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Trading Procedure on a Stock Exchanges: 

• Selection of a broker.
• Opening Demat account with the Depository Participant (D.P.).
• Placing an order for the purchase or sale of securities with the broker. 
• Purchase or sale of securities through on line. 
• Delivery of the contract note to the investor. 
• Effecting changes in the Demat account. 
• Making payment or receiving of money

Under the approval of the central government as per the provision of Securities Contracts (Regulation) Act, 1956.

Secondary market (Stock exchange):

• The secondary market is the market in which securities such as shares (stock), bonds, etc. which were originally issued in the primary market can be purchased and sold (traded/exchanged). The secondary market is also called the stock exchange.
• Thus, stock exchange is an organization which enables share brokers and investors to buy and sell shares, debentures and other securities. It is an organized market for trading of existing securities.
• According to K. L. Garg, “Stock exchange means a place for buying and selling industrial and financial securities like shares and debentures of a company, government securities, municipal securities.”
• The oldest and first stock exchange of India was formed on 9th July, 1875 as a “The native share and stock brokers’ Association”. Today, it is known as Bombay Stock Exchange.
• Ahmedabad Stock Exchange started in 1894.

Correct option is (A) Two

One year or less is the time period for the maturity of instruments of money market

Stock exchange ¡s a ready market in which traders (investors) can buy or sell shares as per their will. This is how stock exchange provides liquidity.

(d) There are 23 stock exchanges in India list of stock exchanges in India are Bombay, National, Regional, Ahmedabad, Bengaluru, Bhubaneshwar, Calcutta, Cochin, Coimbatore, Delhi, Guwahati, Hyderabad, Jaipur, Ludhiana, Madhya Pradesh, Madras (Chennai), Magadh, Mangalore, Meerut, OTC Exchange of India, Pune, Saurashtra Kutch, Vadodara.

(b) In 2000 NSE commenced future tradings.

Valuation of the securities:

• The demand and supply of the securities in the market decide their valuation or say price.
• The valuation of securities is also determined by other factors such as dividend declared by the company, factors affecting money market, etc.
• Valuation of securities enables the investors to decide whether to purchase or sell the securities.
• The valuation of securities is also useful to the government and creditors

Correct option is (B) SEBI

The procedure of purchase and sales of securities online is as follows:

1. Opening demat account:

• First of all the investor needs to approach any depository participant (DP) and open a demat account with it.The DP opens this account under NSDL or CDSL.
• The investor can purchase/sell/hold their shares in the demat account.

2. Order to buy-sell:

• Once the demat account is active, the investor can trade online.
• Investor who wants to sell securities needs to place an online order with the broker.
• While purchasing/selling, the investor need to carefully mention the details such as name of the share, price at which the investor wants to purchase or sell, etc.

There are two types of order in purchase and sale of securities. They are:

(a) Limited order:

• When an investor selects the option of ‘limited order’, it means that he will set the price at which he needs to purchase or sell the shares. Thus, in this case, the price of purchase and sale is pre-determined.
• Retail investors and fund houses generally trade by placing order in this format.

(b) Market order: When an investor wants to trade at the prices existing in the market, he selects ‘market order’. Here, the buying/selling iakes place at the latest quoted market price that appeared on the trading screen order was made.

3. Execution of order:

• When the investor places the online order with the broker, the broker further executes the order. The broker places the order in stock exchange.
• The broker on behalf of his customer (investor) can conduct transaction from his office through online trading.

4. Contract note:

• Once the broker further places the order received from the investor, he prepares a contract note for the investor.
• Contract note is a confirmation of the day on which transaction took place.
• Generally, the broker sends contract note to the customer within 24 hours after transaction takes place.
• The contract note contains details such as name of the security traded, quantity, total amount of transaction, order number, brokerage, taxes applicable, etc. Thus, contract note is a summary as well as agreement about the traded securities.

5. Settlement of transaction:

• The settlement houses settle the transactions.
• The settlement house of Bombay settles the transactions done under Bombay Stock Exchange.
• NSCCL-National Securities Clearing Corporation Limited performs the settlement of transaction done in National Stock Exchange.
• Settlement of transaction occurs after a day of transaction or trade.

6. Payment of amount and delivery of security:

• If the investor has purchased the shares, he has to make the payment prior to the pay-in day. The delivery is done to the investor on pay-out day.
• If the investor has sold the shares, delivery of shares is to be done prior to the pay-in day. ,
• Customer receives money on pay-out day.
• Pay-in day is the day when the brokers shall make payment or delivery of securities to the exchange. Pay-out day is the day when the exchange makes payment or delivery of securities to the broker.

7. Inform customer about settlement of transactions:

• If the investor has sold the securities, the broker will make the payment to the customer through bank.
  In case if the investor has purchased the securities, the broker will make payment directly from the investor’s bank account.
• Settlement of transaction is informed to the customer through demat account.

Correct option is (D) Securities and Exchange Board of India Act (SEBI Act)

Correct option is (D)1996

Screen based trading of National Stock Exchange is known as NEAT (National Bombay Stock Exchange is known as BOLT i.e. BSE Online Trading.

(b) NSE was incorporated in 1992 and was recognized as a stock exchange in April 1993.

(a) The rate of return offered to the investors would be higher.

(b) Scarce resources will be allocated to those firms who have highest productivity for the economy.

Functions performed by Financial Market:

(a) Mobilization of savings and channeling them into the most productive uses: A financial market facilitates the transfer of savings from savers to the investors. It gives savers the choice of different investments and thus helps to channelize surplus funds into the most productive use.

(b) Facilitate price discovery: The forces of demand and supply help to establish a price for a commodity or service in the market. In the financial market, the households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market.

(c) Provide liquidity to the financial assets: Financial markets facilitate easy purchase and sale of financial assets. In doing so they provide liquidity to financial assets, so that they can be easily converted into cash whenever required. Holders of assets can readily sell their financial assets through the mechanism of the financial market.

(d) Reduce the cost of transactions: Financial markets provide valuable information about securities being traded in the market. It helps to save time, effort and money that both buyers and sellers of a financial asset would l-rave to otherwise spend to try and find each other. The financial market is thus, a common platform where buyers and sellers can meet for fulfillment of their individual needs.

Functions performed by Financial Market:

(a) Mobilization of savings and channeling them into the most productive uses: A financial market facilitates the transfer of savings from savers to the investors. It gives savers the choice of different investments and thus helps to channelize surplus funds into the most productive use.

(b) Facilitate price discovery: The forces of demand and supply help to establish a price for a commodity or service in the market. In the financial market, the households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market.

(c) Provide liquidity to the financial assets: Financial markets facilitate easy purchase and sale of financial assets. In doing so they provide liquidity to financial assets, so that they can be easily converted into cash whenever required. Holders of assets can readily sell their financial assets through the mechanism of the financial market.

(d) Reduce the cost of transactions: Financial markets provide valuable information about securities being traded in the market. It helps to save time, effort and money that both buyers and sellers of a financial asset would l-rave to otherwise spend to try and find each other. The financial market is thus, a common platform where buyers and sellers can meet for fulfillment of their individual needs.

Correct option is (A) Remain liquid

Correct option is (C)1894

It is known as NIFTY.

Functions performed by Financial Market:

(a) Mobilization of savings and channeling them into the most productive uses: A financial market facilitates the transfer of savings from savers to the investors. It gives savers the choice of different investments and thus helps to channelize surplus funds into the most productive use.

(b) Facilitate price discovery: The forces of demand and supply help to establish a price for a commodity or service in the market. In the financial market, the households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market.

(c) Provide liquidity to the financial assets: Financial markets facilitate easy purchase and sale of financial assets. In doing so they provide liquidity to financial assets, so that they can be easily converted into cash whenever required. Holders of assets can readily sell their financial assets through the mechanism of the financial market.

(d) Reduce the cost of transactions: Financial markets provide valuable information about securities being traded in the market. It helps to save time, effort and money that both buyers and sellers of a financial asset would l-rave to otherwise spend to try and find each other. The financial market is thus, a common platform where buyers and sellers can meet for fulfillment of their individual needs.

Functions performed by Financial Market:

(a) Mobilization of savings and channeling them into the most productive uses: A financial market facilitates the transfer of savings from savers to the investors. It gives savers the choice of different investments and thus helps to channelize surplus funds into the most productive use.

(b) Facilitate price discovery: The forces of demand and supply help to establish a price for a commodity or service in the market. In the financial market, the households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market.

(c) Provide liquidity to the financial assets: Financial markets facilitate easy purchase and sale of financial assets. In doing so they provide liquidity to financial assets, so that they can be easily converted into cash whenever required. Holders of assets can readily sell their financial assets through the mechanism of the financial market.

(d) Reduce the cost of transactions: Financial markets provide valuable information about securities being traded in the market. It helps to save time, effort and money that both buyers and sellers of a financial asset would l-rave to otherwise spend to try and find each other. The financial market is thus, a common platform where buyers and sellers can meet for fulfillment of their individual needs.

Investors invest in share market. This way public savings gets converted as capital for industries and companies. When companies grow by using these funds the investors further invest in the market. This boosts the overall economy.

Correct option is (D) 30th January, 1992

Functions performed by Financial Market:

(a) Mobilization of savings and channeling them into the most productive uses: A financial market facilitates the transfer of savings from savers to the investors. It gives savers the choice of different investments and thus helps to channelize surplus funds into the most productive use.

(b) Facilitate price discovery: The forces of demand and supply help to establish a price for a commodity or service in the market. In the financial market, the households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market.

(c) Provide liquidity to the financial assets: Financial markets facilitate easy purchase and sale of financial assets. In doing so they provide liquidity to financial assets, so that they can be easily converted into cash whenever required. Holders of assets can readily sell their financial assets through the mechanism of the financial market.

(d) Reduce the cost of transactions: Financial markets provide valuable information about securities being traded in the market. It helps to save time, effort and money that both buyers and sellers of a financial asset would l-rave to otherwise spend to try and find each other. The financial market is thus, a common platform where buyers and sellers can meet for fulfillment of their individual needs.

• Securities and Exchange Board of India(SEBI) came into existence as a statutory body on January 30, 1992 under the Securities and Exchange Board of India Act 1992.
• its head office is in Mumbai. It has regional offices in Kolkata, Delhi and Chennai, SEBI is a statutory body regulating stock exchanges in India.

Objectives of SEBI:

• To protect the interest of investors in securities
• To encourage the development of securities market
• To regulate the securities market

Providing liquidity and marketability to existing securities.

Money Market is a market for short-term funds which deals in monetary assets whose period of maturity is upto one year.

Following are the money market instruments:

(a) Treasury Bills: Treasury bills (T-Bills) are issued by the Reserve Bank of India on behalf of the government of India as a short-term liability, and sold to the banks and to the public. The issue period ranges from 14 to 364 days. T-Bills are negotiable instruments, i.e., they are freely transferable. They are issued at a discount and redeemable at par.

(b) Commercial Paper: A commercial paper is an unsecured promissory note, issued by a corporate firm with a fixed maturity period which varies from 15 days to 12 months. Since a CP is unsecured, it is issued only by a highly creditworthy, reputed leading firms. The original purpose of commercial paper is to provide short-term funds for seasonal and working capital.

(c) Call Money: Call money is short-term finance repayable on demand with a maturity period of one day to fifteen days used for inter-bank transactions. It is primarily used by Commercial Banks to maintain a minimum cash balance known as cash reserve ratio (CRR) as stipulated by the RBI.

Money Market is a market for short-term funds which deals in monetary assets whose period of maturity is upto one year.

Following are the money market instruments:

(a) Treasury Bills: Treasury bills (T-Bills) are issued by the Reserve Bank of India on behalf of the government of India as a short-term liability, and sold to the banks and to the public. The issue period ranges from 14 to 364 days. T-Bills are negotiable instruments, i.e., they are freely transferable. They are issued at a discount and redeemable at par.

(b) Call Money: Call money is short-term finance repayable on demand with a maturity period of one day to fifteen days used for inter-bank transactions. It is primarily used by Commercial Banks to maintain a minimum cash balance known as cash reserve ratio (CRR) as stipulated by the RBI.

Money Market is a market for short-term funds which deals in monetary assets whose period of maturity is upto one year.

Following are the money market instruments:

(i) Treasury Bills: Treasury bills (T-Bills) are issued by the Reserve Bank of India on behalf of the government of India as a short-term liability, and sold to the banks and to the public. The issue period ranges from 14 to 364 days. T-Bills are negotiable instruments, i.e., they are freely transferable. They are issued at a discount and redeemable at par.

(ii) Call Money: Call money is short-term finance repayable on demand with a maturity period of one day to fifteen days used for inter-bank transactions. It is primarily used by Commercial Banks to maintain a minimum cash balance known as cash reserve ratio (CRR) as stipulated by the RBI.

Money Market is a market for short-term funds which deals in monetary assets whose period of maturity is upto one year.

Following are the money market instruments:

(a) Call Money: Call money is short-term finance repayable on demand with a maturity period of one day to fifteen days used for inter-bank transactions. It is primarily used by Commercial Banks to maintain a minimum cash balance known as cash reserve ratio (CRR) as stipulated by the RBI.

(b) Treasury Bills: Treasury bills (T-Bills) are issued by the Reserve Bank of India on behalf of the government of India as a short-term liability, and sold to the banks and to the public. The issue period ranges from 14 to 364 days. T-Bills are negotiable instruments, i.e., they are freely transferable. They are issued at a discount and redeemable at par.

(c) Trade Bills/Commercial Bills: Trade bills are bills drawn by one business firm on another to finance credit sales. They are self liquidating as the drawee has to honour them on the date of maturity. They are freely marketable. If sellers require funds before the maturity, he can get it discounted with the bank. It is known as commercial bill after acceptance of the trade bill by a Commercial Bank.

(d) Commercial Paper: A commercial paper is an unsecured promissory note, issued by a corporate firm with a fixed maturity period which varies from 15 days to 12 months. Since a CP is unsecured, it is issued only by a highly creditworthy, reputed leading firms. The original purpose of commercial paper is to provide short-term funds for seasonal and working capital.

(e) Certificate of Deposit: They are unsecured short-term negotiable instruments issued in bearer form. It is issued by the banks against deposits kept by companies and institutions. The tenure ranges from 91 days to one year. It helps to mobilise large amount of money for short period.

Securities and Exchange Board of India.

A capital market (locally – share market) is an organized market in which capital is raised by the investment made by general public in the form of shares, debentures, bonds, etc.

1. Primary market and
2. Secondary market.

• Investors invest in share market. This way public savings gets converted as capital for industries and companies.
• This way the industries form long term capital.
• When companies grow by using these funds the investors further invest in the market. This boosts the overall economy.
• Thus, capital market brings the money of individuals into the market and the money get invested in various industries which in turn boosts economic growth drastically.
• Thus, capital market is one of the strongest pillar for national economy.

Call money:

• In day to day transactions it is quite likely that each bank faces a shortage of money even for as short as 24 hours or even lesser. In such cases the bank may borrow money from another bank at an interest rate which is determined by the shortage of money or say demand or supply pattern in the market.
• This money is known as ‘Call money’ or ‘Inter-bank-call money’.

Notice money: When money is borrowed or lent for 2 to 14 days, it is called notice money.

The need of Call money and Notice money:

• Every commercial bank has to maintain minimum cash balance as per the
  rules and regulations of Reserve Bank of India. This is called cash reserve or cash reserve ratio (CRR).
• It is quite a routine that one bank borrows money from the other bank to maintain minimum cash balance. All the banks have to maintain ratio of cash reserve.
• This gives rise to the call money market. Call money market includes call money and notice money. No mortgage is to be given for call money and notice money.

Following is the brief description of money market instruments:

a. Treasury Bill: Treasury Bill means that short term instrument which the Central Government issues to the financial institutions or the general public in order to meet its short-term financial needs. Usually their maturity period is 14 days, 91 days, 182 days and 364 days. Treasury bills are of highly liquid nature because the RBI is ever-ready to buy them on discount. They are issued at less than the face value while the payment is made at the face value.

b. Commercial Paper (CP): Commercial Papers are those unsecured Promissory Notes which are issued by well-reputed companies. The minimum face value of a commercial paper is five lakh rupees. It is used to meet the demand of a short term seasonal need and the requirement of working capital. They are issued for a period of 15 days to 12 months.

Zero Coupon Bond means a financial instrument for which no interest is paid but it is issued at a discount.

• Treasury bills are issued by the central government to raise capital whereas commercial papers are issued by large private corporations having very high and strong reputation as well as financial credit in the market.
• Another name for T-Bills is ‘zero coupon bond’. Commercial paper is also called finance paper, industrial paper and corporate paper.

A T-Bill (Treasury bill) is a short term financial instrument (government security). It is issued by Reserve Bank of India on behalf of Government of India to raise short term fund for the central government.

Money Market is a market for short-term funds which deals in monetary assets whose period of maturity is upto one year.

Following are the money market instruments:

(a) Trade Bills/Commercial Bills: Trade bills are bills drawn by one business firm on another to finance credit sales. They are self liquidating as the drawee has to honour them on the date of maturity. They are freely marketable. If sellers require funds before the maturity, he can get it discounted with the bank. It is known as commercial bill after acceptance of the trade bill by a Commercial Bank.

(b) Commercial Paper: A commercial paper is an unsecured promissory note, issued by a corporate firm with a fixed maturity period which varies from 15 days to 12 months. Since a CP is unsecured, it is issued only by a highly creditworthy, reputed leading firms. The original purpose of commercial paper is to provide short-term funds for seasonal and working capital.

Money Market is a market for short-term funds which deals in monetary assets whose period of maturity is upto one year.

Following are the money market instruments:

(a) Treasury Bills: Treasury bills (T-Bills) are issued by the Reserve Bank of India on behalf of the government of India as a short-term liability, and sold to the banks and to the public. The issue period ranges from 14 to 364 days. T-Bills are negotiable instruments, i.e., they are freely transferable. They are issued at a discount and redeemable at par.

(b) Commercial Paper: A commercial paper is an unsecured promissory note, issued by a corporate firm with a fixed maturity period which varies from 15 days to 12 months. Since a CP is unsecured, it is issued only by a highly creditworthy, reputed leading firms. The original purpose of commercial paper is to provide short-term funds for seasonal and working capital.

Functions of financial market: 

(i) Capital formation:

• Capital is the main part of the functioning of the business.
• The capital market provides a channel through which savings flow to organizations in the form of capital.
• This leads to capital formation.

(ii) Transfer of Resources:

• The financial market is one of the key sources of transfer of resources.
• The financial market facilitates the transfer of real economic resources from lenders to ultimate users.

(iii) Mobilization of funds:

• Investors that have savings must be linked with corporate that require investment.
• The financial market enables the investors to invest their saving according to their choices and risk assessment.
• This will utilize funds and the economy will boom.

(iv) Price determination:

• The financial instruments traded in a financial market get their prices from the mechanism of demand and supply.
• The interaction between demand and supply will help to determine the prices.

Financial market plays an important role in the allocation of scarce resources in an economy by performing the follow ing four important functions. 

a. Mobilization of savings and channelizing them into the most productive uses: A financial market facilitates the transfer of savings from savers to investors. It gives choice to the saver of different investments and thus, it helps to channelize surplus funds into the most productive use.

b. Facilitate price discovery: In a financial market, the households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded-in that particular market.

c. Provides Liquidity to financial assets: Financial markets facilitate easy purchase and sale of financial assets. Holders of assets can readily sell their financial assets through the mechanism of financial market.

d. Reduces the cost of transactions: Financial markets provide valuable information about securities being traded in the market. It helps to save time, effort and money that both buyers and sellers of a financial asset would have to spend to try or otherwise find each other.

Functions performed by Financial Market:

(a) Mobilization of savings and channeling them into the most productive uses: A financial market facilitates the transfer of savings from savers to the investors. It gives savers the choice of different investments and thus helps to channelize surplus funds into the most productive use.

(b) Facilitate price discovery: The forces of demand and supply help to establish a price for a commodity or service in the market. In the financial market, the households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market.

(c) Provide liquidity to the financial assets: Financial markets facilitate easy purchase and sale of financial assets. In doing so they provide liquidity to financial assets, so that they can be easily converted into cash whenever required. Holders of assets can readily sell their financial assets through the mechanism of the financial market.

(d) Reduce the cost of transactions: Financial markets provide valuable information about securities being traded in the market. It helps to save time, effort and money that both buyers and sellers of a financial asset would l-rave to otherwise spend to try and find each other. The financial market is thus, a common platform where buyers and sellers can meet for fulfillment of their individual needs.

Capital Market: It refers to that market where transactions in long-term securities are made.

i. Primary Market: It refers to that market in which securities are sold for the first time for collecting long-term capital.

ii. Secondary Market: It refers to that market in which existing securities are bought and sold.

• At times, the buyers approach to the commercial banks to accept the commercial bill on the behalf of buyers. This means that in case the buyers are unable to make the payment to the sellers on maturity date, the banks will , make the payment. For this service, the banks charge a commission from the buyers.
• Such a scenario takes place when the buyer is new or unknown for the seller or if the seller wants to be double sure that he will receive his payment.

Government does not pay any interest to people who buy T-bills, but sells these bills at a discounted rate. Hence, T-bill is also called ‘zero coupon bond’.

T-Bill is issued by RBI on behalf of Government of India whereas commercial bill is issued by corporate companies.

The functions of SEBI can be divided into three parts:

I. Protective Functions: Following are the protective functions of SEBI:

i. To check unfair trade practices (such as, to supply misleading statements to cheat the investors) in connection with security market.

ii. To check insiders trading in securities. [Insider trading means the buying and selling of securities by those persons (Directors, Promoters, etc.) who have some secret information about the company and who wish to take the advantage of this secret information.)

iii. To provide education relating to dealing in securities to the investors.

iv. To promote code of conduct relating to security market.

II. Regulatory Functions: The following are the regulatory functions of the SEBI:

i. To regulate the business being done in the share market.

ii. To register brokers, sub-brokers, transfer agents, merchant banks, underwriters etc.

iii. To register and regulate the credit rating agency.

iv. To register and regulate the venture capital fund.

v. To carry out audit of share markets.

III. Developmental Functions: The following are the developmental functions of the SEBI:

i. To impart training to the intermediaries. (Intermediaries include share brokers, Subbrokers, Share Transfer Agents, Issue Registrars, Merchant Bankers, Portfolio Managers, etc.)

ii. To encourage self-regulating organisations.

iii. To carry on research work.

iv. To publish different kinds of information for the convenience of all the parties operating in the capital market.