Functioning Of Stock Exchange: Listing of shares, on a stock exchange, means, such shares can be bought and sold, in stock exchange. A Company, which intends to issue shares, through prospectus, shall have to apply to one or more stock exchanges, for getting its shares listed. The detailed and elaborate procedure of getting the shares listed on a stock exchange is monitored by SEBI. The SEBI, issues guidelines and notifications, from time to time, with regard to listing of securities.
Once the shares are listed, the are divided into two categories: 1. GROUP "A" SHARES
2. GROUP "B" SHARES
GROUP "A" SHARES: are referred to as " Cleaned Securities " or " specified shares". The facility for carrying forward a transaction from one account period to another is available for these shares. Group "A" shares represent companies, with huge amount of capital, and equally a large scope for investment. These shares are frequently traded and command higher price earning multiples.
GROUP "B" SHARES: are referred to as, Non cleaned securities or non-specified shares. For these groups facility of carrying forward is not available.
Whenever a share is moved from Group "B" to Group "A" its market price rises; likewise, when a share is shifted from Group "A" to Group "B", its market price declines. There are some criteria and guide lines, laid down by stock exchange, for shifting stocks from the non-specified list to the specified list. Various Orders And Transactions: Settlement Cycles: There are various types of orders, which can be placed by the buyer or seller. They are:
A market order is to be executed as soon as possible at the best prevailing price in the market.
A limit order is constrained by the price limits specified by the investor. The seller specifies the minimum price that the security must fetch, and the buyer specifies the maximum price that he is willing to pay.
A day order remains valid only for the day when it is placed. If the order is not executed on that day, it automatically lapses.
A week order is one, which is active for a week
A month order is an order, which is valid for one month.
An open order is an order, which is valid for one month. An open order remains in effect until it is executed or cancelled. Similarly there are certain types of transactions, which are allowed on the stock exchanges. They are:
Transactions for Spot delivery. The delivery and payment is effected within the time or on the date stipulated when entering into the transaction or within fourteen days, whichever is shorter. Transaction for Hand delivery. These transactions also referred to as the transaction for "the account", are cleared and settled through the clearing house.
Transactions for special delivery. The delivery and payment is effected within any time exceeding fourteen days following the date of the contact as may be stipulated when entering into the transaction, provided the same is permitted by the governing board or the president of the exchange.
How Does Trading Takes Place: Trading of shares in a stock exchange takes place through Registered Stockbrokers, Transfer Agent etc. Buyer gets in touch with a Broker, and gives him all the details of shares he wants to buy. Then the broker strikes a requisite deal and receives share certificate, and transfer form. After deducting, documents to the buyers. As for seller, he also gets in touch with a broker and gives him details alongwith share certificates and transfer forms. Once the deal is struck, broker receives the payment and deducts his commission. Each stock exchange has certain listed and permitted securities that are traded on its floor.
Floor Trading: Apart, from NSC, and OTC, trading takes place mainly through on open outcry system on the trading floor of the exchange during the official trading hours. There are several "notional" trading posts for different securities where the buyer and seller get in contact with each other. These buyers and seller, are authorised Brokers or Agents or a shareholder. Buyer make their bids and sellers make their offers, and bargains are closed at the mutually agreed upon prices. In stock, where jobbing is done, the "jobber", plays an important role. This is floor trading, where buyer and seller transact face to face using a variety of signals.
Screen based Trading:
In a screen-based system, the trading ring is replaced by the computer screen and distant participants can trade with each other through the computer network. A large number of participants, geographically separated can trade simultaneously at high speeds. The screen based trading systems are of two types:
A) Quote Driven System, and
B) Order Driven System, and
Under the quote driven system for trading, market makes input two way quotes in the system. Market players, then contact the market makers over telephone, negotiable, and trace. Under the order driven system, client place their orders with the brokers, which are then fed, into the system. These are then automatically matched according to certain rules. Procedure With Regard To Transfer Of Shares:
Transfer of shares, is one of the most important right, of a member. Even Articles of Association, of a company, cannot take away this right, although it can place certain restrictions on transfer of shares. One of the common restriction on transfer in a private company is the pre-emption clause which states that the intending transfer, must first after the shares to the existing members of the company, so long as a member can be found to purchase them at a fair price. Transfer of shares, involves, two types of transaction, namely : Buying of shares, i.e. transferee Selling of shares, i.e. transferor
Buying Of Shares:
Shares may be brought directly, from the seller, or through a broker. Generally, shares are brought, through a broker in stock exchange, as it is not possible for buyer and seller to come in direct content, because of voluminous trading. Thus the first method is locate a broker. Then, the buyer gives all the details to the broker, regarding : the name of company of which he wants to buy shares, maximum price at which he is willing to buy , Commission to be paid to broker and any advance money. Number of shares to be purchased.
All these are negotiable, as the buyer may change his opinion, on an advice given by broker.
Then, the broker, will hunt for the shares, the buyer wants to buy, at quoted price. The buying may take place on the trading floor of stock exchange, or at any other place. Once the order is fulfilled, broker will send a "contact rate" to the buyer, containing details and specifications. Share certificates will be received by the broker, through clearing house of the stock exchange, or directly from the selling broker. This certificate will be duly accompanied by a transfer deed signed by transferor, and stamped, and authenticated by a witness. When, the share certificate is delivered to the buyer; he will pay the balance money (purchase consideration) to the broker. If buyer wants to retain the shares, he will then fill up the transfer deed, stamp them properly, and shall lodge the share certificates and transfer deeds with the company. Finally after scrutinizing, the transfer deed, and share certificate, the company will register the name of transferee in register of members, as a member. On completion of this, the transferee acquires the status of member. A buyer who does not wish to retain the shares, and wants to sell them further, may ask for a "Blank Transfer form" from the transfer, which will not have name a of transferee. This enables the buyer to further sell it. This practice is common to stock exchange.
Selling Of Shares:
The seller may directly sell the shares, to a buyer, but here also, it is generally preferred to image services of broker.
An Order , "Sale order" will be placed, along with:- On receiving, all such things, the broker will hunt for a buyer, and strike the deal over the trading floor of stock exchange or at any other place. Once the negotiations are complete, broker will hand over the share certificate, and transfer form to the buyer, and take the payment. Finally, the payment will be handed over to the seller, after deducting commission. If, seller was a member of the company, his name will be struck off, from the register of member, once; company receives the share certificates and transfer forms. Procedure/Steps To Be Followed By The Company With Regard To Transfer Of Shares: Registration Of Transfer: The company shall register transfer of shares, only when: Proper Instrument of transfer, has been duly stamped, It has been properly executed b transferor, and transferee, Name, address and occupation of transferee has been delivered to the company.
Share certificate or letter of allotment has been delivered along with instrument of transfer.
Central Government has prescribed the form for transfer, which should be used in the case of all transfers of shares of a company, including a private company. The form contains the entire particular required.
Appeal Against Refusal: Notice about refusal to register the shares, must be given by the company to the transferor and transferee, within two months, to the transferor and transferee. Company shall also intimate the reasons for refusal. Transferor or transferee, may appeal to the Company Law Board (CLB) in Form No. 1, as specified in CLB regulations, 1991, within two months of the receipt of notice of such refusal, or Where the company has sent no notice, within four months from the date on which the instrument of transfer was delivered to the company. Company Law Board, after hearing the parties, may pass any of the following orders.
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