Trading Pattern of the Indian Stock Market
Trading in Indian stock exchanges is limited to listed securities of public limited companies. They are widely divided into two categories, namely, specified securities (forward list) oath non-specified securities (cash list).. Two types of transactions can be carried out on the Indian stock exchanges: (a) spot delivery transactions "for delivery and payment within the time or on the date stipulated when entering into the contract which shall not be more than 14 days following the date of the contract”: and (b) forward transactions "delivery and payment can be extended by further period of 14 days each so that the overall period does not exceed 90 days from the date of the contract". The latter is permitted only in the case of specified shares.
The brokers who carry over the outstanding pay carry over charges (cantango or backwardation), which are usually determined by the prevailing interest rates. A member broker in an Indian stock exchange can act as an agent, buy and sell securities for his clients on a commission basis and also can act as a trader or dealer as a principal, buy and sell securities on his own account and risk, in contrast with the practice prevailing on New York and London Stock Exchanges, where a member can act as a jobber or a broker only. The nature of trading on Indian Stock Exchanges are that of old conventional style face-to-face trading with bids and offers being made by open outcry. However, there is a great amount of effort to modernize the Indian stock exchanges in the very recent times.
Over The Counter Exchange of India (OTCEI)
The traditional trading mechanism prevailed in the Indian stock markets gave way to many functional inefficiencies, such as, absence of liquidity, lack of transparency, unduly long settlement periods and benami transactions, which affected the small investors to a great extent. To provide improved services to investors, the country's first ring less, scrip less, electronic stock exchange - OTCEI - was created in 1992 by the country's premier financial institutions - Unit Trust of India, Industrial Credit and Investment Corporation of India, Industrial Development Bank of India, SBI Capital Markets, Industrial Finance Corporation of India, General Insurance Corporation and its subsidiaries and Can Bank Financial Services. Trading at OTCEI is done over the centers spread across the country.
Securities traded on the OTCEI are classified into:
_ Listed Securities
_ Allowed Securities
_ Initiated debentures
OTC has a unique feature of trading compared to other traditional exchanges. That is, certificates of listed securities and initiated debentures are not traded at OTC. The original certificate will be safely with the custodian. But, a counter receipt is generated out at the counter, which substitutes the share certificate and is used for all transactions. In the case of permitted securities, the system is similar to a traditional stock exchange. The difference is that the delivery and payment procedure will be completed within 14 days. Compared until the traditional Exchanges, OTC Exchange network has the following advantages:
_ OTCEI has widely dispersed trading mechanism across the country, which provides greater liquidity and lesser risk of intermediary charges.
_ Greater transparency oath accuracy of prices is obtained due until the screen based script less trading.
_ since the exactly price of the transaction is show on the computer screen; the investor get until know the exactly price at which s/he is trading.
_ Faster settlement oath transfer process compared until other exchanges.
Thus, with the superior trading mechanism coupled becoming aware of the manifold advantages of the OTCEI.
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