Secondary market is a part of Capital market. It is the market for outstanding securities. It facilitates liquidity, marketability and helps in price discovery. Price discovery means price value in the market shows value of the company. There are various stock markets which include 19 regional stock markets, Bombay stock Exchange (BSE), National Stock Exchange (NSE), Over the Counter exchange of India (OTCEI) and ICSE. These stock exchanges are regulated by the central government under the Securities Act, 1956. They provide regulation of stock exchanges and supervision and control of recognized stock exchanges. They also provide listing of securities in the stock market.
Listing of securities means that the company has registered with the SEBI and can issue shares in the market. Listing and registration of company are two different thing. A company can issue shares without listing also but those shares will not be traded in the stock exchanges. A company can seek listing in more than one stock exchange but a minimum of 10% shares must be issued to public for a company to get listed. A listed company has to pay listing fees annually and compulsory disclosures must be made quarterly and half yearly.
Brokers are members of stock exchanges. They get registered with SEBI (Securities and Exchange Board of India). Brokers bring buyers and sellers together and they enter trade either on their behalf or on behalf of their clients. Brokerage varies from broker to broker but not more than 2.5% of contract price.
Nowadays trading is done online through electronic trading system. There are two types of trading system:-
1) Order driven system– In order trading system, orders are placed from all over the world and are matched continuously and directly into the electronic trading system.
2) Quote driven system– In quote driven system, there are market makers or jobbers who offer two way quotes i.e buy and sell quotes. The jobbers buy shares when someone wants to sell and there are no buyers in the market and vice versa. Currently NSE allows quote driven system.
Now lets talk about intraday trading.
In intraday trading if the customer has to square off the trade on the same day. Squaring means that if the shares are bought then they need to sell them before the closing of stock exchange and vice versa else the system will do the squaring itself at the closing price.
Previously the settlements (delivery) of stocks were made in 15 days but nowadays it is T+2 i.e. trading day plus two more days.
Moreover there are circuit breakers in the system which halts the trading automatically if the price of the shares vary very unusually and index-wide circuit breakers are applied on whole stock market(eg BSE)if BSE price change unusually.
Stock market index:-
It is the leading economic indicator. Major indices of India are BSE Sensex and S&P CNX Nifty.