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Only
such securities are traded on SEs as are "listed" or quoted on
them. SEs have their own listing requirements/rules which tend to undergo
changes from time to time. With effect from 27 May 1996, the listing
requirement on many SEs in India been made more stringent in order to
broaden the shareholder base of the companies and to avoid large chunk of
shares being held by a few individuals close to company management. It is
now stipulated that in case of offer for sale, there will have to be at
least 10 public shareholders for every Rs 1 lakh of equity offered to the
public. Further, it is stipulated that the minimum equity capital of a
company seeking a listing on the BSE should be Rs 10 crore. The
non-manufacturing companies cannot make a public issue unless they have a
track record of dividend payments for a least three years out of five
preceding years. Recently,
the BSE has changed classification and adopted the following one: "A
group" or "specified" securities have weekly settlement and
"carry forward" is allowed in their case. The non-specified group
has been split into B1 group and B2 group securities. B1 group has weekly
settlement; it is on par with A group in every respect except the fact that
the carry-forward is not allowed in its case; it includes actively traded
securities. B2 group is subject to settlement procedure, which earlier
existed in the case of Group B securities. From September 1996, the BSE has
started in all debentures listed on it, and they are included in the new
group called "F Group" for this purpose. Transactions
on stock exchange are carried out either on cash basis or carry-over basis,
i.e., through "clearing". Exchanges at Mumbai, Calcutta, Chennai
and Ahmedabad have their own clearing houses. The stock exchange year is
divided into period called "accounts". All transaction made during
one account are to be settled by payment for for purchases and by delivery
of share certificates in the case of sales on notified days of the clearing
programme of a given stock exchange. Transactions in non-specified
securities have to be settled compulsorily by delivery; carry-over is
permitted only in respect of Group A securities. One
of the aspects of securities trading is the imposition of margins by the
authorities on such trading particularly on carry-forward transactions. The
purpose of margins can be stated in various ways. Margins are required to
cover defaults in the event of adverse price movements. They are stipulated
on the basis of the risk involved in the securities. They are also required
to regulate or restrain forward trading, overtrading and unhealthy,
reckless, excessive speculation by putting financial burden or curbs on the
traders. In essence, they are meant to reduce the volume of trading. Ordinary
shares are ownership securities, which have certain advantages in favour of
the issuing companies and investors depending on their attitude to
risk-taking. Investment in this financial instrument is permanent but not
illiquid. Due to the existence of a fairly active secondary market in
shares, investors can turn their shareholder into cash fairly quickly.
Because of the high risk, which he bears, the investor can participate in
the earning and wealth of the company without limit. In a period of
inflation since the value of holding increases, ordinary share are expected
to be a hedge against inflation. From the point of view of the company, it
is advantageous because dividend payments on ordinary shares are not
mandatory and there is no need to refinance the capital raised through the
issue of ordinary shares. As in other countries, this instrument is quite
popular with individual investors in India. The face value of ordinary
shares in India varies from Re 1 to Rs 1,000 but the most common and popular
denomination of shares is Rs 10. A
preference share is a complex financial instrument with a number of
modifications to its general characteristics. Strictly speaking it is an
ownership security like an ordinary share, but carries a fixed rate of
return (dividend) like a debenture. The holders of preference shares are
entitled to income after the claims of creditors of the company have been
met, but before ordinary shareholders receive any income. Because of these
modifications, one comes across the following types of preference shares in
the market: On
cumulative preference shares, if dividend is skipped in any period/periods,
it has to be paid subsequently. Convertible
preference shares can be converted into ordinary share on terms and
condition fixed at the time of issue of such shares. Redeemable
preference shares mature in a fixed period of time and for all practical
purpose are regarded as a debt security like debentures. Participating
preference shareholders can earn a higher dividend than the fixed one if the
company makes good profits. Debenture
or bond is a creditorship security with the following characteristics : a
fixed rate of return
fixed
maturity period
perfect
income certainty
low
capital uncertainty. While
bonds are secured by tangible physical assets of the issuing company in
U.S., debentures are secured only by the general creditworthiness of the
company. There is no such distinction in U.K. and India where the industrial
debenture can be of both types i.e. secured or unsecured. There are
different kind of debentures:
convertible
non-convertible
partially
convertible
registered
bearer
redeemable
perpetual
callable
rights,
etc.
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