Stock Market Trading and Dematerialisation

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Questions and Answers

What primary technology has replaced floor trading in stock exchanges?

Postal trading

Electronic trading (correct)

Telephone trading

Television trading

What advantage does screen-based trading provide to brokers?

It reduces the number of participants in the market.

It facilitates price negotiations in private.

It eliminates the need for brokers altogether.

It ensures transparency to all participants. (correct)

What happens to unmatched orders during electronic trading?

They are sent to the stock market floor.

They are combined into a single order.

They are immediately canceled.

They remain on the screen for future matching. (correct)

What must a broker have in order to participate in electronic trading?

A computer terminal connected to the main stock exchange Signup and view all the answers

How does the software in electronic trading systems execute transactions?

By automatically finding a matching order Signup and view all the answers

In what manner do prices get determined in electronic trading systems?

By real-time information being passed efficiently Signup and view all the answers

What role does the main computer system play in a stock exchange?

It matches orders at the best bid and offer prices. Signup and view all the answers

What is a significant characteristic of screen-based trading?

It displays the full market real-time for all participants. Signup and view all the answers

What is the process of converting physical securities into electronic form called?

Dematerialisation Signup and view all the answers

Which of the following is required to open a demat account?

PAN card details Signup and view all the answers

Which is the first and largest depository operational in India?

National Securities Depositories Limited (NSDL) Signup and view all the answers

What must an investor provide if shares are to be sold through a broker?

Instruction to debit the account Signup and view all the answers

How are payments for shares generally received by the broker?

By direct deposit into an investor's account Signup and view all the answers

What is the role of depository participants in the trading process?

To serve as contact points between depositories and investors Signup and view all the answers

What happens to shares allotted in a public offer when an investor has provided their demat account details?

Shares are automatically credited to the demat account Signup and view all the answers

Which organization promoted CDSL?

Bombay Stock Exchange and Bank of India Signup and view all the answers

What is primarily traded in the primary market?

New securities Signup and view all the answers

Which of the following best describes the main purpose of stock exchanges?

Providing a platform for buying and selling existing securities Signup and view all the answers

What was the primary reason for the establishment of the Securities and Exchange Board of India (SEBI)?

To protect investor interests Signup and view all the answers

Which functions are not typically associated with stock exchanges?

Providing short-term loans Signup and view all the answers

In what year was the Securities and Exchange Board of India (SEBI) granted statutory status?

1992 Signup and view all the answers

What are the segments of the National Stock Exchange (NSE) primarily focused on?

Trading existing securities Signup and view all the answers

What crucial role does the secondary market play in the capital market?

Buying and selling existing securities Signup and view all the answers

What is the common name for the account that investors must open for trading in securities?

Beneficiary Owner Account Signup and view all the answers

What is the primary benefit of holding shares in demat form?

Increased transaction speed and convenience Signup and view all the answers

How long does a broker have to make payment to the investor after the pay-out day?

24 hours Signup and view all the answers

What process allows physical shares to be converted into electronic form?

Dematerialisation Signup and view all the answers

What is one risk that is effectively eliminated by using a demat system?

Loss, theft or forgery of share certificates Signup and view all the answers

What can demat securities be pledged or hypothecated for?

Obtaining a loan Signup and view all the answers

Which entity is responsible for ensuring the investor's account is credited with the correct number of shares?

The broker Signup and view all the answers

What kind of systems are used for the trading of securities in a demat setup?

Computerized systems Signup and view all the answers

What does the demat system mainly aim to eliminate within securities transactions?

Transfer delays and paperwork issues Signup and view all the answers

What is the primary purpose of a stock market index?

To reflect market direction and day-to-day fluctuations in stock prices. Signup and view all the answers

Which index is often treated as a proxy for the US stock market?

S and P 500 Index. Signup and view all the answers

Which of the following statements is true about the FTSE 100?

It is the benchmark index of the European market. Signup and view all the answers

What type of trading does the capital market segment of NSE facilitate?

Trading in equities, preference shares, and retail Government securities. Signup and view all the answers

What ensures that investors have equal access to trading on the NSE?

Automated trading systems and technology. Signup and view all the answers

Which of the following indices is the oldest quoted stock market index in the US?

Dow Jones Industrial Average. Signup and view all the answers

Which aspect is NOT necessary for an ideal stock market index?

To maximize profit for investors trading in the index. Signup and view all the answers

What is the main characteristic of the NASDAQ Composite Index?

It represents the market capitalisation weights of companies listed in NASDAQ. Signup and view all the answers

Study Notes

Stock Exchange Trading

All exchanges use electronic trading systems, which allows for transparency and efficiency in transactions
Buyers and sellers can connect through computers and trading is carried out in brokers' offices
The computer system matches orders based on the "best bid and offer price"
Transactions are settled electronically within a 24-hour timeframe

Dematerialisation System

The physical certificates represent shares, investors use dematerialisation to convert physical shares into electronic holdings
This makes trading easier and less prone to fraud
Depository Participants (DPs) are intermediaries between investors and Depositories (NSDL and CDSL) for demat services
DPs can be banks, brokers or financial institutions

Indices

Stock market indices represent the overall performance of the market
Some important global stock market indices are:
Dow Jones Industrial Average (US)
NASDAQ Composite Index (US)
S and P 500 Index (US)
FTSE 100 (Europe)

National Stock Exchange (NSE)

NSE offers a platform for efficient and transparent trading of equities, bonds, and other securities
It has two segments:
- Capital Market Segment: For long-term investments
- Wholesale Debt Market Segment: For short-term debt financing

Bombay Stock Exchange (BSE)

It is one of the oldest stock exchanges in Asia
It plays a crucial role in the Indian capital market
It provides a platform for trading in equities, bonds, and other securities

Securities and Exchange Board of India (SEBI)

Established in 1988 to regulate the Indian Securities Market
Aims to protect investors, promote investor education, and ensure fair and efficient trading practices
Responsible for overseeing the activities of stock exchanges and other market intermediaries

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Description

Explore the fundamentals of stock exchange trading, including the use of electronic trading systems for efficient transactions. Learn about the dematerialisation system that converts physical shares into electronic holdings, making trading more secure. Additionally, understand the significance of stock market indices in evaluating overall market performance.