>> March 31, 2011

"What are recent developments in the Indian Capital Market?" is not only important question for finance students but there are large number of investors, researchers and companies may also be interested in this topic. Even, I am not personally interested in this market but as a teacher and being an Indian, I want to know its recent developments and its effect on our economy. So, I will cover new things which shows the latest development of Indian capital market.

1. New Measures of Risk Management System in Indian Capital Market

Every shareholder or investor wants to protect his investment and promote it as his source of earning. So, my always concentration is on new measures the Risk management system of SEBI which is the controller of Indian Capital Market. SEBI did several steps in this regards.

{ A } Measures for Reducing Price Volatility

Price volatility  is the relative rate at which the price of a security moves up and down.

But this technique of profit maximization which is used by bad guys for wrong purposes. They buys shares at very cheap rates and sell when overpriced. Because, they get idea of trend of next price of shares with invalid source instead of using mathematical formula which is given below

$\sigma_T = \sigma \sqrt{T}.\,$

Using a simplification of the formulas above it is possible to estimate annualized volatility based solely on approximate observations. Suppose you notice that a market price index, which has a current value near 10,000, has moved about 100 points a day, on average, for many days. This would constitute a 1% daily movement, up or down.

Volatility is often viewed as a negative term in the market that represents uncertainty and risk. Higher volatility brings worry to the investors as they watch the value of their portfolios move wildly and decrease in value. To reduce price volatility and stability in the prices of stock market, A major reform undertaken by SEBI was the introduction of derivatives products: Index futures, Index options, stock options and stock futures.

{B} Place Circuit Breakers

This is another recent development in Indian Capital Market. We all know an excessive speculation is always risky for every investor. For reducing it, SEBI has introduced place circuit breakers.

A circuit breaker is the system which stops to trade in stock market when prices move after a specific level. For example, if a stock is at Rs. 100 and circuit breaker is fixed at 5%, then stock trading will stop if it hit of Rs. 95 or Rs. 105. There are mainly two types of circuit breakers. One is index wise circuit breakers and other is stock wise circuit breakers.

The index-based market-wide circuit breaker system applies at 3 stages of the index movement, either way viz. at 10%, 15% and 20%. These circuit breakers when triggered bring about a coordinated trading halt in all equity and equity derivative markets nationwide. The market-wide circuit breakers are triggered by movement of either the BSE Sensex or the NSE S&P CNX Nifty, whichever is breached earlier. In case of a 10% movement of either of these indices, there would be a one-hour market halt if the movement takes place before 1:00 p.m. In case the movement takes place at or after 1:00 p.m. but before 2:30 p.m. there would be trading halt for ½ hour. In case movement takes place at or after 2:30 p.m. there will be no trading halt at the 10% level and market shall continue trading. In case if the market hits 10% before 1 p.m. then as explained there would be a one hour halt in trading and after resumption of trade in case if the market hits 15% in either index, then there shall be a two-hour halt. If the 15% trigger is reached on or after 1:00p.m. but before 2:00 p.m., there shall be a one-hour halt. If the 15% trigger is reached on or after 2:00 p.m. the trading shall halt for the remaining part of the day. link

Intraday Trading, also known as Day Trading, is the system where you take a position on a stock and release that position before the end of that day's trading session. Thereby making a profit for yourself in that buy-sell or sell-buy exercise. All in one day.

{D} Mark to Market Margin

MTM margin is imposed to cover loss that a member may incur, in case the transaction is closed out at a closing price different from a price at which the transaction has been entered.

It is just collection in cash for all futures contracts and adjusted against the available Liquid Networth for option positions. In the case of futures Contracts MTM may be considered as Mark to Market Settlement.

2.  Investigations

If any company law or SEBI Act's rules regarding indian capital market are voilated, its investigation is done by SEBI. This is the list of cases resulted in compounding in the prosecution filed by SEBI (As on 30th June 2010). See PDF

3. Investor Awareness Campaign

For making Indian capital market more secure for indian and foreign investors, SEBI has started investors awareness campaign. For this, SEBI has made his official site's sub domain at http://investor.sebi.gov.in/
Under this campaign, Workshops/ Seminars Conducted by Investor Associations recognised by SEBI. There are following things are included :

Caution to Investors

Do not enter into securities transactions with unregistered intermediaries.
·        Do not get carried away by advertisements promising unrealistic gains and windfall profits.
·        Do not invest based on market rumours or unconfirmed or unauthentic news.
·        Be aware that advice through television or print media does not mean that it is the opinion of the channel or publisher.

4. Ban on Inside Trading

Insider trading is the trading of a corporation's stock or other securities (e.g. bonds or stock options) by individuals with potential access to non-public information about the company. In most countries, trading by corporate insiders such as officers, key employees, directors. To ban on inside trading,  SEBI has made ( Prohibition of Insider Trading) Regulations, 1992. Its updated amendment in 2010 says in clear words

No insider shall—19[when in possession of] any unpublished price sensitive information; [(ii) communicate 21[or] counsel or procure directly or indirectly any unpublished price sensitive that nothing contained above shall be applicable to any communication required in22[or profession or employment] or under any law.] [***]
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company while in possession of any unpublished price sensitive information.]
[3A. No company shall deal in the securities of another company or associate of that other
3.
(i) either on his own behalf or on behalf of any other person, deal in securities of a company listed
on any stock exchange
or

20
information to any person who while in possession of such unpublished price sensitive
information shall not deal in securities :

Provided
the ordinary course of business

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5. Trading Cycle Under T + 2

T' represents the trade day. 'T + 2' implies the settlement on the 2th trading day. SEBI has reduced the settlement cycle upto T +2 and in future, it may be T + 1 settlement cycle. But SEBI accepted shorter settlement cycles will mean more pressure on trade processing systems so that funds/securities are ready for pay-in/pay-out on the next day.

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Anonymous,

thank u very much for brief explanation

vekaashini

very nice,it is very helpful to my mba syllabus

Anonymous,

thank you

atul,

thanks for such information

Manish Paliwal

really very helpful , love to get it