic
trading.
In all, 23 stock exchanges have approximately 8,000
trading terminals spread all over India.
Trading and settlement cycles were uniformly
trimmed from 14 days to 7 days in August 1996.
Rolling settlement (T+5) was introduced in January
1998. With effect from December 31, 2001, all scrips
have come under rolling settlement .
The settlement cycle have shortened from T+5 to
T+3 with effect from April1, 2002.

CONTINUED ..
To enhance the level of Investor protection, the
process of De-materialization of securities through
the depository system and their transfer through
electronic book entry is pursued vigorously.
To enable this NSDL was set up in November
1996 and CDSL in February 1999.
All actively traded securities are held, traded and
settled in demat form.
Badla- carry forward trading mechanism which
was reinstated in January 1996, with safeguards
in line with recommendations of Patel
Committee(1995) and Varma Committee (1996),
have been discontinued from July 2001 following
the scam of March 2001.

MAJOR RECENT CHANGES

Rolling settlement
Book Building
Circuit Breakers
Listing of securities
Derivatives
Client-level approach

MAJOR RECENT CHANGES

Rolling settlement: In a trading cycle, trades
accumulated till the end of a specified period and
positions were settled in the form of payment of
cash and delivery of securities.After the reforms,
the trading and settlement cycle was trimmed
from 14 days to 7 days. Under the T+5 basis
rolling settlement system the trading cycle
comprises one day and transactions are settled 5
days after the trade date.
Book Building: is a process by which demand
for the proposed issued is elicited and built-up
and the price at which the securities will be
issued is determined on the basis of bids
received.

Circuit Breakers: To contain excessive

volatility in prices, SEBI introduced, in 1995,
scrip wise daily Circuit Breakers/ Price Bands.
The CBs bring about a halt/ suspension in
trading automatically for a specified period. CBs
do not halt trading but no order is permitted if it
falls out of the specified price range.

ANY QUESTIONS

CAPITAL MARKET

THANK YOU