Indian experience of multiple stock exchanges - Free Essay Example

Sample details Pages: 4 Words: 1319 Downloads: 1 Date added: 2017/06/26 Category Marketing Essay Type Narrative essay Did you like this example? In India, we have had over a decade of experience with multiple stock exchanges and line operators arbitraging between these markets. This has been a fairly well accepted idea. The number of investors opting for  on-line  trading has gone up manifold, according to the recently published ‘Indias Leading Equity Broking Houses, 2008? by Dun Bradstreet (DB). The publication says that less than 10% of the 191 broking firms surveyed reported huge growth in opening of e-broking accounts and some firms saw a surge in value of up to 400% in e-broking during 2009. According to the report, number of e-broking accounts registered in 2009 have grown exponentionally. Indiabulls Securities Ltd added 4,51,611 accounts while a relatively new firm in the industry, Reliance Money added 2,15,678 accounts during the same time period.   Since the banking system is not fully integrated with the securities markets, brokerage firms face limitations in raising f inancial resources for business and expansion. With buoyancy of the stock markets and the rising prospects of several well organized broking firms, important opportunity to access capital markets for resource mobilization has become available. The recent past witnessed several leading brokerage firms accessing capital markets for financial resources with success. The capital market in Pakistan is still in its infancy commensuration with the stage of economic development and transition from agricultural base to industrial based set-up. Broadly capital market includes various institutions like Commercial Banks, Investment Banks, Leasing Companies, Modarabas and Stock Exchanges. But it specifically connotes money market operations and marketing of securities through stock exchanges. The Stock Exchange is a formal association of agents who deal in shares and securities and execute the order of their customers on commission basis. An agent usually has an office with sufficient informa tion sources, current quotations and advisory expertise to assist investors in making decisions. They also must know where to find the buyers and sellers for the securities and arrange membership or contacts with the other stock exchanges operating in the country. Besides providing incidental services like financing the transactions and storage of securities. The main function of a stock exchange is to provide a place where the agents can bring their orders in respect of given list of securities. In this way buying and selling orders and transactions are matched and completed where customers gets the required service and the agents earn commissions. The working of Stock Exchange in India is regulated by Corporate Law Authority. Like Stock Exchange in other countries. Stock Exchanges in our country are also governed by business practices and extensive rules regarding method of trading in securities. Basically these regulations are made to protect the investors and also to assist m embers and develop Stock Exchange. Although the floor rules vary in nature yet they ensure the set routine and proper handling of orders. These rules try to ensure that agents or members should not take unfair advantage to the detriment of investors. While listing a stock or bond the Stock Exchange forges an understanding with the issuing company in matters like allotment, and transfer of securities, declaration of dividends, and issuance of right and bonus shares and the publication of accounts reflecting the affairs of the company. The rules also include registration of stocks and certificates and publication of Balance Sheets as a pre-condition to get listing in Stock Exchange. These rules and regulations if applied properly bring prestige to Stock Exchanges and create confidence amongst the investors. A central idea in modern finance is the law of one price. This states that in a competitive market, if two assets are equivalent from the point of view of risk and return, they should sell at the same price. If the price of the same asset is different in two markets, there will be operators who will buy in the market where the asset sells cheap and sell in the market where it is costly. This activity termed as Share Broking Houses, involves the simultaneous purchase and sale of the same or essentially similar security in two different markets for advantageously different prices. The buying cheap and selling expensive continues till prices in the two markets reach equilibrium. Hence, Share Broking Houses helps to equalize prices and restore market efficiency. The evolution of Indian stock market had been emerged in the year 1975, when Congress directed the SEC to develop a national market system in which all orders to buy or sell equities would interact. It would have been considered that a national market system abhors fragmentation and assumes that one market will best serve the needs of all investors. However, such an assumption would not capture the realities of modern markets. Every individual investor has different needs and different markets will develop to serve these needs. Markets are non anonymous, and in such markets, the most important concept of trading best price is not defined. The fragmented markets are a natural result of competition among investment options. The sharing of trade and quote information among markets helps to mitigate any deleterious effects of fragmentation within the Indian stock market. It would have also been considered that the markets of tomorrow will be global. Therefore in an Indian market, the SEC will have to give up its goal of a national market system and focus on other issues related to the world as a whole for the investors. For an instance, it will be a challenge to provide just the sharing of trade information of equities/commodities across the borders of globe. Further, a technological evolution will allow the investors in order to gathering information to be located anywhere in the world from the common market centre. Hence, this threat of relocation will place a restriction on Indian regulators, and global trading will make it more difficult for SEBI authorities to regulate investment practices and opportunities and to protect Indian investors from such difficulties. Also, the equity markets worldwide are in a state of change. As we already mentioned that the technology and the internet have had and will continue to have a deep impact on the structure of the equity markets. Some of the recent rulings from the SEBI have unleashed new competitive forces that will challenge established markets which already existed. There are some constraints and processes such as date, the cost and awkwardness of the settlement processes across the nations which had restrained global competition, but these processes were changing. As the time passes, the cross-border settlement becomes cheaper and easier to invest for an investor, as a result the global trading may increase and Indian regulators will need to adapt to this new environment. Consequently, the amendments in the year 1975 to the Securities Exchange Act of 1934 set as a national goal which state that all securities should be traded in a national market system. This goal has shaped out much of the security exchange controls thinking since that time; however this goal may collapse with some of the ongoing structural changes which might occur in the equity markets, in both domestically and worldwide. A national market system of a country represents a naÃÆ'ƒÂ ¯ve and parochial view of the way in which equities traded. It is incompatible in a way with how the markets in the country are developing and will develop in near future. As mentioned above that a national market system needs to abhor fragmentation as the fragmentation limits interaction among order flow. Since, the fragmentation has emerged as the heart of competition for investors. It has been coded by many of the research er that the new competition creates fragmentation, but significant fragmentation will occur only if the competition is successful. In case, the competition is extremely successful, existing markets will decline and fail, resulting ultimately in less fragmentation. Therefore with due effect of the increasing the world globally, the SEBI will have to give up its goal of a national market system, begin to recognize the global nature of the equity across the India. Don’t waste time! Our writers will create an original "Indian experience of multiple stock exchanges" essay for you Create order