Introduction:

A stock market, equity market, or share market is the aggregation of buyers and
sellers of stocks (also called shares), which represent ownership claims on

businesses; these may include securities listed on a public stock exchange, as

well as stock that is only traded privately, such as shares of private companies

which are sold to investors through equity crowd funding platforms. Investment
in the stock market is most often done via stockbrokerages and electronic

trading platforms. Investment is usually made with an investment strategy in

mind. Stocks can be categorized by the country where the company is domiciled.

For example, Nestlé and Novartis are domiciled in Switzerland and traded on
the SIX Swiss Exchange, so they may be considered as part of the Swiss stock

market, although the stocks may also be traded on exchanges in other countries,
for example, as American depositary receipts (ADRs) on U.S. stock markets.

Equity market is a place where stocks and shares of companies are traded. The

equities that are traded in an equity market are either over the counter or at
stock exchanges. Often called as stock market or share market, an equity market

allows sellers and buyers to deal in equity or shares in the same platform. First
things first, it is important to begin with a good understanding of what is equity

market in the Indian context. Equity market, often called as stock

market or share market, is a place where shares of companies or entities are

SREE KRISHNA DEVARAYA UNIVERSITY

Page 1
traded. The market allows sellers and buyers to deal in equity or shares in the

same platform.

In the global context, equities are traded either over the counter or at stock

exchanges. There are multiple buyers and sellers of the same equity/share.
Hence, you stand a good chance to strike a nice deal at the equity market. If

you want to begin online equity trading in India, you have to get a demat
account. Open a demat account in simple steps. Equities are mostly traded on

the stock exchanges in India.

In the Indian stock market, equities are available for trading at the National

Stock Exchange (NSE) , the Bombay Stock Exchange (BSE) and the latest entrant,
Metropolitan Stock Exchange of India (MSE). Shares of stock market listed

companies are bought/sold. Equity share trading is roughly in two forms

- spot/cash market and futures market. These are the different types of equity

market in India. The spot market or cash market is a public financial market in
which stocks are traded for immediate delivery. The futures market is a place

where the shares' delivery is due at a later date. With the help of an equity
trading account, a trustworthy broker like Nirmal Bang and online equity

trading systems, investors can utilize the Indian equity market..

SREE KRISHNA DEVARAYA UNIVERSITY

Page 2
History:
 The history of stock markets isn’t as clear as it could be. Many scholars claim that
stock trading began in the early 17th Century, although there is evidence that this
goes all the way back to ancient Rome, where there are records that shares were
traded, as evidenced by Cicero’s claim that shares were trading at a high price at the
time of one of his speeches.

In order for shares to have a value like this, there would have to be a market for
them, so we could say that there was a stock market of some type this far back in
time.

It wasn’t until many centuries later that securities trading resurfaced, once again in
Italy, where city-states started issuing tradeable government bonds  during the late
Middle Ages.

In 1602, the world’s first formal stock exchange was created, the Amsterdam Stock
Exchange, initially to promote the trading of securities issued by the Dutch East
India Company, the first company to issue corporate bonds  and stock to the public.
This was the first instance of what we would consider to resemble modern stock
markets, with things like shares, dividends, advice preaching patience in holding
stocks for the long term for capital appreciation, and so on.

This is what stock exchanges do primarily, they allow for the trading of securities
among parties who are looking to buy and sell them, in other words they are
secondary markets even though they may also handle primary issues as well.

For something to be called a stock market or financial market as we now know and
define it, there does have to be the trading of securities involved, and this was the
case with the issues of the Dutch East India Company

This period also produced the first book written about stock market trading , in 1688,
called Confusion of Confusions, written by Joseph de la Vega, a successful stock
trader of the day. It described the workings of the Amsterdam stock market and
provided general advice on being successful in this enterprise.

SREE KRISHNA DEVARAYA UNIVERSITY

Page 3
After the success of the Amsterdam Stock Market, the idea of creating other stock
markets spread, although it took almost a century for this to catch on elsewhere. In
the late 17th century, King William III of England sought a way to help pay for the
country’s wars, and started issuing government bonds, which led to the
establishment of the Bank of England.

As people bought these bonds, this created an interest in trading them, and private
companies decided to get in on the action themselves by issuing their shares to the
public, which also sparked interest in trading, as public stock always does.

This is the idea behind a public stock or bond issue, and this does require a
mechanism in place for people who buy these issues to sell them to others, and for
others to buy the stock or bonds after they are issued, not from the issuer but from
the public holding the securities.

The natural place for this stock trading activity to take place in London was at the
Royal Exchange, which at the time was the center of commerce in the city for over a
hundred years. Around the time that stock trading and stock brokers started to catch
on in London, new regulations along with their perceived rudeness ended up driving
out the new stock brokers, who ended up locating a short distance away at
Jonathan’s Coffee House.

Several other coffee houses in the area also took in stockbrokers, as well as their
customers, and this area became known as Exchange Alley. These coffee houses
were the forerunner of the London Stock Exchange. One of them, Lloyd’s Coffee
Shop, grew to become Lloyd’s of London, one of the world’s largest insurance
underwriters.

These coffee houses posted securities trading prices on their boards and patrons
would visit to trade the securities. It wasn’t until 1801, a century after Exchange
Alley was founded, that the London Stock Exchange was founded, and while some
stock traders were initially reluctant to make the move, before too long the London
Stock Exchange became the center of financial trading in the city.

SREE KRISHNA DEVARAYA UNIVERSITY

Page 4
Around the time of the official founding of the London Stock Exchange, the first
securities became traded in the United States, by way of the Buttonwood Agreement
of 1792. Government bonds were initially traded, along with the stock of a handful of
banks.

As was the case in London, the precursor of the New York  Stock Exchange got its
start at a coffee house, but in this case they decided to rent out a dedicated trading
space fairly early in their history.

This organization expanded during the early 19th century, to become the New York
Stock and Exchange Board in 1817, later to be known as simply the New York Stock
Exchange, or NYSE. The NYSE quickly became dominant among American stock
markets.

In 1864, a new and strong competitor emerged on the scene, the Open Board of
Stock Brokers was created, who offered a more modern system of financial trading
and quickly grew to having almost as many members as the NYSE. The response
from the NYSE was to merge with them 5 years later.

There are now several other major stock exchanges located in various parts of the
world, in addition to many smaller exchanges. The top 10 in terms in order of market
capitalization are the NYSE, the NASDAQ , the London Stock Exchange, the Japan
Exchange Group, the Shanghai Stock Exchange, the Hong Kong Stock Exchange,
Euronext, the Shenzhen Stock Exchange, the Toronto Stock Exchange, and the
Deutsche Borse.

Traditional securities trading is done by way of what is called open outcry, and
although floor traders certainly are well assisted by communications technology
these days, this traditional form of trading is still very popular.

Electronic trading  has been around for quite a while now though. The NASDAQ was
founded all the way back in 1971, and this was well before computers really made
much of a dent into modern society, so it’s not that the securities industry lagged
here as far as taking advantage of computers goes.

The NASDAQ, currently the second largest stock exchange in the world, is entirely
based upon a network of computers, computers communicating with computers in
other words. There is no exchange floor or person to person trading involved.

On electronic exchanges such as the NASDAQ, people still deal with market makers,
securities firms, like they do on traditional exchanges, but things are simply more
efficient. Securities firms can also trade with each other more easily and efficiently,
intra-dealer trading as it’s called, which used to take place over the phone but is now
done electronically.

SREE KRISHNA DEVARAYA UNIVERSITY

Page 5
As time goes on, more and more trading is being done electronically, and some day
all trading may be done this way, although old habits are hard to break. Electronic
trading does benefit traders more though and while computers play a very big role in
all trading these days, for instance with order entry and a lot of the execution, seeing
the entire trade migrate to electronic means is the ultimate in efficiency.

Stock markets have certainly come a long way since they first emerged, but in some
ways they haven’t really changed that much, as it’s still all a matter of bringing
buyers and sellers together in a forum that allows them to easily do business, which
is what stock markets are all about.

Emergence of financial system

The economic development of any country depends on the existence of a well

developed financial system. It is the financial system which supplies the necessary
financial inputs for the production of goods and services that in turn promote to the
well being and standard of living of the people of a country. It intermediates with the
flow of funds between those who save a part of their income to those who invest in
productive assets2. The major assets traded on the financial system are money and
monetary assets. The responsibility of the financial system is to mobilize savings in the
form of money and monetary assets and invest them in productive ventures.

All economies operate with stock of real and financial assets. Real assets may be
tangible and intangible. Tangible real assets are land and natural resources, buildings,
inventories, equipment, durables, infrastructure and so on. Intangible real assets are
human capital, organizational systems, Government and so on. Every asset represents
savings either by the owner himself or by the lenders of surplus savings. Most of the

SREE KRISHNA DEVARAYA UNIVERSITY

Page 6
real assets are financed through borrowings (suppliers of surplus savings) financial
assets or claims or securities or instruments come into existence to enable transfer of
savings for investment Financial assets may be classified as equity instruments, debt
instruments, deposits, units, insurance policies and so on.

In a modern market economy, the real and financial assets must interact for the
process of the capital formation to take place. A financial system is a complex, well-
integrated set of sub-systems of financial institutions, markets, instruments, and
services which facilitate the transfer and allocation of funds, efficiently and effectively.
These four subsystems do not function in isolation. They are interdependent and
interact continuously with each other. Their interaction leads to the development of a
smoothly functioning financial system. It performs the essential economic function of
transfer of surplus funds from lenders (households, business firms, Government and
foreigners) to who (households, business firms, Government and foreigners) have
shortage of funds.

Financial institutions or intermediaries mobilize savings by issuing different types of

financial instruments which are traded in financial markets. To facilitate the credit
allocation process, they acquire specialization and render specialized financial services.
The mechanism or system through which financial assets are created and transferred is
referred as financial market. In the financial markets there are two kinds of people,
they are primary lenders or investors and ultimate borrowers. The people who spend
less money than their income are called primary lenders or investors.

SREE KRISHNA DEVARAYA UNIVERSITY

Page 7
The people who spend more money than their income are called ultimate borrowers.
The instrument between primary lenders and ultimate borrowers is called financial
assets.
For example if the investor deposits the money in the fixed deposits of a commercial bank,
the bank issues a fixed deposit receipt which is known as financial asset.

Financial market deals in financial securities or instruments and financial

services. It may be variously classified as primary and secondary, money markets and
capital markets, organized and unorganized markets, official and parallel markets and
foreign and domestic markets. Financial markets provide money and capital supply to
the industrial concerned as well as promote the savings and investment habits of the
public6. In simple census financial market is a market which deals with various
financial instruments (shares, debentures, bonds, treasury bills, commercial bills etc)
and financial services (merchant banking, underwriting etc)
In financial markets, funds or savings are transferred from surplus units to
deficit units. A financial market comprises players such as banking and non-banking

SREE KRISHNA DEVARAYA UNIVERSITY

Page 8
financial institutions, dealers, borrowers and lenders, investors and depositors and
agents. These participants take an active part in driving demand and supply in the
financial market.

SREE KRISHNA DEVARAYA UNIVERSITY

Page 9
SREE KRISHNA DEVARAYA UNIVERSITY
Page 10
Financial market deals in financial securities or instruments and financial services. It
may be variously classified as primary and secondary, money markets and capital
markets, organized and unorganized markets, official and parallel markets and foreign
and domestic markets. Financial markets provide money and capital supply to the
industrial concerned as well as promote the savings and investment habits of the
public. In simple census financial market is a market which deals with various
financial instruments (shares, debentures, bonds, treasury bills, commercial bills etc)
and financial services (merchant banking, underwriting etc)….

In financial markets, funds or savings are transferred from surplus units to

deficit units. A financial market comprises players such as banking and non-banking
financial institutions, dealers, borrowers and lenders, investors and depositors and
agents. These participants take an active part in driving demand and supply in the
financial market. Financial markets are classified as money market and capital market.
Money market deals with short term claims or financial assets for a period less than a
year, capital market deals with those financial assets which have maturity period of more
than a year. Yet another classification could be primary markets and secondary
markets. Markets that deal in new issues of securities are called primary markets and
secondary markets deals in securities, which are already issued and available in the
market for trading. Capital markets are the financial markets in which corporate equity
and long term debt are issued and traded. Capital market works as conduit for demand
and supply of long term debt and equity capital. Capital markets are the means through
which small and scattered savings of the investors are directed into productive activities
of corporate entities.

SREE KRISHNA DEVARAYA UNIVERSITY

Page 11
Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200
years ago.
The earliest records of security dealings in India are meagre and obscure. The East India
Company was the dominant institution in those days and business in its loan securities
used to be
transacted towards the close of the eighteenth century.
By 1830's business on corporate stocks and shares in Bank and Cotton presses took place
in
Bombay. Though the trading list was broader in 1839, there were only half a dozen
brokers
recognized by banks and merchants during 1840 and 1850.
The 1850's witnessed a rapid development of commercial enterprise and brokerage
business
attracted many men into the field and by 1860 the number of brokers increased into 60.
In 1860-61 the American Civil War broke out and cotton supply from United States of
Europe
was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to
about
200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump
began
(for example, Bank of Bombay Share which had touched Rs 2850 could only be sold at
Rs. 87).
At the end of the American Civil War, the brokers who thrived out of Civil War in 1874,
found a
place in a street (now appropriately called as Dalal Street) where they would
conveniently

SREE KRISHNA DEVARAYA UNIVERSITY

Page 12
assemble and transact business. In 1887, they formally established in Bombay, the
"Native Share
and Stock Brokers' Association" (which is alternatively known as " The Stock Exchange
"). In
1895, the Stock Exchange acquired a premise in the same street and it was inaugurated in
1899.
Thus, the Stock Exchange at Bombay was consolidated.
Other leading cities in stock market operations
Ahmedabad gained importance next to Bombay with respect to cotton textile industry.
After
1880, many mills originated from Ahmedabad and rapidly forged ahead. As new mills
werefloated, the need for a Stock Exchange at Ahmedabad was realized and in 1894 the
brokers

formed "The Ahmedabad Share and Stock Brokers' Association".

What the cotton textile industry was to Bombay and Ahmedabad, the jute industry was
to

Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta.
After

the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares, which
was

followed by a boom in tea shares in the 1880's and 1890's; and a coal boom between
1904 and

1908. On June 1908, some leading brokers formed "The Calcutta Stock Exchange
Association".

In the beginning of the twentieth century, the industrial revolution was on the way in
India with

SREE KRISHNA DEVARAYA UNIVERSITY

Page 13
the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel Company
Limited

in 1907, an important stage in industrial advancement under Indian enterprise was

reached.

Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies
generally

enjoyed phenomenal prosperity, due to the First World War.

In 1920, the then demure city of Madras had the maiden thrill of a stock exchange
functioning in

its midst, under the name and style of "The Madras Stock Exchange" with 100 members.

However, when boom faded, the number of members stood reduced from 100 to 3, by
1923, and

so it went out of existence.

In 1935, the stock market activity improved, especially in South India where there was a
rapid

increase in the number of textile mills and many plantation companies were floated. In
1937, a

stock exchange was once again organized in Madras - Madras Stock Exchange
Association (Pvt)

Limited. (In 1957 the name was changed to Madras Stock Exchange Limited).

Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with
the

Punjab Stock Exchange Limited, which was incorporated in 1936.

Indian Stock Exchanges - An Umbrella Growth

The Second World War broke out in 1939. It gave a sharp boom which was followed by
a slump.
SREE KRISHNA DEVARAYA UNIVERSITY
Page 14
But, in 1943, the situation changed radically, when India was fully mobilized as a supply
base.

On account of the restrictive controls on cotton, bullion, seeds and other commodities,
those

dealing in them found in the stock market as the only outlet for their activities. They
were

anxious to join the trade and their number was swelled by numerous others. Many new

associations were constituted for the purpose and Stock Exchanges in all parts of the
country

were floated.

The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited
(1940) and

Hyderabad Stock Exchange Limited (1944) were incorporated.

In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and
the

Delhi Stocks and Shares Exchange Limited - were floated and later in June 1947,
amalgamated

into the Delhi Stock Exchange Association Limited.

Post-independence Scenario

Most of the exchanges suffered almost a total eclipse during depression. Lahore
Exchange was

closed during partition of the country and later migrated to Delhi and merged with
Delhi Stock

Exchange.

SREE KRISHNA DEVARAYA UNIVERSITY

Page 15
Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963.

Most of the other exchanges languished till 1957 when they applied to the Central
Government

for recognition under the Securities Contracts (Regulation) Act, 1956. Only Bombay,
Calcutta,

Madras, Ahmedabad, Delhi, Hyderabad and Indore, the well-established exchanges,

were

recognized under the Act. Some of the members of the other Associations were
required to be

admitted by the recognized stock exchanges on a concessional basis, but acting on the
principle

of unitary control, all these pseudo stock exchanges were refused recognition by the
Government

of India and they thereupon ceased to function.

Thus, during early sixties there were eight recognized stock exchanges in India
(mentioned

above). The number virtually remained unchanged, for nearly two decades. During
eighties,

however, many stock exchanges were established: Cochin Stock Exchange (1980), Uttar
Pradesh

Stock Exchange Association Limited (at Kanpur, 1982), and Pune Stock Exchange
Limited

SREE KRISHNA DEVARAYA UNIVERSITY

Page 16