What is Bombay Stock Exchange (BSE)? State listing procedure in BSE

 Q. What is Bombay Stock Exchange (BSE) ? State in detail the procedure of listing of securities in BSE.

Ans. MEANING OF BOMBAY STOCK EXCHANGE (BSE): The brand name of Bombay Stock Exchange is BSE. It was established in 1875. It is the Asia’s first and fastest stock exchange. It was established as “The Native Share and Stock Brokers’ Association”. Now BSE is a corporatised and demutualised entity. The Deutsche Brouse and Singapore Exchange are its strategic partners. It is also known as world’s no. 1 exchange in terms of listed members. More than 5500 companies are listed on BSE. BSE is the first exchange in India and second in the world who obtained as ISO 9001-2000 certification. It has also received Information Security Management System Standard BS 7799-2-2002 certification for its On-Line Trading System (BOLT) and thus become India’s first and world’s second exchange for obtaining such certificate.

What BSE is today, it was not from the beginning. The brokers started meeting in natural environment under banyan tree in front of town hall. A decade later they shift their venue to meadows Street. That too was also under banyan trees. The number of brokers goes on increasing and they had to shift from place to place. In 1874, the brokers found a place which is now known as Dalal street.

LISTING PROCEDURE AT BSE: The listing procedure at BSE is as follows: 

1. Permission to Use the Name of BSE in an Issuer Company’s Prospectus: The companies desiring to list their securities offered through a public issue have to obtain prior permission from BSE to use the name of BSE in their prospectus or offer for sale documents before filling the same with the Registrar of companies. BSE  has a listing company which decides upon the matter of granting permission to companies. This Committee evaluates the promoters, company, project, financials, risk factors and several other aspects before reaching to any decision.

2. Submission of Letter of Application: The company seeking listing of its securities as per section 40(1) of Companies Act, 2013 is required to submit an application to all stock exchanges where it proposes to have its securities listed.

3. Allotment of Securities: As per listing agreement, a company is required to complete the allotment of securities offered to the public within 30 days of the date of closure of the subscription list. The basis of allotment should be approved by designated stock exchange. In case of Book Building issues, allotment should be made within 15 days from the date of closure of issue. Otherwise interest at the rate of 15 per cent shall be paid to investors.

4. Trading Permission: As per SEBI guidelines, an issuer company has to complete the formalities for trading within 7 working days of finalisation of the basis of allotment. A company has to complete all the formalities related to allotment of securities, dispatch of allotment letters, credit in depository accounts and refund orders for obtaining listing permissions.

5. Requirement of 1% Security: Companies making public or right issues are required to deposit 1% of the issue amount with the designated stock exchange before the issue opens. This amount is liable to be forfeited in the event of the company not resolving the complaints of investors regarding delay in sending refund orders, credit in depository accounts, non-payment of commission to brokers or underwriters, etc.

What is Secondary Market? Explain major defects of Secondary Market.

 Q. What is Secondary Market? Explain the major problems or defects of Secondary Market.

Ans. MEANING OF SECONDARY MARKET: The market where the outstanding securities are traded is known as secondary market. This market is popularly known as stock market or stock exchange. In this market, the investors can sell and buy shares or debentures of companies. Stock markets deal in equity shares primarily, but the debt instruments like bonds and debentures are also traded in stock market. The growth of primary market depends on the secondary market. It also promotes capital formation. 

Definition: The Securities Contracts (Regulation) Act, 1956 defines a stock exchange as “an established association, organisation or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities.” 

MAJOR PROBLEMS OR DEFECTS OF SECONDARY MARKET: The Indian Secondary Market is suffering from certain defects. These are:

1. Weak Management of Stock Exchanges: The management of stock exchanges is weak and deficient in India. The Indian stock exchanges are governed by the member brokers for their own benefit. The Executive Director has also failed to perform his regulatory functions freely as he is also responsible to the governing body. 

2. Lack of Integration: There are 23 stock exchanges in India which are scattered throughout the country. But these exchanges lack in integration. Due to lack of integration among the stock exchanges, the prices of securities vary considerably between different markets at the same time.

3. Arbitrary Classification of Specified and Non-specified Shares: The Indian stock exchanges have been following an arbitrary practice of classifying listed shares into specified and unspecified groups. This type of arbitrary categorisation favours artificial encouragement to a few large companies and promotes speculation in it. 

4. Ignoring Investors’ Interest: The Indian stock exchanges are ignoring the genuine interests of investors. Complaints made by investors remain uncared and unattended.

5. Domination of Financial Institution: Indian capital market is dominated by financial institutions and big operators. UTI, LIC, GIC, ICICI and 3-4 big operators are the main players in the Indian stock markets. Transactions done by these institutions set the trend in the market. If these institutions buy the stocks, the market gets bullish and on the reverse side, the market becomes bearish because of selling by them. Individual investor has no say in the stock market. 

6. Poor Liquidity: The Indian stock exchanges suffer from poor liquidity. A small number of stocks are traded everyday and most of the times, thin volumes can be seen at the stock exchanges. 

7. Less Floating Stocks: Scarcity of floating stocks in the Indian stock exchanges is another reason for their weaknesses. The shares and debentures offered for sale are a small portion of total stock. Financial institutions do not offer the scrips they have purchased for sale. It creates shortage of floating stocks.

What is Secondary Market? Explain the major defects of Secondary Market.