Radhika got 10, 00,000 rupees after selling her parental property which she had got as a gift from her grandmother. Her friend advised her to invest in securities in the stock market. Radhika was unaware of the procedure for the same. Her friend introduced her to a stock broker, who was registered with the National Stock Exchange. Radhika approached the broker. The broker guided her to open a DEMAT account with a Depository, as well as a Bank account. Radhika opened a Bank account & DEMAT account with Exin Bank. (a) Identify the steps in the trading procedure for buying and selling of securities which have been discussed above. (b) State the next four steps of the trading procedure.
Answers
Explanation:
Stock market and various procedures to invest in share market
Explanation:
Steps to Invest in the Indian Stock
Market
1) IPO:
The companies file a draft offer document with the SEBI. This document comprises information about the company—shares being diluted, price band, and other details. On approval, the company offers its shares to investors through an IPO on the primary market.
2) Distribution:
The Company issues and allots shares to some or all investors who bid during the IPO. The shares are then listed on the stock market (secondary market) to enable trading. This platform is a medium offered for the initial investors to exit their share market investments. In addition, investors who failed to receive allotment during the IPO are given the opportunity to buy shares on the secondary market.
3) Stock Brokers:
Broking agencies (registered with SEBI and the stock exchange) are intermediaries between the investors and the Indian stock market. On receiving instructions from the clients, the brokers place their orders on the market. On matching a buyer and seller, the trade is successfully executed. A confirmation is received from the stock exchange and sent to both the buyer and seller.
Historically, this procedure was manual and thus time-consuming and cumbersome. However, with online trading platforms, the entire procedure of matching buyers and sellers is done through the internet. This has reduced the transaction time to a few minutes.
Nonetheless, there are thousands of potential investors and converging all of them in one location is impossible. Stock exchanges and broking agencies play a crucial role in this situation.
4) Order Processing:
This occurs when an order is placed by brokers on behalf of their clients on the exchange where it is processed. There are several parties involved in the entire processing. When buyers and sellers are matched, the stock exchange sends a confirmation to both parties to avoid defaults. The executed trades are settled, which is the process where the buyer receives the shares and sellers receive their funds.