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Unit 1: Introduction to Capital Market

Stock Exchange, Ahmedabad Stock Exchange and M.P. (Indore) Stock Exchange were organized Notes
as non-profit making association of persons, the Calcutta Stock Exchange, Delhi Stock Exchange,
U.P. Stock Exchange, Cochin Stock Exchange, Guahati Stock Exchange, Jaipur Stock Exchange
and (Mangalore) Stock Exchange were organized as public limited companies. Quite a few
others have been sent on company limited by guarantee. 19 stock exchanges were functional in
India as at the end of the year 1990.
The membership ranges from 69-650. The entrance fee is different for different stock exchange.
Membership deposit annually ranges from 69 to 650. The entrance fee is different for different,
among various exchanges. The internal governance of exchange rests with a governing board
comprising members of the board and executive director. Members of the governing boards
include brokers and non-brokers. Governing bodies of stock exchanges of government nominees,
however, are dominated by stock brokers. The Executive Direct/President is expected to ensure
the smooth functioning of the exchange. The position of Executive Director can't be expected to
be very strong because if he really tries to be may bring him into conflict with influential
broker-members who may also be on the exchange's board which determines the Executive
Director's terms and conditions of service and his reappointment at the end of his term. It is not
human nature to displease one's appointing authorities and it may be too much to expect the
Executive Director's to be strict under the present scheme of things. Subject to the previous
approval of the law, governing bodies of stock exchanges have wide powers to make bye-laws.
Governing bodies furnish, censure and also expel any member, any remiser, authorized clerk
and employee. They have to adjudicate disputes. Above all, they have the power to make,
amend, suspend and enforce rules, bye-regulations and supervise the entire functioning of a
stock exchange.

1.3.5 Trading System

Trading on stock exchanges is done through brokers and dealers. All members can act as brokers
and for this purpose they have to maintain security deposits. Brokers act as agents, buying and
selling or others for which they receive brokerage commission at stipulated rates. Dealers act as
principals and sell securities on their own accounts.
However, members cannot enter into contract with any person other than a member without
prior permission the governing body.
The stock exchange rules, bye laws and regulations have identified eight major functional
specialization the members.
1. Commission Broker: The commission broker executes buying and selling on the floor of
the stock exchange.

2. Floor Broker: Floor brokers are not many. They execute orders for fellow members and
receives a share brokerage commission charged by a commission broker to his/her
constituent.

3. Tataniwala: He/she is a jobber or specialist in selected shares he/she 'makes the market'
i.e. brings continuity to dealings. They specialize in stocks which are traded inactively.
4. Dealer in non-cleared securities: He/she deals in securities which are not on the active list.

5. Odd-lot Dealer: He/she specializes in buying and selling in amounts which are less than
present trading units. They buy and sell odd lots, make them up into marketable trading
units. These dealers receive commission. Their earnings come from the difference between
the process at which they buy and sell. The odd-lot dealer has become an important
operator since the growth of new issues. When the number of applicants for a new issue is
large, shares may be allotted in lots which are smaller than prescribed lots. The odd-lot

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