Page 27 - DCOM507_STOCK_MARKET_OPERATIONS

Stock Market Operations

Notes

Caselet Reforms at Bombay Stock Exchange, Asia’s Oldest
Stock Exchange: The Competitive Strategies

he Bombay Stock Exchange (BSE), which is the largest stock exchange in Asia,
witnessed a profound transformation in its business operations. From being a
Tregional stock exchange, it has emerged as one of the important institutions for
transferring savings into investments, in the country. Between 1990 and 2003, BSE witnessed
a series of stock market scams, which involved more than 5,000 rupee crores of investors’
money. BSE faced criticism from industry experts, analysts, policy makers and politicians
for being non-transparent, unregulated and taking inadequate measures for investors’
protection. To overcome these challenges, BSE launched a series of measures in the late
1990s and with the advent of reforms, BSE witnessed notable developments in many areas
such as: (1) trading; (2) operations; (3) management; and (4) addressing investors’ grievances.
The Government of India also took steps to corporatise the stock exchange, thereby
separating trading, ownership and management. Finally, on the August 9, 2005, BSE created
history by converting itself into a corporate entity, thereby forming BSE Limited.

Source: http://www.ibscdc.org/Case_Studies/Strategy/Corporate%20Strategy/COS0064.htm
2.2 Securities Market and Financial System

The securities market has two interdependent and inseparable segments, the new issues (primary
market) and the stock (secondary) market.

2.2.1 Primary Market

The primary market provides the channel for sale of new securities. Primary market provides
opportunity to issuers of securities; government as well as corporates, to raise resources to meet
their requirements of investment and/or discharge some obligation.

They may issue the securities at face value, or at a discount/premium and these securities may
take a variety of forms such as equity, debt, etc. They may issue the securities in domestic market
and/or international market.
The primary market issuance is done either through public issues or private placement. A public
issue does not limit any entity in investing while in private placement, the issuance is done to
select people. In terms of the Companies Act, 1956, an issue becomes public if it results in
allotment to more than 50 persons. This means an issue resulting in allotment to less than 50
persons is private placement. There are two major types of issuers who issue securities. The
corporate entities issue mainly debt and equity instruments (shares, debentures, etc.), while the
governments (central and state governments) issue debt securities (dated securities, treasury
bills).

Did u know? The price signals, which subsume all information about the issuer and his
business including associated risk, generated in the secondary market, help the primary
market in allocation of funds.

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