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Stock Market in India : Working and Reforms
By Saloni Gupta

First Published : 2010
ISBN : 9788177082418
Pages : 338
Binding : Hardbound
Size : 5 x 9
Price : US$ 52

A stock (or share) market deals mainly in corporate securities. The securities are chiefly in the form of equity shares and debentures. The function of the stock market is two-fold: (a) to arrange for the raising of new capital [primary market function] and (b) to provide liquidity to existing securities [secondary market function].     

There are 24 recognised stock exchanges in India, including the Over the Counter Exchange of India (OTCEI) for small and new companies, the old established Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) that was set up as a model exchange to provide nation-wide services to investors. As at end-March 2010, 4977 companies were listed on the BSE, which is the largest exchange in the country. The number of securities available for trading under the equities segment at NSE as on April 30, 2010 was 1872.

Associated with the NSE are the National Securities Depository Ltd. (NSDL) and the National Securities Clearing Corporation Ltd. (NSCCL). The NSDL acts as a registrar for dematerialized securities and NSCCL as a clearing house.

This book provides a comprehensive account of the working of stock market in India, focusing on reforms introduced during the post-liberalisation (1991 onwards) period. Besides, it traces recent trends in the secondary market and offers empirical evidence of level of efficiency and degree of volatility in the Indian stock market.

1. Stock Market: Theoretical Framework
1.1 Efficient Stock Market
1.2 Efficient Market Hypothesis (EMH)
1.3 Information Sets and Classification of Market Efficiency
1.4 Fair Game Model
1.5 Submartingale and Martingale Models
1.6 Random Walk Model
1.7 Is Informational Efficiency Possible?
1.8 Empirical Evolution of Testing
1.9 Database of the Present Study
1.10 Methodological Issues
1.10.1 Test of Volatility
2. Review of Theoretical and Empirical Studies on Stock Market
2.1 Introduction
2.2 Tests for Return Predictability
2.2.1 Point and Counter-Point: Anomalies Challenging EMH and Alternative Explanation/Defence against them
2.3 Semi-Strong Form Tests of the Efficient Market
2.4 Tests for Private Information
2.5 Conclusion
3. Indian Stock Market: Reforms and Refinements
3.1 Introduction
3.2 Pre-Requisites of Efficient Security Market
3.3 Secondary Market Reforms
3.4 Compilation of SENSEX and Later Refinements
3.5 Establishment of CRISIL
3.6 Establishment of SEBI
3.7 Setting up of OTCEI
3.8 Entry of Foreign Investment into India
3.9 Establishment of the NSE
3.10 Central Depositories
3.11 Clearing Operations and Risk Management on Stock Exchanges
3.11.1 Clearing
3.11.2 Guarantee
3.11.3 Risk Management
3.12 Risk Management System Adopted by SEBI
3.12.1 VaR-based Margining System
3.13 Stock Lending Scheme
3.14 Introduction of Derivatives
3.14.1 Advantages of Derivatives
3.15 Rolling Settlement
3.16 Operation of Fully Electronic Trading Platforms
3.17 Internet Based Trading
3.18 Wireless Application Protocol (WAP) Trading
3.19 Margin Trading Facility
3.20 Installation of Circuit Breaker on BSE
3.21 BSE-TECk Index
3.22 Straight through Processing
3.23 Unique Client Code
3.24 Exchange Traded Funds
3.25 Demutualisation and Corporatisation of Stock Exchanges
3.26 Sensex with Free-float Methodology
3.27 Central Listing Authority
3.28 Introduction of Fund of Funds Schemes
3.29 Electronic Date Information Filing & Retrieval System (EDIFAR)
3.30 Development of Self-regulatory Organizations (SROs) in Indian Securities Market
3.31 Market Participants and Investors Integrated Database (MAPIN)
3.32 BSE IndoNext
3.33 BSE Mid-Cap Index and BSE Small-Cap Index
3.34 Proposed Regulation of Investment Advisers
3.35 Plan for a Unified Exchange Traded Corporate Bond Market
3.36 Some Proposed New Innovations in the Securities Market
3.36.1 Trading of Rights on the Stock Exchanges in Electronic Form
3.36.2 Strategic Use of Put Options in the Fixed Price Buy Back and Takeovers Cases
3.37 Future Prospects
3.38 Conclusion
4. Secondary Securities Market: Recent Reforms
4.1 Short Selling
4.2 Securities Lending and Borrowing (SLB)
4.3 Introduction of DMA
4.4 Mandatory Requirement of PAN
4.5 Supervision of Branches of Depository Participants
4.6 Corporatisation and Demutualisation of Stock Exchanges
4.7 Policy Initiatives for Derivatives
4.7.1 New Products for Futures and Options Segment
4.7.2 Acceptance of Foreign Sovereign Securities
4.7.3 Exchange Traded Currency Derivatives
4.7.4 Extending Calendar Spread Treatment till Expiry of the Near Month Contract
4.7.5 Eligibility Criteria for Permitting Derivatives on Shares
4.7.6 Revised Exposure Margin for Exchange-Traded Equity Derivatives
4.7.7 Issuance of Electronic Contract Notes (ECNs) in Equity Derivatives Segment
4.7.8 Cross Margining across Exchange-traded Equity and Exchange-traded Equity Derivatives Segments
4.7.9 Exchange-traded Interest Rate Derivatives
4.7.10 Revised Position Limits in the Exchange-traded Currency Derivatives Segment
4.8 Amendment to Securities Contracts (Regulations), 2006
4.9 Internal Audit for Stock Brokers, Trading Members and Clearing Members
5. Secondary Securities Market: Recent Trends
5.1 Equity Market in India: 2009-10
5.1.1 Stock Markets in 2008-09
5.2 Global Equity Markets
5.3 Performance of Sectoral Indices, 2008-10
5.4 Turnover in Indian Stock Market
5.5 Market Capitalisation
5.6 Stock Market Indicators
5.7 Volatility in Stock Markets
5.8 Trading Frequency
5.9 Activities of Stock Exchanges
5.10 Dematerialisation
5.11 Derivatives Market in India
5.11.1 Trends in Equity Derivative Market
5.11.2 Membership of Derivatives Segment
5.11.3 Trend in Currency Derivatives Market
5.12 Investor Assistance and Investor Education
5.12.1 Redressal of Investors’ Grievances
5.13 Retrospect and Prospects
5.13.1 Retrospect
5.13.2 Prospects
6. Evidence of Weak Level Efficiency
6.1 Introduction
6.2 Serial Correlation Coefficient Test
6.3 Runs Test
6.4 Variance Ratio Test
6.5 Summary of Results
7. Volatility and its Implications for Efficiency
7.1 Volatility: A Feature of Stock Markets
7.2 Measurement of Volatility of the Indian Stock Market
7.2.1 Volatility of Monthly Returns in a Year
7.2.2 Volatility of Daily Returns in a Year
7.2.3 Volatility of Daily Returns in a Month
7.3 Events Explaining Volatility
7.4 Summary of Results
8. Conclusions, Explanations and Implications
8.1 Summary of Evidences
8.2 Conclusions from the Evidences
8.3 Explanation of the Findings
8.4 Limitations of the Study
8.5 Synthesis with other Studies
8.6 Implications and Suggestions
Appendix 1: Frequently Asked Questions on Dematerialisation
Appendix 2: Frequently Asked Questions on Equity and Currency Derivatives
Appendix 3: Frequently Asked Questions on Straight through Processing (STP)

Glossary of Capital Market Terms; Bibliography; Index


Dr. Saloni Gupta is presently Associate Professor in the Department of Commerce, Bharati College, University of Delhi. She completed her Post-graduation, M.Phil. and Ph.D. from Delhi School of Economics, University of Delhi. She has 20 years of teaching experience. Specialising in finance, she has published a number of research papers in national and international journals of repute, including Decision published from IIM, Calcutta.  

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