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Indian Financial System
Notes 6.5 Listing Agreement
A listing agreement is, in a sense, the code of discipline which the stock exchange(s) impose on
a company as a condition precedent to listing its securities. Every listing company has certain
obligations and is required to comply with the various clauses of the listing agreement. It is
executed at the time of initial listing of securities of the company. Though it is signed only by the
company (and not by the stock exchange), it is binding on the company. The listing agreement
is amended from time to time on the directions given by SEBI to the Governing Council of the
stock exchange(s). The stock exchange(s) communicate the amendments to the companies and
they come into force on the specified date. The threshold limit for listing of new companies is as
follows:
For Category I companies: (i) post-issue capital of ` 10 crore and above, (ii) post-issue net worth
of ` 20 crore and (iii) the project/activity of the applicant must have been appraised by a
financial institution/state finance corporation/bank with paid-up capital of ` 50 crore or Category
I merchant banker with a net worth of ` 10 crore.
For Category II companies: (i) post-issue capital of ` 5 crore and above but below ` 10 crore, (ii)
post-issue net worth of ` 20 crore, (iii) minimum market capitalization (i.e., issue price x post-
issue subscribed number of equity shares) of ` 50 crore and (iv) the project/activity should have
been appraised as in the case of Category I companies. All applications for listing would be
scrutinized by the listing committee of the stock exchange.
The listing agreement for equity shares contains 51 clauses including Clause 49 on Corporate
Governance. This Section focuses on Clause 49.
Self Assessment
Fill in the blanks:
1. A ………………………… is, in a sense, the code of discipline which the stock exchange(s)
impose on a company as a condition precedent to listing its securities.
2. ………………..means the admission of securities of a company to trading privileges on the
floor of a stock exchange.
3. The first ………………………stock exchange in India was started in Mumbai known as
Bombay Stock Exchange (BSE).
4. The buyers and sellers at the stock exchange undertake two types of operations, one for
………………………… and the other for investment.
5. The ……………………………has defined stock exchange as an "association, organisation
or body of individuals, whether incorporated or not, established for the purpose of assisting,
regulating and controlling business of buying, selling and dealing in securities".
6.6 Trading System in Stock Market
Exchanges have a trading floor where the buying and selling of securities take place. Individuals
or firms (brokers) are required to purchase a seat or membership of the stock exchange in order
to obtain the right to trade securities there. The trading that takes place on the floor of the stock
exchange resembles an auction, as members trying to sell a client's stock strive to obtain the
highest price possible, while those representing the buyer-clients strive to obtain the lowest
price possible. When members announce their intention to buy or sell a certain number of
shares of a certain stock, they receive bids or offers as the case may be from other members.
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