Jery Final Project

A COMPARATIVE STUDY ON INDIAN STOCK EXCHANGE AND SELECTED
FOREIGN STOCK EXCHANGES
CHAPTER 1
INTRODUCTION
The globalization of the world stock markets is the most significant development that has
occurred during the last ten years. Various factors contributed to this including: the
advancement of technology and remote access which have been utilized in security trading,
the emergence of new international financial institutions offering financial services
regardless of geographical jurisdictions, trends of liberalization and the removal of
restrictions used to be imposed on foreign ownership, and the movement towards regional
integration of that stock exchanges, clearing and settlements organizations, and other
financial institutions. Along with various measures, opening up of the home market for the
foreign investors is one of the important steps taken by the Indian Government that may lead
the Indian stock market to be strongly integrated with the stock market of the rest of the
world. The globalization phenomenon may be blessing, since many experts believe that
globalization may improve market efficiency, lower its risk due to the possibility of
diversification, and use arbitrage in a relevant way.
It is also seen that international financial markets have changed drastically over the past
several decades. The major driving forces are: liberalization and deregulation, ground
breaking technological and financial innovations and a growing dedicated investors base. On
the other hand, it may increase pricing volatility and trading instability, due to the high
correlation between leading - major- stock markets and other markets as well as to the fact
that the irrational trading in one market may move to other markets as witnessed in the last
two decades.
KRISTU JAYANTI COLLEGE AUTONOMOUS BANGALORE Page 1

The Indian stock exchanges hold a place of prominence not only in Asia but also at the
global stage. The Bombay Stock Exchange (BSE) is one of the oldest stock exchanges across
the world, while the NSE is among the best, in term of sophistication and advancement of
technology.
Stock Exchange
The Indian Securities Contracts (Regulation) Act of 1956, defines Stock Exchange as,
"An association, organization or body of individuals, whether incorporated or not,
established for the purpose of assisting, regulating and controlling business in buying,
selling and dealing in securities."
Features of Stock Exchange
Characteristics or features of stock exchange are:-
1. Market for securities
Stock exchange is a market, where securities of corporate bodies, government and semi-
government bodies are bought and sold.
2. Deals in second hand securities
It deals with shares, debentures bonds and such securities already issued by the
companies. In short it deals with existing or second hand securities and hence it is called
secondary market.
3. Regulates trade in securities
Stock exchange does not buy or sell any securities on its own account. It merely
provides the necessary infrastructure and facilities for trade in securities to its members

and brokers who trade in securities. It regulates the trade activities so as to ensure free
and fair trade
4. Allows dealings only in listed securities
In fact, stock exchanges maintain an official list of securities that could be purchased and
sold on its floor. Securities which do not figure in the official list of stock exchange are
called unlisted securities. Such unlisted securities cannot be traded in the stock
exchange.
5. Transactions effected only through members
All the transactions in securities at the stock exchange are effected only through its
authorised brokers and members. Outsiders or direct investors are not allowed to enter in
the trading circles of the stock exchange. Investors have to buy or sell the securities at
the stock exchange through the authorised brokers only.
6. Association of persons
A stock exchange is an association of persons or body of individuals which may be
registered or unregistered.
7. Recognition from Central Government
Stock exchange is an organised market. It requires recognition from the Central
Government.
8. Working as per rules

Buying and selling transactions in securities at the stock exchange are governed by the
rules and regulations of stock exchange as well as SEBI Guidelines. No deviation from
the rules and guidelines is allowed in any case.
9. Specific location
Stock exchange is a particular market place where authorised brokers come together
daily (i.e. on working days) on the floor of market called trading circles and conduct
trading activities. The prices of different securities traded are shown on electronic
boards.
After the working hours market is closed. All the working of stock exchanges is
conducted and controlled through computers and electronic system.
10. Financial Barometers
Stock exchanges are the financial barometers and development indicators of national
economy of the country. Industrial growth and stability is reflected in the index of stock
exchange.
Functions of Stock Exchange - Main Functions in the Market
1. Continuous and ready market for securities
Stock exchange provides a ready and continuous market for purchase and sale of
securities. It provides ready outlet for buying and selling of securities. Stock exchange
also acts as an outlet/counter for the sale of listed securities.
2. Facilitates evaluation of securities

Stock exchange is useful for the evaluation of industrial securities. This enables
investors to know the true worth of their holdings at any time. Comparison of companies
in the same industry is possible through stock exchange quotations (i.e price list).
3. Encourages capital formation
Stock exchange accelerates the process of capital formation. It creates the habit of
saving, investing and risk taking among the investing class and converts their savings
into profitable investment. It acts as an instrument of capital formation. In addition, it
also acts as a channel for right (safe and profitable) investment.
4. Provides safety and security in dealings
Stock exchange provides safety, security and equity (justice) in dealings as transactions
are conducted as per well-defined rules and regulations. The managing body of the
exchange keeps control on the members. Fraudulent practices are also checked
effectively. Due to various rules and regulations, stock exchange functions as the
custodian of funds of genuine investors.
5. Regulates company management
Listed companies have to comply with rules and regulations of concerned stock
exchange and work under the vigilance (i.e supervision) of stock exchange authorities.
6. Facilitates public borrowing
Stock exchange serves as a platform for marketing Government securities. It enables
government to raise public debt easily and quickly.
7. Provides clearing house facility

Stock exchange provides a clearing house facility to members. It settles the transactions
among the members quickly and with ease. The members have to pay or receive only the
net dues (balance amounts) because of the clearing house facility.
8. Facilitates healthy speculation
Healthy speculation, keeps the exchange active. Normal speculation is not dangerous but
provides more business to the exchange. However, excessive speculation is undesirable
as it is dangerous to investors & the growth of corporate sector.
9. Serves as Economic Barometer
Stock exchange indicates the state of health of companies and the national economy. It
acts as a barometer of the economic situation / conditions.
10. Facilitates Bank Lending
Banks easily know the prices of quoted securities. They offer loans to customers against
corporate securities. This gives convenience to the owners of securities.
Services given by Stock Exchange to Investors
1. Provides liquidity to investment
Stock exchange provides liquidity (i.e. easy convertibility to cash) to investment in
securities. An investor can sell his securities at any time because of the ready market
provided by the stock exchange. Stock exchange provides easy marketability to
corporate securities.
2. Provides collateral value to securities

Stock exchange provides better value to securities as collateral for a loan. This facilitates
borrowing from a bank against securities on easy terms.
3. Offers opportunity to participate in the industrial growth
Stock exchange provides capital for industrial growth. It enables an investor to
participate in the industrial development of the country.
4. Estimates the worth of securities
Stock exchange provides the facility of knowing the worth (i.e. true market value) of
investment due to quotations (i.e. price list) and reports published regularly by the
exchange. This type of information guides investors as regards their future investments.
They can purchase or sell securities as per the price trends (i.e latest price value) in the
market.
5. Offers safety in corporate investment
An investor can invest his surplus money (i.e. extra money) in the listed securities with
reasonable safety. The risk in such investment is reduced considerably due to the
supervision of stock exchange authorities on listed companies. Moreover, securities are
listed only when the exchange authorities are satisfied as regards legality and solvency
of company concerned. Such scrutiny (detailed checking) avoids listing, of securities of
unsound companies (i.e companies with bad financial status).
Services given by Stock Exchange to Companies
1. Widens market for securities

Stock exchange widens the market for the listed securities and enables the companies to
collect capital for promotion, expansion and modernization purpose. It indirectly
provides financial support to companies / corporations
2. Creates goodwill and reputation
Stock exchange enhances the goodwill and the reputation of the companies whose
securities are listed. Listing acts as a charter certificate given to a company. It gives
prestigious position to company.
3. Facilitates fair pricing of listed securities
The market price of listed securities tends to be slightly higher in relation to earnings and
property values.
4. Provides better response from investors
Listed securities get better response from the investor due to safety and security. Listing
of securities is a unique service which stock exchanges offer to companies. It is a moral
support given to stable companies.
5. Facilitates quick selling of securities
Stock exchange enables companies to sell their securities easily and quickly. This is
natural as investors always prefer to invest money in listed securities.
Service given by Stock Exchange to Economy
1. Brings economic development

Stock exchanges bring rapid economic development through mobilization of funds for
productive purposes. This facilitates the process of economic growth.
The Indian stock exchanges hold a place of prominence not only in Asia but also at the
global stage. The Bombay Stock Exchange (BSE) is one of the oldest exchanges across
the world, while the National Stock Exchange (NSE) is among the best in terms of
sophistication and advancement of technology. The Indian stock market scene really
picked up after the opening up of the economy in the early nineties. The whole of
nineties were used to experiment and fine tune an efficient and effective system. The
‘badla’ system was stopped to control unnecessary volatility while the derivatives
segment started as late as 2000. The corporate governance rules were gradually put in
place which initiated the process of bringing the listed companies at a uniform level. On
the global scale, the economic environment started taking paradigm shift with the ‘dot
com bubble burst’, 9/11, and soaring oil prices. The Slowdown in the US economy and
interest rate tightening made the equation more complex.
However after 2000 riding on a robust growth and a maturing economy and relaxed
regulations, outside investors- institutional and others got more scope to operate. This
opening up of the system led to increased integration with heightened cross-border flow
of capital, with India emerging as an investment ‘hot spot’ resulting in our stock
exchanges being impacted by global cues like never before.
The study pertains to comparative analysis of the Indian Stock Market with respect
tovarious international counterparts. Exchanges are now crossing national boundaries to
extendtheir service areas and this has led to cross-border integration. Also, exchanges
have begun tooffer cross-border trading to facilitate overseas investment options for

investors. This not only increased the appeal of the exchange for investors but also
attracts more volume. Exchanges regularly solicit companies outside their home territory
and encourage them to list on their exchange and global competition has put pressure on
corporations to seek capital outside their home country. The Indian stock market is the
world third largest stock market on the basis of investor base and has a collective pool of
about 20 million investors. There are over 9,000 companies listed on the stock
exchanges of the country. The Bombay Stock Exchange, established in 1875, is the
oldest in Asia. National Stock Exchange, a more recent establishment which came into
existence in 1992, is the largest and most advanced stock market in India is also the third
biggest stock exchange in Asia in terms of transactions. It is among the 5 biggest stock
exchanges in the world in terms of transactions volume.
NATIONAL STOCK EXCHANGE
The National Stock Exchange of India Limited has genesis in the report of the High
Powered Study Group on Establishment of New Stock Exchanges. It recommended
promotion of a National Stock Exchange by financial institutions (FIs) to provide access
to investors from all across the country on an equal footing. Based on the
recommendations, NSE was promoted by leading Financial Institutions at the behest of

the Government of India and was incorporated in November 1992 as a tax-paying
company unlike other stock exchanges in the country.
The National Stock Exchange (NSE) operates a nation-wide, electronic market, offering
trading in Capital Market, Derivatives Market and Currency Derivatives segments
including equities, equities based derivatives, Currency futures and options, equity based
ETFs, Gold ETF and Retail Government Securities. Today NSE network stretches to
more than 1,500 locations in the country and supports more than 2, 30,000 terminals.
With more than 10 asset classes in offering, NSE has taken many initiatives to
strengthen the securities industry and provides several new products like Mini Nifty,
Long Dated Options and Mutual Fund Service System. Responding to market needs,
NSE has introduced services like DMA, FIX capabilities, co-location facility and mobile
trading to cater to the evolving need of the market and various categories of market
participants.
NSE has made its global presence felt with cross-listing arrangements, including license
agreements covering benchmark indexes for U.S. and Indian equities with CME Group
and has also signed a Memorandum of Understanding (MOU) with Singapore Exchange
(SGX) to cooperate in the development of a market for India-
linked products and services to be listed on SGX. The two exchanges also will look into
a bilateral securities trading link to enable investors in one country to seamlessly trade
on the other country's exchange.

NSE is committed to operate a market ecosystem which is transparent and at the same
time offers high levels of safety, integrity and corporate governance, providing ever
growing trading & investment opportunities for investors.
The National Stock Exchange (NSE) is India's leading stock exchange covering various
cities and towns across the country. NSE was set up by leading institutions to provide a
modern, fully automated screen-based trading system with national reach. The Exchange
has brought about unparalleled transparency, speed & efficiency, safety and market
integrity. It has set up facilities that serve as a model for the securities industry in terms
of systems, practices and procedures.
NSE has played a catalytic role in reforming the Indian securities market in terms of
microstructure, market practices and trading volumes. The market today uses state-of-art
information technology to provide an efficient and transparent trading, clearing and
settlement mechanism, and has witnessed several innovations in products & services viz.
demutualization of stock exchange governance, screen based trading, compression of
settlement cycles, dematerialization and electronic transfer of securities, securities
lending and borrowing, professionalization of trading members, fine-tuned risk
management systems, emergence of clearing corporations to assume counterparty risks,
market of debt and derivative instruments and intensive use of information technology.
NEGOTIATED TRADE REPORTING PLATFORM BUSINESS GROWTH

Average
Market Number Net Traded Daily Average
Trading
Year Capitalisation of Value Value Trade Size
Days
( crores) Trades ( crores) ( crore ( crores)
s)
2015-
59,04,171 181 11,163 4,29,389.61 2,372.32 38.47
2016
2014-
57,39,272 237 18,789 7,72,369.06 3,258.94 41.11
2015
2013-
51,28,733 243 21,143 8,51,433.62 3,503.84 40.27
2014
2012-
49,28,331 242 26,974 7,92,213.78 3,273.61 29.37
2013
2011-
42,72,736 239 23,447 6,33,179.45 2,649.29 27.00
2012
2010-
35,94,877 248 20,383 5,59,446.77 2,255.83 27.45
2011
2009-
2010
31,65,929 239 24,069 5,63,815.95 2,359.06 23.42
2008-
28,48,315 238 16,129 3,35,951.52 1,411.56 20.83
2009
2007-
21,23,346 248 16,179 282,317.02 1,138.38 17.45
2008
2006-
17,84,801 244 19,575 2,19,106.47 897.98 11.19
2007
2005-
15,67,574 271 61,891 4,75,523.48 1,754.70 7.68
2006
2004-
14,61,734 293 1,24,308 8,87,293.66 3,028.31 7.14
2005
2003-
12,15,864 294 1,89,518 13,16,096.24 4,476.52 6.94
2004
2002-
8,64,481 297 1,67,778 10,68,701.54 3,598.32 6.37
2003

2001-
7,56,794 289 1,44,851 9,47,191.22 3,277.48 6.54
2002
2000-
5,80,835 289 64,470 4,28,581.51 1,482.98 6.65
2001
1999-
4,94,033 294 46,987 3,04,216.24 1,034.75 6.47
2000
1998-
4,11,470 289 16,092 1,05,469.13 364.95 6.55
1999
1997-
3,43,191 289 16,821 1,11,263.28 384.99 6.61
1998
1996-
2,92,772 291 7,804 42,277.59 145.28 5.42
1997
1995-
2,07,783 291 2,991 11,867.68 40.78 3.97
1996
1994-
1,58,181 223 1,021 6,781.15 30.41 6.64
1995
AT A GLANCE
CAPITAL MARKET (EQUITIES) SEGMENT
1 Investor Protection Fund 31-Mar-2015 400.40 crores
Number of securities available for
2 30-Jun-2013 3,091
trading
3 Record number of trades 25-Aug-2015 1,21,89,508
4 Record daily turnover (quantity) 26-May-2014 21,059.59 lakhs
5 Record daily turnover (value) 29-May-2015 43,621.27 crores

1,04,20,430 crores
6 Record market capitalisation 13-Apr-2015
CLEARING & SETTLEMENT

Record Pay-in/Pay-out (Rolling Settlement):
Funds Pay-in/Pay-out
1 23-Oct-2007 4,567.70 crores
(N2007200)
Securities Pay-in/Pay-out
2 21-May-2009 9,523.33 crores
(Value) (N2009088)
Securities Pay-in/Pay-out
3 21-May-2009 4,385.75 lakhs
(Quantity) (N2009088)
*Settlement Date
DERIVATIVES SEGMENT
Equity (F&O)
2 Record daily turnover (value) 30-Apr-2015 6,27,005.15 crores
3 Record number of trades 30-Apr-2015 64,65,358
Currency
Futures
1 Record daily turnover (value) 20-Jun-2013 41,926.16 crores
2 Record number of contracts 27-Jul-2011 73,69,204
Options
20-Jun-
1 Record daily turnover (value) 27,397.70 crores
2013
20-Jun-
2 Record number of contracts 46,00,706
2013
NSE Bond Futures II

26-Feb-
1 Record daily turnover (value) 9,392.88 crores
2015

26-Feb-
2 Record number of contracts 4,48,861
2015
NEGOTIATED TRADE REPORTING PLATFORM

Number of securities available for 30-Nov-
1 6,935
trading 2015
2 Record daily turnover (value) 30-Sep-2015 5,896.68 crores
History & Milestones
NSE was promoted by leading Financial Institutions at the behest of the Government of
India and was incorporated in November 1992 as a tax-paying company unlike other
stock exchanges in the country.
Dec-2000 Commencement of WAP trading

Launch of Broker Plaza by Dotex International, a joint venture between
Nov-2000
NSE.IT Ltd. and i-flex Solutions Ltd.
Sep-2000 Launch of 'Zero Coupon Yield Curve'
Jun-2000 Commencement of Derivatives Trading (Index Futures)
Feb-2000 Commencement of Internet Trading
Jan-2000 Launch of NSE Research Initiative
Oct-1999 Setting up of NSE.IT
Apr-1999 CHIP Web Award by CHIP magazine
Feb-1999 Launch of Automated Lending and Borrowing Mechanism
Aug-1998 CYBER CORPORATE OF THE YEAR 1998 award
Jul-1998 Launch of NSE's Certification Programme in Financial Market
May-1998 Launch of NSE's Web-site: www.nse.co.in
Promotion of joint venture, India Index Services & Products Limited
May-1998
(IISL)
Nov-1997 Best IT Usage award by Computer Society of India

Feb-1997 Regional clearing facility goes live

Dec-1996 Launch of Nifty Next 50
Dec-1996 Dataquest award for Top IT User
Dec-1996 Commencement of trading/settlement in dematerialised securities
Nov-1996 Best IT Usage award by Computer Society of India
Setting up of National Securities Depository Limited, first depository
Nov-1996
in India, co-promoted by NSE
Jun-1996 Establishment of Settlement Guarantee Fund
Apr-1996 Launch of Nifty 50
Apr-1996 Commencement of clearing and settlement by NSCCL
Oct-1995 Became largest stock exchange in the country
Jul-1995 Establishment of Investor Protection Fund
Jun-1995 Introduction of centralised insurance cover for all trading members
Apr-1995 Establishment of NSCCL, the first Clearing Corporation
Mar-1995 Establishment of Investor Grievance Cell
Nov-1994 Capital Market (Equities) segment goes live
Jun-1994 Wholesale Debt Market segment goes live
May-1993 Formulation of business plan
Apr-1993 Recognition as a stock exchange
2.1 REVIEW OF LITERATURE
Poshakwale, Sunil (2002) examined the random walk hypothesis in the emerging
Indian stock market by testing for the nonlinear dependence using a large
disaggregated daily data from the Indian stock market. The sample used was 38 actively
traded stocks in the BSE National Index. He found that the daily returns from the Indian

market do not conform to a random walk. Daily returns from most individual stocks and
the equally weighted portfolio exhibit significant non-linear dependence. This is largely
consistent with previous research that has shown evidence of non-linear dependence in
returns from the stock market indexes and individual stocks in the US and the UK.
Noor, AzuddinYakob, Diana Beal and Delpachitra, Sarath (2006) studied the stock
market seasonality in terms of day-of-the-week, month-of-the year, monthly and
holiday effects in ten Asian stock markets, namely, Australia, China, Hong Kong, Japan,
India, Indonesia, Malaysia, Singapore, South Korea and Taiwan. He concluded that the
existence of seasonality in stock markets and also suggested that this is a global
phenomenon.
Wong, Agarwal and Du Jun (2004) have empirically investigated the long-run
equilibrium relationship and short-run dynamic linkage between the Indian stock
market and the stock markets in major developed countries by examining the
Granger causality relationship and the pair-wise, multiple and fractional co-integrations
between the Indian stock market and the developed stock markets such as US, UK and
Japan. The findings of the study revealed that the Indian stock market is statistically,
significantly co-integrated with stock markets of United States, United Kingdom and
Japan.There is existence of a unidirectional granger causality running from the US, UK
and Japanese stock markets to the Indian stock markets. Indian stock index and the
mature stock indices form fractionally co-integrated relationship in the long run with a

common fractional, non-stationary component and revealed the co-integration
relationship using the Johansen method.
In a similar study by Bae, K, Cha, B, and Cheung, Y (1999) the researchers tried to
show the information transmission mechanism that operates for stocks which are dually
listed. This has helped in understanding the channel of transmission of information that
makes the exchanges dependant on each other.
Chan, Benton and Min (1997) conducted a study on integration of stock markets by
including 18 nations covering a 32 year period. These markets were analysed both
separately and collectively in regions to test for the weak form market efficiency. The
cross country market efficiency is tested by using Johansen’s co-integration test. The
results showed that only small number of stock markets shown evidence of co-
integration with others.
Bala and Mukund (2001) in their study examined the nature and extent of linkage
between the US and the Indian stock markets. They used the theory of co integration
to study the interdependence between the Bombay stock exchange (BSE), the NYSE and
NASDAQ. The data consisted of daily closing prices for the three indices from January
1991 through December 1999. The results supported that the Indian stock market was
not affected by the movements in US markets for the entire sample period.

D’ecclesia & Costantini (2006) The interrelationship between international stock
markets is a key issue in international portfolio management and risk
measurement. The dynamics of security returns and their risk characteristics have a
crucial role in the financial market theory. Recent empirical studies have tested market
efficiency measuring the degree of integration of international financial markets. These
studies have shown that international markets react quickly to news but they are volatile
and difficult to predict, with a changing correlation structure of security returns among
countries.
Corhay, Rad and Urbain (1995) found no evidence of a unifying stochastic component
in their examination of Australia, Japan, Hong Kong, New Zealand and Singapore for
the 1972 through 1992 period. Similar conclusions were also reached by Hung and
Cheung (1995). The authors employed weekly price data for the period 1981 through
1991 and found no evidence of co integration among the stock markets of Australia,
Hong Kong, Japan, Singapore, Korea, Taiwan and the UK.
Masih, M.M. Abul and Masih, Rumi (1997) examined the dynamic linkage patterns
among national stock exchange prices of four Asian newly industrializing countries -
Taiwan, South Korea, Singapore and Hong Kong. The sample used comprised end-of-
the-month closing share price indices of the four NIC stock markets from January 1982
to June 1994. They concluded that the study of these markets are not mutually exclusive
of each other and significant shortrun linkages appear to run among them.

William L. Huthhave opined that economic interdependence between nations has been
the focus of considerable research. In their view point, a particular avenue of
international interrelationship that has received a great deal of recent attention is the
integration of international stock markets. Increased trade between nations implies that
domestic corporate profitability will be influenced by economic conditions in other
countries. If international influence is widespread between particular markets then it is
likely that measures of overall market performance will be related.
Hazem A. Marashdeh examines the extent of stock market integration among the
Gulf Cooperation Council (GCC) countries. The results of the empirical tests suggest
that the GCC stock markets are not fully integrated and there still exist arbitrage
opportunities between some of the markets in the region. On the other hand, the results
show no evidence of co integration between the GCC stock markets and developed
markets, which implies that international investors can diversify their portfolio and
obtain long-run gains by investing in the GCC markets.
LucíaCuadroSáezanalyse whether, and to what extent, emerging market economies
(EMEs) have systemic importance for global financial markets, above and beyond their
influence during crises episodes. Using a novel database of exogenous economic and
political shocks for 14 systematically relevant EMEs, they find that EME shocks not
only have a statistically but also economically significant impact on global equity
markets. The economic significance of EME shocks is in particular underlined by their
remarkably persistent effects over time.

Abdalla and Murinde (1997) employed co-integration test to examine the relationship
between stock prices and exchange rates for four Asian countries named as India,
Pakistan, South Korea and Philippines for a period of 1985 to 1994. They detected
unidirectional causality from exchange rates to stock prices for India, South Korea and
Pakistan.
Ravazzolo examine real and financial links simultaneously at the regional and global
level for a group of Pacific-Basin countries by analysing the covariance of excess returns
on national stock markets over the period 1980-1998. They find overwhelming evidence
at the regional and global level and for all sub-periods that financial integration is
accompanied by economic integration. This seems to suggest that economic integration
provides a channel for financial integration, which explains, at least partly, the high
degree of financial integration found in this study and in other studies for this region
even in the presence of foreign exchange controls.

2.2 RESEARCH DESIGN
2.2.1 Research Methodology
Exchanges with each other during different periods. The economic situation changes
during different times. 1995-1997 period represents the East Asian miracle and crisis
period, 1999-2001 represents technology boom and tech bubble bursting period, 2001-
2003 represents the slow global recovery from the recession, 2003-2006 period
represents the investment boom period especially in the developing and emerging
markets. The world is divided into four main regions, namely, the US, Euro region, India
and Asian region. Stock exchanges representing various regions used in this study
include NSE (India), NYSE (USA), Hong Kong (South East Asia),Tokyo Stock
exchange(Japan) ,Korea (Asia). The number of sample units for this study is five
2.2.2 Title of the study
The title is “A comparative study on Indian stock exchange and selected foreign
stock exchanges”
2.2.3 Statement of the problem
Various studies have been done to study the relationship between different stock
exchanges. And this study explores the relationship between Indian stock exchange and
selected five foreign stock exchanges during different stages. it can be assumed
reasonably that a particular stock exchange will have some impact on other exchanges.

2.2.4 Objectives of the study
 The main objective of this study is to capture the trends, similarities and patterns in the
activities and movements of the Indian Stock Market in comparison to its international
counterparts.
 The aim is to help the investors (current and potential) understand the impact of
important happenings on the Indian Stock exchange. This is especially relevant in the
current scenario when the financial markets across the globe are getting integrated into
one big market and the impact of one exchange on the other exchanges.
2.2.5 Hypothesis
H0:There is no significant relationship between Indian stock exchanges and foreign
stock exchanges.
H1:There is significant relationship between Indian stock exchanges and foreign stock
exchanges.
2.2.6 Limitations of the study
 Lack of available data.
 The conclusion and interpretations are drawn on the basis of the data available.
 The duration of the study was very small. It is not possible to cover all the area within
limited period.

NSE was incorporated in November 1992, and received recognition as a stock exchange
under the Securities Contracts (Regulation) Act, 1956 in April 1993. It is managed by
professionals who do not directly or indirectly trade on the Exchange. The trading rights
are with trading members who offer their services to the investors. Dr. Vijay L Kelkar
Former Chairman, Finance Commission, India Former Union Finance Secretary y and
Advisor to the Finance Minister is the Chairman of NSE
NSE provides a trading platform for of all types of securities for investors under one roof
– Equity, Corporate Debt, Central and State Government Securities, T-Bills,
Commercial Paper (CPs), Certificate of Deposits (CDs), Warrants, Mutual Funds (MFs)
units, Exchange Traded Funds (ETFs), Derivatives like Index Futures, Index Options,
Stock Futures, Stock Options Currency Futures and Interest Rate Futures. The Exchange
provides trading in 4 different segments viz., Wholesale Debt Market (WDM) segment,
Capital Market (CM) segment, Futures & Options (F&O) segment and the Currency
Derivatives Segment (CDS).
Core trading system
NSE’s trading system, called National Exchange for Automated Trading (NEAT), is a
state of-the-art client server based application. It has uptime record of over 99% with
latency is in single digit millisecond level for all orders entered into the NEAT system.
NSE has been continuously undertaking capacity enhancement measures so as to
effectively meet the requirements of increased users and associated trading loads.

The core trading applications of NSE run on fault tolerant servers sourced from Stratus
Technologies. Earlier generation of trading system was highly dependent on the growth
of microprocessor industry for improved scalability. This was creating speed breakers in
the growth demanded by Indian market participants. Some time back NSE re-architected
the trading system to achieve unlimited scalability. The system now has a multi layer
architecture is designed for unlimited scalability at every layer. Each layer of Trading
system can be scaled up by adding more hardware to the layer. The re-architecting of the
system has eased out meeting the ever growing capacity needs of Trading. This
application extensively uses in-memory database technology to provide for performance
needs expected from a Matching system. The matching engine response time can be
measured in single digit millisecond for the thousands of transactions processed by the
system every second. To complement the matching engine speed, Market Data is
generated and distributed at a very high refresh frequency. Using the Multicasting the
market data access is accessible to all trading members almost simultaneously.

ACHIEVEMENTS AND MILESTONES/Mi
Month/Year Event
November 1992 Incorporation
April 1993 Recognition as a stock exchange.
June 1994 WDM segment goes live.
November 1994 CM segment goes live through VSAT.
October 1995 Became largest stock exchange in the country.
April 1996 Launch of S&P CNX Nifty.
December 1996 Commencement of trading/settlement in dematerialized securities.
December 1996 Launch of CNX Nifty Junior.
May 1998 Promotion of joint venture, India Index Services &Products Limited
(IISL) (along withCRISIL) for index services
May 1998 Launch of NSE’s Web-site : www.nseindia.com.
July 1998 Launch of ‘NSE’s Certification Programmed in Financial Markets’
(NCFM)
October 1999 Setting up of NSE.IT Ltd.
June 2000 Commencement of Derivatives Trading (in Index Futures).
September2000 Launch of Zero Coupon Yield Curve.
June 2001 Commencement of Trading in Index Options
July 2001 Commencement of Trading in Options on Individual Securities
November 2001 Commencement of Trading in Futures on Individual Securities
January 2002 Launch of Exchange Traded Funds (ETFs).
August 2003 Launch of Futures and Options on CNX IT Index
June 2005 Launch of Futures & Options on BANK Nifty Index

August 2006 Setting up of NSE Infotech Services Ltd.
March 2007 Launch of Gold BeES- Exchange Traded Fund (
January 2008 Launch of Mini Nifty derivative contracts
March 2008 Launch of long term option contracts on S&P CNX Nifty Index.
April 2008 Launch of Securities Lending & Borrowing Scheme
April 2008 Launch of - India VIX* - The Volatility Index
April 2008 Direct Market Access (DMA)
June 2008 Setting up of Power Exchange India Ltd.
July 2008 Launch of NOW ‘Neat on Web’
August Launch of Currency Derivatives Segment with commencement of
2008 trading on Currency Futures on August 29, 2008
September2008 Launch of ASBA (Applications supported by Blocked Amount)
February 2009 Cross Margining Benefit in CM and F&O Segment
March 2009 Launch of NSE E-Bids for Debt Segment
August 2009 Launch of Interest Rate Futures
November 2009 Launch of Mutual Fund Service System
December 2009 Commencement of settlement of corporate bonds
February 2010 Trading in Currency Futures on additional currency pairs
February 2010 Listing of Hang SengBeES ETF on NSE
March 2010 NSE&CME Group announced crosslisting relationship
March 2010 NSE and Singapore Exchange sign Memorandum of Understanding
(MOU)
April 2010 NSE and NSCCL receive Asian Banker awards

FACTS AND FIGURES
Listed Companies 1,470
Trading Members 1,297
VSATS 2,527
Number of cities having VSATS 186
Securities available for trading in the CM segment 1806
Contracts available for trading equity derivatives segment 23,533
NEW YORK STOCK EXCHANGE (NYSE)
The New York Stock Exchange (NYSE) is an American stock exchange on Wall Street
in New York City. With a market cap of more than US$16 trillion, the NYSE is the
world’s largest stock exchange, averaging US$169 billion in daily trading value in 2013.
As of 2014, the NYSE (also known as “the Big Board”) has a listing of nearly 1,900
companies, 1,500 of which are US companies. 1) The NYSE is owned by Intercontinental
Exchange and is regulated by the Securities and Exchange Commission. Jeff Sprecher
is Founder, Chairman and CEO of Intercontinental Exchange, Inc. (NYSE: ICE)
and Chairman of the New York Stock Exchange. Sprecher acquired the predecessor

company to ICE for $1, building a company with a market capitalization over $25
billion in 15 years.
History of the NYSE
The NYSE was founded 17 May 1792 when 24 stockbrokers signed the Buttonwood
Agreement on Wall Street in New York City. Famously, they met beneath a Buttonwood
tree and formed a centralized exchanged for the burgeoning securities market in the
United States. The agreement eliminated the need for auctioneers—used frequently for
wheat, tobacco and other commodities—and set a commission rate. The organization
made the Tontine Coffee House its headquarters and focused on government bonds.
Twenty-five years later, 8 March 1817, the organization officially became the New York
Stock & Exchange Board, later simplified to the New York Stock Exchange. Throughout
the early 1800s, the NYSE expanded beyond government bonds and bank stocks. New
York itself soon surpassed Philadelphia as the financial centre or the United States.
Advances in telegraphic communication allowed buying and selling through the
telegraph, creating a new ease in trading. Membership increased and became more
exclusive. By the start of the Civil War, securities, commodities and gold, discovered in
California, excited participation in the exchange.
The location of the NYSE changed several times before settling into its present location
at 11 Wall Street in 1865. The Neo-Classical building was registered as a Historic
Landmark in 1978.

In 1878, telephones were installed, giving investors direct access to brokers on the floor
of the exchange. The increased activity made the exchange cap the number of members
to 1,060, seats for which required purchase from retiring members.
Between the late 1800s and the end of World War I, the NYSE struggled in the wake of
international turmoil. Then the stock market crashed 23 October 1929, causing an 89%
drop in share prices. The crash led to heavy regulation by the US government. The
NYSE subsequently registered with the United States Securities and Exchange
Commission. On 19 October 1987 the Dow Jones Industrial Average dropped 508
points, the biggest crash since 1929.
Technology on the NYSE moved from early ticker tapes to handheld computation
devices to its current high-speed transactions.
NYSE Trading
When a company registers with the NYSE (fundamentally to raise capital), shares of the
company’s stocks become available for public trading. Traders wanting to invest in the
stock market can buy and sell stocks online through exchange companies. Trading takes
place on the trading floor through floor brokers and Designated Market Makers. The
NYSE assigns Designated Market Makers to each stock to provide liquidity the only
exchange that requires this assignment.
Opening and closing bells are rung at the start and end of each trading day; the NYSE’s
hours of operation are Monday through Friday, 9:30 am to 4:00 pm ET. Since the 1870s,

market participants have been invited to ring the bell, included CEOs, celebrities and
more.
Trading is automated, with the exception of occasional high-priced stocks, making the
NYSE the premier hybrid market. Trades execute in less than a second when electronic,
while manual trades typically take nine seconds.Likewise, trades run in a continuous
auction format. Currently, investors need only find a brokerage who is a member of the
NYSE. Through the brokerage, investors buy and sell stocks and other products from
quotes provided to the brokerage from the NYSE.
NYSE Products
The NYSE holds five regulated markets, including the New York Stock Exchange, Arca,
MKT and Amex Options. The NYSE lists medium and large companies, with smaller
companies listing on NYSE MKT. On the NYSE, investors can trade several major asset
classes: equities, options, exchange-traded funds (NYSE Arca) and bonds (NYSE
Bonds).
INDICES
The NYSE houses several stock market indices: the Dow Jones Industrial Average, the
S&P 500, the NYSE Composite, NYSE US 100 Index, the NASDAQ Composite and
others.
NYSE Listing Companies
The NYSE is currently the world’s largest IPO provider, raising US$55 billion in
2013.Companies listing on the NYSE use a ticker symbol (Apple Inc.: AAPL). Some
20% of the industries represented are from financials—trusts, insurance, and others. Oil
and gas, consumer goods and services, healthcare, technology and telecommunications

are among other major industries covered by the NYSE.Major corporations listing on the
NYSE include:
 Bank of America
 Ford Motor Co
 Sprint Corp
 General Electric Co
 Twitter Inc.
 Pfizer Inc.
Competition
The markets in which we operate are global and highly competitive. We face
competition in all aspects of our business from a number of different enterprises, both
domestic and international, including traditional exchanges, electronic trading platforms
and voice brokers. We believe we compete on the basis of a number of factors,
including:
 Depth and liquidity of markets;
 Price transparency;
 Reliability and speed of trade execution and processing;
 Technological capabilities and innovation;
 Breadth of product range;
 Rate and quality of new product developments;
 Quality of service;
 Distribution and ease of connectivity;

 Mid-and back-office service offerings, including differentiated and value-
added services;
 Transaction costs; and reputation.
NET REVENUE(1) (In Millions)
$1,150 $1,327 $1,363 $1,598 $3,092
2010 2011 2012 2013 2014
OPERATING INCOME(In Millions)
$652 $793 $827 $993 $1,703
2010 2011 2012 2013(2) 2014(2)
DILUTED EPS FROM CONTINUING OPS
$5.35 $6.90 $7.52 $8.38 $9.63
2010 2011 2012 2013(2) 2014(2)
PERFORMANCE SUMMARY
(In Millions, Except Per Share Data And

2014 2013 Change
Percentages)
$3,092 $1,598 93%
Net Revenue(1)
$1,448 $790 83%
Operating Income

$1,703 $993 72%

Adjusted Operating Income(2)
Income Attributable to ICE from Continuing
$970 $304 219%
Operations
Adjusted Income Attributable to ICE from
$1,104 $663 67%
Continuing Operations(2)
Dilute EPS from Continuing Operations $8.46 $3.84 120%
115 79 46%
Diluted Weighted Average Shares Outstanding
Adjusted Diluted EPS from Continuing

$9.63 $8.38 15%
Operations(2)
$1,463 $714 105%
Operating Cash Flow
 Net revenue represents total revenues, less transaction-based expenses.
 These are non-GAAP figures. Please refer to page 66 of the 10-K for a
reconciliation to the GAAP figures.
TOKYO STOCK EXCHANGE
The Tokyo Stock Exchange Co.ltd was first established on May 15, 1878, as the Tokyo
Kabushiki Torihikijo under the direction of then-Finance Minister (Okuma Shigenobu)
and capitalist advocate (Shibusawa Eiichi) of Japan. 1943 The exchange was combined
with ten other stock exchanges in major Japanese cities to form a single exchange, the
Japanese Securities exchange. It was later shut down after the U.S. bombed Nagasaki
and also WWII. 1949 On April 1st of 1949, the Tokyo Stock Exchange in the present
form was founded, and was opened on May 16th of the same year. On January 1st, 1969,
the Tokyo Stock Price Index, commonly known as TOPIX, was established and released
to the public.
It is a free-float adjusted market capitalization-weighted index, and is calculated and
published by the TSE. This free-float adjusted capitalization-weighted index lists all of
the large firms on the exchange into one pool, and is an important index for the TSE.
TOPIX is believed to be more representative of the Japanese stock markets than the
Nikkei because of fairer presentation of price changes and its inclusion of all major
companies that is on the TSE. In November of the year 1990, the TSE introduced a new
system to further streamline operations at the stock trading floor.
The system computerized important operations such as placing and matching orders. In
1985, the TSE moved to a newly constructed building. This resulted in a sudden surge of
stocks as the new stock trading floor opened.
Also, with the introduction of many new stock sections, investors have a much wider
range of securities selection combined with a much more comfortable trading ground.
2012 On June 29, 1998, the ToSTNET (Tokyo Stock Exchange Trading Network)
system was created. The ToSTNET has offered investors a means of executing
transactions such as block trading and basket trading during off-auction hours. 2001-
2005 There are 4 types of trading available on ToSTNET.
 Single-stock
 Basket
 Closing price.

Off-auction own share repurchase (Since Jan. 15, 2008) In December 2001, a trader at
UBS Warburg(Swiss investment bank) sent an order to sell 610,000 shares in this
company at ¥1 each, while he intended to sell 1 share at ¥610,000.The bank lost £71
million. The same incident happened again in December of 2005, when an employee at
Mizuho Securities Co., Ltd. mistakenly typed an order to sell 600,000 shares at ¥1,
instead of an order to sell 1 share at ¥600,000.
Mizuho failed to catch the error. Tokyo Stock Exchange initially blocked attempts to
cancel theorderUS$347 million net loss was shared between the TSE and Mizuho. In the
end, the TSE's system was found to be at fault of this transaction, due to :
 lack of error checking
 lack of safeguards
 lack of reliability
 lack of transparency
 lack of testing
It became the first and largest stock market in Japan that utilized a computerized system
to exchange stocks. In July 2012 a planned merger between the TSE Group and Osaka
Securities Exchange (OSE) was approved by the Japan Fair Trade Commission. The
integration would happen in January of 2013, under the title of Japan Exchange Group
The Tokyo Commodity Exchange Inc. is also on the verge of combining forces with the
TSEG and OSE, but will wait until their combination next year to see whose transaction
system will be adopted, then the TOCOM will make its decision. In December 2011, the
TSE published its PR magazine targeted at overseas investors, called "Evolving Japan".
This magazine was created for the purpose of allowing international investors to gain

insight into the appeal of Japanese companies learns of the excellent quality of the
Japanese economy and its market. Published Quarterly Currently released its 3rd volume
on August 13th, 2012. Replacing the trading floor was the "TSE Arrows", which opened
in its place in May 2000.
TSE Arrows Consists of:
 Market-Canter
 Open-Platform
 Presentation-Stage
 TSE-Hall
 Media-Centre
TSE Historical Museum TSE Arrows is a symbol of the Japan securities market, and is
also a point of contact for companies and investors. The TSE unveiled its new mascot on
February 23rd, 2011.
It's name is Arrows-kun (a "10-year-old boy"), based on the TSE Arrows. Also, the
design of Arrows-kun comes from the facility's revolving, ring-shaped electric bulletin
board, which displays current stock prices. Today, the mascot has already gained a
strong fan base
The largest stock exchange in Japan headquartered in its capital city of Tokyo. The
Tokyo Stock Exchange (TSE) was established on May 15, 1878. The exchange has more

than 2,200 listed companies, with a combined market capitalization at end-2010 of $3.8
trillion, making it the third-largest in the world by this measure.
The Tokyo Stock Exchange (TSE) is one of the world's three largest stock exchanges,
together with New York and London. More than 90 pct of shares traded on Japanese
stock exchanges are traded on the TSE.
KOREAN STOCK EXCHANGE
Korea's Stock Market has experienced exponential growth since the launch of first
Exchange Market, Daehan Stock Exchange, back in 1956. Having started with only 12
listed companies, the market now offers nearly 1,800 equity products with total market
capitalization of 1.1 trillion KRW by the end of year 2010. According to the World
Federation of Exchanges (WFE), Korea's Stock Market1) is ranked at 17th in terms of
market capitalization and 9th in terms of turnover value among member exchanges. In
addition, since the opening up of the market to foreign (non-resident) investors in 1992,
foreigners have shown continuous interest in investing Korean stocks. They now account
for nearly33% of market capitalization in the KOSPI Market.
Types of Securities Listed
At KRX Securities Markets, following products are listed and are available for trading. i.
Stocks (which includes corporate equity shares, Korea Depository Receipts (hereinafter
"KDRs"), and shares of Mutual Fund/REITs/Ship Investment Fund); ii. Exchange

Traded Funds (hereinafter "ETFs"); iii. Certificate of Subscription Rights3); iv.
Subscription Warrants4); v. Equity Linked Warrants (hereinafter "ELWs") ; vi.
Beneficiary Certificates; and vii.Debt Securities including Government Bonds and
Corporate Bonds.
KRX Systems
KRX Trading System (EXTURE) performs full range of functions required for securities
transactions which include receiving quotations, trade executions, notification of trade
results, calculation of daily settlement data, and etc. On 23 March 2009, KRX has
launched new trading system (EXTURE) which consolidated previously separated
market platforms (for KOSPI market, KOSDAQ market, and Derivatives market) into
one single platform and upgraded the system capacity by adopting cutting-edge
technologies.
As of January 2015, Korea Exchange had 1,814 listed companies with a combined
market capitalization of $1.2 trillion. Sustainable Stock Exchanges Theexchange has
normal trading sessions from 09:00 am to 03:15 pm on all days of the week except
Saturdays, Sundays and holidays declared by the Exchange in advance.
The Korea Exchange has regulatory authority over the listing requirements and certain
trading rules such as membership eligibility. The Securities and Futures Commission
(SFC) is a subcommittee of the Financial Services Commission (FSC); the organization
with the responsibility of Korea’s financial markets. The SFC’s primary regulatory
responsibilities are: market surveillance, company accounting standards and audit
reviews, as well as other responsibilities delegated from the FSC. There is a mix of

regulatory authority but the majority, and some of the most important, responsibilities
fall under Korea’s SFC and FSC.
RUSSIAN STOCK EXCHANGE
The organized stock market in Russia is composed of several stock exchanges, two of
which, MICEx and RTS (short for “Russian Trading System”), account for more than 95
percent of trade turnover, with the share of MICEx being near 80 percent.2 In 2002, the
volume of stocks of more than 100 Russian issuers transacted on the MICEx reached
about $39 billion. Most of these stocks are traded very rarely, but several blue chips are
traded at a frequency of from 200 to 6,000 transactions a day.
The electronic system at the MICEx is organized as a typical order-driven market.3 The
MICEx takes advantage of technological innovations to enable its members to trade via
the Internet. (In 2002, more than 70 percent of trades were made from 1,500 remote
workstations in 50 different cities.)
MOEX represents a vertically integrated platform that combines pre-trading, trading and
post-trading services. It incorporates various types of products with both cyclical (stocks
and bonds) and counter-cyclical (money market and FX) behaviour along with unified
clearing for all. MOEX also provides settlement and safekeeping services. The Russian
securities market remains largely underdeveloped, highlighting healthy growth prospects
amid financial center development. MOEX comes across as one of the cornerstones of
the current reform process, having gone through a number of important changes recently

(CSD, CCP, T+2 settlement and ICDS (Euro clear/Clear stream) access to the sovereign
and corporate bond markets) with more to come in the near future (ICDS access for
corporate bonds and equities, expansion to new markets, product line diversification and
a further upgrade of the technological platform).
Trading systems the first stock exchanges were formally set up in Russia in the end of
1991.
These were Moscow International Stock Exchange and Moscow Central Stock
Exchange. Both no more exist. In 1992 there were 120 w(!) organizations, having a
stock exchange license. Now 7 organizations have a formal license of stock exchange, to
be more precise – the license of a stock exchange or the organizer of trading. However,
practically all trading in securities is executed nowadays at 1 exchange: Moscow
Exchange MICEX RTS, formed in late 2011 through the merger of 2 major Russian
exchanges. The former (MICEX) was the leader in the spot market for stocks, bonds and
foreign exchange, the latter (RTS) – in derivatives trading. Traditionally, the Central
bank of Russia and state-controlled banks had a decisive say in managing MICEX.
However, the influence of the state is decreasing step by step.
HONG KONG STOCK EXCHANGE
Records of securities trading in Hong Kong date back to 1866. In 1891 when the
Association of Stockbrokers in Hong Kong was established, Hong Kong had its first
formal stock market. It was renamed The Hong Kong Stock Exchange in 1914. By 1972,
Hong Kong had four stock exchanges in operation. There were subsequently calls for the
formation of a unified stock exchange. The Stock Exchange of Hong Kong Limited (the

Exchange) was incorporated in 1980 and trading on the Exchange finally commenced on
2 April 1986. Since 1986, a number of major developments have taken place. The 1987
market crash revealed flaws in the market and led to calls for a complete reform of the
Hong Kong securities industry. This led to significant regulatory changes and
infrastructural developments. As a result, the Securities and Futures Commission (SFC)
was set up in 1989 as the single statutory securities market regulator. The market
infrastructure was much improved with the introduction by the Exchange of the Central
Clearing and Settlement System (CCASS) in June 1992 and the Automatic Order
Matching and Execution System (AMS) in November 1993.
In respect of market and product development, there are the listing of the first derivative
warrant in February 1988, the listing of the first China-incorporated enterprise (H share)
in July 1993; and the introduction of regulated short selling in January 1994 and stock
options in September 1995. Furthermore, the Exchange introduced the Growth
Enterprise Market (GEM) in November 1999 to provide fund raising opportunities for
growth companies of all sizes from all industries, and to promote the development of
technology industries in the region.
Regulatory framework
The securities market in Hong Kong is under the oversight of the SFC whose chairman
and directors are appointed by Hong Kong’s Chief Executive. The SFC supervises the
self-regulatory market bodies, including the Stock Exchange of Hong Kong, the Hong
Kong Futures Exchange, securities clearing houses, and financial intermediaries.
Automatic Order Matching and Execution System (“AMS”)

Effective from 3 March 1997, all securities listed on the Exchange are traded by auto
matching through AMS. AMS supports only limit orders (orders with a limit price) for
auto matching. Orders are executed in strict price and time priority. The maximum order
size for auto match stocks is now 400 board lots. The maximum number of outstanding
orders per trading terminal in the system is 400 while the number of orders in each order
queue is limited to 1,000.
HKEx is a leading global operator of exchanges and clearing houses based in Hong
Kong, Asia’s premier international financial centre, and one of the world’s largest
exchange groups by market capitalisation.
HKEx operates the securities and derivatives markets and their related clearing houses
and is the frontline regulator of listed companies in Hong Kong. It also owns
the London Metal Exchange (LME) in the UK, the world's premier base metals market.
In Hong Kong, HKEx regulates listed issuers and administers listing, trading and
clearing rules. It also provides services, primarily at the wholesale level, to participants
and users of its Exchanges and Clearing Houses, including issuers and intermediaries
(such as investment banks or sponsors, securities and derivatives brokers, custodian
banks and information vendors) which service investors directly. These services
comprise trading, clearing and settlement, deposit and nominee services and information
services across multiple products and asset classes.
HKEx operates the only recognised stock market and futures market in Hong Kong
through its wholly-owned subsidiaries, the Stock Exchange and Hong Kong Futures
Exchange Limited. HKEx also operates four clearing houses, which are the only
recognised clearing houses in Hong Kong: Hong Kong Securities Clearing Company

Limited (HKSCC), HKFE Clearing Corporation Limited (HKCC), the SEHK Options
Clearing House Limited (SEOCH) and OTC Clearing Hong Kong Limited (OTC Clear).
HKSCC, HKCC and SEOCH provide integrated clearing, settlement, and depository and
nominee activities to their participants, while OTC Clear provides OTC interest rate
derivatives and non-deliverable forwards clearing and settlement services to its
members. HKEx provides market data through its data dissemination entity, HKEx
Information Services Limited.
CHAPTER 4
DATA ANALYSIS AND DISCUSSIONS
Comparative Analysis
This is the main part of the study wherein the various stock exchanges of the sample
have been compared on certain parameters, both qualitatively and quantitatively.

4.1 QUALITATIVE ANALYSIS
In this section the various stock exchanges have been compared on the following
parameters;
1. Market Capitalization
2. number of listed securities
3. listing agreements
4. circuit filters
5. settlement
These parameters are used to look at selected important aspects of any stock exchange,
viz., the market capitalization gives an idea about the size of the respective exchanges;
whereas the number of listed securities acts as an indicator for the volume and liquidity
of any exchange. The listing agreements take care of the governance issue, while circuit
filters give an insight into the risk management framework of the said exchange. Finally,
the efficiency of a stock exchange has been measured in terms of its settlement process.
World market capitalization

Source : ETIG
Sl.N Country Market Cap. (US $ % Of The

O Billion) World
1 USA 15517 39.5

2 Japan 4079 10.4

3 United kingdom 3067 7.8
4 France 1828 4.7
5 Germany 1256 3.2
6 Canada 1239 3.2
7 Hong Kong 1001 2.6
8 Switzerland 872 2.2

9 Italy 788 2
10 Spain 688 1.8
11 Australia 687 1.8
12 Russsia 592 1.5
13 South Korea 557 1.4
14 India 506 1.3
15 Taiwan 475 1.2
16 Others 6050 15.4
TOTAL 39202 100

4.1.1 -MARKET CAPITALIZATION
Table 4.1 world stock markets & their market capitalization

A COMPARATIVE STUDY ON INDIAN STOCK EXCHANGE AND
SELECTED FOREIGN STOCK EXCHANGES
Market capitalization is the measure of corporate size of a country. It shows the
current stock price multiplied by the number of outstanding shares. It is commonly
referred to as Market cap. It is calculated by multiplying the number of common
shares with the current price of those shares. This term is often confused with
capitalization, which is the total amount of funds used to finance a firm's balance
sheet and is calculated as market capitalization plus debt (book or market value) plus
preferred stock. While there are no strong definitions for market cap categorizations, a
few terms are frequently used to group companies based on its capitalization. The
table below shows the market capitalization of various stock markets in the world.
Based on the above study, it can be observed that India is 14th in the world ranking of
Market capitalization. This is in spite of having the third largest investor base, after
Japan and USA, and having the largest number of companies listed. United States
leads the list of countries with the highest market capitalization. It is interesting to
note that the total market capitalization of all the companies listed on the New York
Stock Exchange is greater than the amount of money in the United States. As
mentioned earlier, the above data pertain to the year 2005. The individual and global
economy has grown since then. As on March 2006, the global market capitalization
for all stock markets was $43600 billion.
48
4.2 - LISTED SECURITIES
Listing in a stock exchange refers to the admission of the securities of the company
for trade dealings in a recognized stock exchange. The securities may be of any public
limited company, Central or State Government, quasi-governmental and other
financial institutions/corporations, municipalities, etc. Securities of any company are
listed in a stock exchange to provide liquidity to the securities, to mobilize savings
and to protect the interests of the investors.
India has the highest number of companies listed in the stock market. Out of this,
about 75 % of the companies are listed with the Bombay Stock Exchange. After India,
United States has the highest number of companies listed.
Table 4.1.2 Major Indices
Parameters BSE NSE NYSE TYSE HKSE KSE

Name SENSEX NIFTY DawJones NIKKEI Hang KOS
Industrial -225 Seng
Average
No. Of 30 50 30 225 33 200
Companies
4.3 - LISTING AGREEMENTS
Eligibility Criteria for New companies (IPOs)
 Paid Up capital: Not less than 10 Crores
 Market Capitalization: Not less than 25 Crores
 At least three years track record:
49
 The company has not been referred to the Board for Industrial and Financial
Reconstruction (BIFR).
 The net worth of the company has not been wiped out by the accumulated losses
resulting in a negative net worth.
 The company has not received any winding up petition accepted by a court.
 ‘Promoters’ mean one or more persons with a minimum 3 years’ experience of
each of them in the same line of business and shall be holding at least 20% of the
post issue equity share capital individually or severally
 No disciplinary action by other stock exchanges and regulatory authorities in past
three years.
 Existing Companies listed on other stock exchanges
 Paid up Capital: Not less than 10 Crores Market Capitalization: Not less than 25
crores.
 Minimum Listing Requirements for companies listed on other stock exchanges.
The company should have minimum issued and paid up equity capital of Rs. 3
crores. The Company should have profit making track record for last three years.
 Minimum net worth of Rs. 20 crores
 Minimum market capitalization of the listed capital should be at least two times of
the paid up capital.
50
NEW YORK STOCK EXCHANGE
Domestic listing on NYSE requires minimum certain minimum standards to be met.
Distribution and Size criteria
Distribution of shares can be attained through U.S. public offerings, acquisitions made
in the U.S., or by other similar means.
Table 4.1.3.1 Distribution of shares
Round-lot Holders (A)

(no of holders of a unit of trading, generally 100 shares) 2000
OR
Total shareholders (A) 2200
Average Monthly Trading Volume (for the most recent six
months) 100000
OR shares
Total shareholders (A)
500
Average Monthly Trading Volume (for the most recent 12 1000000
Months) shares
Public Shares(B) 1100000
outstanding
Market value of public shares (B,C)
Public companies $100
IPOs,Spin-offs, Carve-outs and Affiliated Co. Million
$60
Million
51
4.1.3.2 Financial Criteria
Earnings
Aggregate pretax earnings(D) over the last 3 years $10 Million
Minimum in each of the 2 most recent years $ 2 Million
Valuation with cash flow
Aggregate Operating Cash Flow(E) over last 3 years $25 Million
Pure Valuation
Revenues for the most recent fiscal year $75 Million
Global Market Capitalisation(F) $750
Million
REITs (less than 3 years operating history)(B)
Shareholders equity $60 Million
Funds (less than 3 years’ operating history)(B)
Net Assets $60 Million
A. The number of beneficial holders of stock held in "street name" will be
considered in addition to the holders of record. The Exchange will make any
necessary check of such holdings that are in the name of Exchange member
organizations.
B. In connection with initial public offerings, spin-offs and carve-outs, the NYSE
will accept an undertaking from the company's underwriter to ensure that the
offering will meet or exceed the NYSE's standards.
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C. If a company either has a significant concentration of stock or changing market
forces have adversely impacted the public market value of a company that
otherwise would qualify for an Exchange listing, such that its public market
value is no more than 10 per cent below the minimum, the Exchange will
consider stockholders' equity of $60 million or $100 million, as applicable, as
an alternate measure of size.
D. Pre-tax income is adjusted for various items as defined in Section 102.01C of
the NYSE Listed Company Manual.
E. Represents net cash provided by operating activities excluding the changes in
working capital or in operating assets and liabilities, as adjusted for various
items as defined in Section 102.01C of the NYSE Listed Company Manual.
Average global market capitalization for already existing public companies is
represented by the most recent six months of trading history. For IPOs, spin-
offs and carve-outs, it is represented by the valuation of the company as
represented by, in the case of a spin-off, the distribution ratio as priced, or, in
the case of an IPO/carve-out, the as-priced offering in relation to the total
company's capitalization.
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Criteria for Listing
The number of shareholders:
 In case where the number of shares to be listed is less than 10 thousand units;
800 persons.
 In case where the number of shares to be listed is 10 thousand units or more but
less than 20 thousand units; 1,000 persons,
 In case where the number of shares to be listed is 20 thousand units or more;
1,200 persons.
Number of years since incorporation:
3 years or more have elapsed by the last day of a business year immediately
prior to the day of listing application
Amount of profit:
The amount of profit for the first year of the latest 2 years was 100 million yen
or more; and 400 million yen or more for the latest year, or The amount of profit
for the first year of the latest 3 years was 100 million yen or more; 400 million
yen or more for the latest one year of the latest 3 years; and the aggregate
amount of profits for all of the latest 3 years was 600 million yen or more.
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KOREA STOCK EXCHANGE
Quantitative Requirement:
i. No of Shares: At least 1million shares as of application date. Net Worth: At
least KRW 10 billion as of application date.
ii. Sales Amount: At least KRW 30 billion for the latest fiscal year and the
average for the latest three fiscal years should be at least KRW 20 billion.
Financial Requirement
i. Profit: Profit must show operating profits, ordinary profits and net profits.
Profits for the latest fiscal year should be at least KRW 2.5 billion and the
sum for the latest three fiscal years should be KRW 5 billion.
ii. Reserve Ratio: At least 50% (25% for large corporations) according to the
balance sheet of the latest fiscal year.
Reserve ratio = [(Net worth - Paid-in Capital) / Paid-in Capital] * 100
No of years since establishment: Have been operating without interruption for at
least 3 years since establishment.
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Basic Listing Requirements for Equities
 Profit attributable to shareholders: At least HK$50 million in the last three
financial years
 Market Capitalization: At least HK$200 million at the time of listing
 Revenue: At least HK$500 million for the most recent audited financial year
 Cash flow: Positive cash flow from operating activities of at least HK$100
million in aggregate for the three preceding financial years
 Spread of Shareholders:100 shareholders for issuers with 24 months of active
business pursuits. 300 shareholders for issuers with 12 months of active business
pursuits.
 Public float: At least 25% of the issuer's total issued share capital must at all
times be held by the public.
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4.4 CIRCUIT FILTERS
Table 4.1.4.1
Exchange % Change To Trigger Circuit Breaker
NSE Market-Wide
3-Stages-10%,15%,20% of index movements
Individual Scrips(Depending upon type of scrip)
2%,5%,10% movement of individual scrip
BSE Market-Wide
3-Stages-10%,15%,20% of index movements
Individual Scrips(Depending upon type of scrip)
2%,5%,10% movement of individual scrip
Tokyo Stock 2 stage-5%,10%
Exchange
NYSE 3 stage-10%,20%,30%(set every quarter)
Korean Stock Single stage-10%
Exchange
Stock Markets have the dubious reputation of crashing without a warning taking with
the savings of numerous investors. A stock market crash is a sudden dramatic decline
of stock prices across a significant cross-section of a market. Crashes are driven by
panic as much as by underlying economic factors. They often follow speculative stock
market bubbles such as the dot-com bubble.
57
The study is restricted to the performance of the Indian Stock market, Japan, Hong
Kong, Korean, Russian and the New York Stock exchanges. Hence we will be
concentrating on the Asian Financial Crisis, Dot-Com Bubble, and the Russian
Financial Crisis etc.
As a counter measure to the instability of the stock market, various measures were
introduced by to avoid huge losses. One such solution is circuit breakers. Circuit
Breakers are “a point at which a stock market will stop trading for a period of time in
response to substantial drops in value.”(11) They are also referred to as trading curb is
certain stock markets like DJIA and NYSE. This was first introduced after Black
Monday. Black Monday is the name given to Monday, October 19, 1987, when the
Dow Jones Industrial Average (DJIA) fell 22.6%.(12). This was done with an aim to
avert panic in the market and to avoid panic selling. The Circuit Filters operate
according to the rules and requirements of the stock Market in question.
Index-based Market-wide Circuit Breakers
The index-based market-wide circuit breaker system applies at three stages of the index
movement, either way viz. at 10%, 15% and 20%. These circuit breakers, when
triggered, bring about a coordinated trading halt in all equity and equity derivative
markets nationwide. The market-wide circuit breakers are triggered by movement of
either the BSE Sensex or the NSE S&P CNX Nifty, whichever is breached earlier.
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 In case of a 10% movement of either of these indices, there would be a one-hour
market halt if the movement takes place before 1:00 p.m. In case the movement
takes place at or after 1:00 p.m. but before 2:30 p.m., there would be trading halt
for ½ hour. In case movement takes place at or after 2:30 p.m., there will be no
trading halt at the 10% level and market shall continue trading.
 In case of a 15% movement of either index, there shall be a two-hour halt if the
movement takes place before 1 p.m. If the 15% trigger is reached on or after 1:00
p.m. but before 2:00 p.m., there shall be a one hour halt. If the 15% trigger is
reached on or after 2:00 p.m., the trading shall halt for the remainder of the day.
 In case of a 20% movement of the index, trading shall be halted for the remainder
of the day.
These percentages are translated into absolute points of index variations on a quarterly
basis. At the end of each quarter, these absolute points of index variations are revised
for the applicability for the next quarter. The absolute points are calculated based on
closing level of index on the last day of the trading in a quarter and rounded off to the
nearest 10 points in case of S&P CNX Nifty.
In addition to this, there are also price bands for individual securities. Daily price bands
are applicable on securities as below:
 Daily price bands of 2% (either way) on specified securities.
 No price bands are applicable on scrips on which derivative products are
available or scrip included in indices on which derivative products are
available.
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 Price bands of 20% (either way) on all remaining scrip (including debentures,
warrants, preference shares etc). The price bands for the securities in the
Limited Physical Market are the same as those applicable for the securities
in the Normal Market. For Auction market the price bands of 20% are
applicable.
 In order to prevent members from entering orders at non-genuine prices in
such securities, the Exchange has fixed operating range of 20% for such
securities.
NEW YORK STOCK EXCHANGE
Trading halts are applied by the New York Stock Exchange (“NYSE”) under
conditions of extreme market volatility. The circuit breaker trigger points are set at
three levels representing 10%, 20% and 30% of the Dow Jones Industrial Average. The
levels are calculated by the NYSE at the beginning of each calendar quarter, using the
average closing value of the DJIA for the preceding month and each trigger is rounded
to the nearest 50 points. For the third quarter 2006, the following triggers are in place.
Level 1 circuit breaker triggered if losses are 10% or 1,050 points
 Before 2:00 p.m. – halted one hour;
 At 2:00 p.m. or later but before 2:30 p.m. – halted 30 minutes;
 At 2:30 p.m. or later - trading shall continue, unless there is a Level 2 or 3
halt.
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Level 2 circuit breaker triggered if losses are 20% or 2,100 points
 Before 1:00 p.m. – halted two hours;
 At 1:00 p.m. or later but before 2:00 p.m. – halted one hour;
 At 2:00 p.m. or later - trading shall halt and not resume for the remainder of
the day. Level 3 circuit breaker triggered if losses are 30% or 3,150 points
 At any time - trading shall halt and not resume for the remainder of the day.
There are two circuit breakers which last for only 15 minutes after the price limit is hit.
The first circuit breaker takes effect when the price is 5% above or below the previous
trading day’s settlement price. Another 5% change in the same direction, or a total of
10%, will trigger the second circuit breaker. Limits do not apply to the last 30 minutes
of the trading day, unless the 15-minute cooling period spills into that time frame.
There are no limits for the last day of trading for the contract nearest to expiry.
KOREAN STOCK EXCHANGE
Daily price change limit
To avoid abnormal price fluctuations caused by imbalance in supply and demand, the
KRX-Stock Market places ± 15% of limit that the prices on individual stocks can
change during a day, thus preventing fall or rise of the price of individual stock more
than 15 per cent of the previous day’s closing price.
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Circuit Breakers
The KSE introduced the Circuit Breakers in December 1998. In order to pacify the
over-reaction of investors, when the stock price drops suddenly below certain level
(more than 10% of the closing price of the previous day and such situation continues
for longer than one minute), the circuit breakers system was introduced on December
7, 1998. The trading, which resumes by periodic call auction where the orders
submitted during the first 10 minutes after the trading halt ended, are matched at a
single price.
Regulation on program trading
As a measure used to minimize possible impacts of futures market on cash market, thus
maintaining the stability of the cash market, when the price of the most active futures
contract continues to change 5 % or more than the base price for one minute, execution
of all program trading orders in the cash market is delayed for 5 minutes.
Trading Halt
In order to protect investors, when, due to rumours or reports on the matters (e.g., bank
defaults, bankruptcy, corporate restructure, etc.) that have major implication on
corporate management, sudden and drastic change of trading value and volume is
anticipated, the trading of such issues may be halted. In such a case, the concerned
corporation is asked to make an inquiry into such rumours or reports and disclose
findings.
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Though a circuit-breaker has not been adopted yet, a two-tier circuit-breaker is being
considered, under which trading would stop for half an hour in the event of a 15%
fluctuation over the previous day’s close, and for one hour in the event of a 25%
fluctuation. Another option being considered is an individual circuit-breaker per stock,
which would cause a ten-minute open-outcry auction to be initiated every time a stock
price varied more than 10% over last day’s close.
4.5 -TRADING AND SETTLEMENT CYCLE
This segment takes care of the efficiency issue of the said stock exchange. It
basically looks into the speed at which any of the numerous transactions affected in the
market gets settled. This is especially crucial given the volume. We see that Indian
exchanges are at par with the best in the world when it comes to efficient settlement. It
can even go one up if the proposed ‘T+1’system is put in place.
Table 4.1.5.1 showing the various settlement cycles for the stock exchanges.
Exchange Settlement Cycle
NSE T+2
BSE T+2
NYSE T+3
Korean Stock Exchange T+2
Tokyo Stock Exchange T+3
Hong Kong Stock Exchange T+2
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4.2 QUANTITATIVE ANALYSIS.
The hypothesis that the exchanges impact each other has been tested
through various statistical methods with data on price, returns collected from the
exchanges. Mainly the correlation analysis, exponential trend analysis and the risk-
return analysis has been used to validate the hypothesis.
4.2.1 Price Relationship:
Correlation is a numerical summary measure that indicates the strength of
relationships between the pairs of variables. A correlation is very useful but it has its
limitations. That is, it can only measure the strength of a linear relationship. The
numerator of the above formula is also a measure of association between two
variables X and Y which is called the covariance between X and Y. Similar to
correlation, a covariance is a single number that measures the strength of the linear
relationship between the two variables. It is by looking at the sign of the correlation or
the covariance, i.e. positive or negative, that we can tell whether the two variables are
positively or negatively related.
Therefore the correlation is better because, unlike the covariance, the correlations are
not affected by the units in which the variables are measured. All the correlations are
between +1 and -1, inclusive. The sign determines whether the relationship is positive
or negative. The strength of the relationship is measured by the absolute value or the
magnitude of the correlation. The closer it is to +1 the stronger the relationship is and
the closer to zero indicates that there is practically no linear relationship. At the
extreme a correlation equal to1 -1 or +1 occurs only when the linear relationship is
perfect. In this part the price data of the various exchanges are collected and subjected
to a correlation test in order to find out the influence that they have on each other.
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In other words, an effort has been made to gain insight into how far the price
movements of the exchanges are related with one another.
Figure 4.2.1 NSE vs. Russian Stock Exchange
During period 1, the two stock exchanges have moved in a very narrow range. The
volatility is much higher in the NSE than in the Russian stock exchange. There seemed
to be low connectivity between the two exchanges. In period 2, The Russian stock
exchange had seen a peak and also a very heavy drop. But at the same time, NSE did
not show so much variation as shown by Russian stock exchange. The Russian stock
exchange was awarded as the best performing stock exchange in the year 1997. But the
very next year it crashed. The event started with collapse of one of the largest bank in
Russia and, for the first time ever, a country defaulted on its government securities.
Then the political environment became volatile, which led to the ouster of Boris Yeltsin
and then Putin came to power. NSE again moved in a range but showed much higher
volatility than the previous period. The Russian market showed the characteristics of a
‘grave yard’ market wherein there is so much wealth loss due to decline of the indices
that those who are in the market cannot sell off and come out as no one is willing to buy
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and get into the market at that current scenario. Period 3 saw reversal of roles of earlier
period. NSE went up and reached a peak and then came down whereas the Russian
stock exchange remained stagnant. NSE rose because of tech boom till mid of 2000.
Subsequently it collapsed and went back to its level of 1998 in the year 2001. Till 2003,
NSE remained at the level that it attained in the year 1998. But volatility was much
higher in this period. Russian stock suffered from the period of stagnation in this period.
The stock exchange did not respond at all to the tech boom. After the bubble collapse
this exchange started to move up slowly. NSE moved up very sharply responding to the
favorable interest rate regimes and other macroeconomic factors. Growth was very
sharp in this period for NSE. Russian stock exchange also rose but marginally. But the
volatility is higher which shows that the trading activity has started to pick up. During
period 4, both the exchanges rose sharply and moved in an almost identical fashion.
Correlation is also very high during this period. This shows a lot more integration of
two markets with each other.
Figure 4.2.2 NSE vs. Hong Kong
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In the above figure, period 1 shows that there is almost no correlation between these
two exchanges. Hang Seng was raising very sharply because of the East Asian miracle.
Whereas India, not part of this success story, remained almost untouched by this boom.
NSE is almost constant during this period. During period 2, Hang Seng crashed 50 per
cent and then rose back 100 per cent. Thus, it showed very high volatility during this
period. NSE also rose during this period because of pervasive tech boom but the rise
was not as spectacular as Hang Seng. Hang Seng might also have risen sharply because
of its previous low levels. Period 3, Hang Seng was falling steadily; showing a
downward trend. This might be due to the fear of global recession. But the NSE was not
much affected. During Period 4, NSE was rising in almost identical manner with the
Hang Seng. This shows the larger integration of the Indian economy in the foreign
market. This might also be due to the fact that this boom was led by FII and other
foreign investors. Hence, NSE is showing higher correlation during this period.
Figure 4.2.3 NSE vs. NYSE
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Here, NYSE was a success story in this period. Led by the tech companies, the US
economy was at its pink which is reflected in the NYSE. But the NSE did not appreciate
much. In the NYSE the tech boom was saturating. The NYSE did not appreciate much
in the initial period. But in the year 1999 and mid of 2000, NSE was rising with the
NYSE because India had benefited much from the tech boom in this period along with
the NYSE. The high dependence of India on the US in trade was reflected by the two
stock exchanges. During this period, both the stock exchanges has risen sharply.
Although the percentage change in the NSE was much larger, but the manner in which
they were moving was highly correlated.
Figure 4.2.4 NSE Vs. Korean Stock Exchange
The above diagram shows that, during 1995, both the stock exchanges were at the same
level. But due to East Asian crisis, Korean stock exchange was much more affected
because its economy was more integrated with those East Asian economies. During
period 2, both the stock exchanges moved in almost identical manner. The returns were
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Almost nearly equal during this period, since both the stock exchanges rose very
sharply. But, the rise in the NSE was much sharper. Still, we can say that the two
exchanges were moving more or less in same fashion. We have tried to take a look at
the impact of various stock exchanges on each other in this section. Therefore, we have
divided our time period from 1995-2006 June into sub-sets depending on the happening
of certain changes caused by events or policy decisions. This has the purpose of finding
out the extent of impact that the markets have on each other.
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Table 4.2.1 showing Stock Price Correlation Among Stock Exchanges
Year/variables Korean Russian Hong Kong New York NSE
1995-1997
Korean 1.000
Russian -0.663 1.000
Hong Kong -0.868 0.837 1.000
New York -0.878 0.873 0.933 1.000
NSE -0.277 0.386 0.421 0.355 1.000
1998-2000
Korean 1.000
Russian 0.367 1.000
Hong Kong 0.603 0.629 1.000
New York 0.628 0.282 0.657 1.000
NSE 0.826 0.548 0.810 0.631 1.000
2001-2003
Korean 1.000
Russian 0.586 1.000
Hong Kong 0.171 0.171 1.000
New York -0.031 -0.296 0.566 1.000
NSE 0.395 0.427 0.789 0.467 1.000
2004-2006
Korean 1.000
Russian 0.910 1.000
Hong Kong 0.156 0.399 1.000
New York 0.952 0.909 0.242 1.000
NSE 0.925 0.941 0.336 0.931 1.000
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The period 1995-97, characterized by the South East Asian currency crisis and other
economic events, did not have integration of different markets at high levels. This is
especially true in case of India. Our country was in its inception stage as a globalized
economy and hence distinctly protected from foreign exposure. The capital market
was slowly evolving at that point of time, putting systems in place. That is to say,
India had only limited foreign exposure which somewhat insulated the country’s
economy from foreign economic upheavals. This is clearly reflected in the following
table of correlations which clearly shows that, in that period, very little correlation
was existing among the exchanges. This signifies that the impact of other exchanges
was negligible on the Indian capital markets. The almost non-existent effect of the
South Asian Currency crisis, which affected Korea, on the Indian market validates our
observation. The correlation shows negative for Korean exchange. During the period
1998-2000, Indian economy faced a recession as well as a period of heightened
business activity. Mainly, the capital market started to consolidate across the globe.
This is reflected by increasing impact of various exchanges on the NSE. The point to
note is that it is mainly the Asian markets that have started impacting the NSE. The
Korean market started to cast its effect along with the Hong Kong market.
This maybe because a lot of MNCs made their Asian base in those two countries and
they also operated in India, hence the impact.
The period 2001-03 faced another major economic dampener in the form of the 9/11
attacks in USA. This left the world economy in a state of shock. As could be expected,
the economies across the globe faced recessionary situation. However, this time also,
except for the Hong Kong bourses, none else had any significant impact on the Indian
counterpart. 2004-06 is termed as the period when the various world markets started to
converge. In the global scenario also, we find that the economies facing downturn were
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making a comeback – Japan and USA. Our expectation to find high level of impact of
other markets on Indian market gets validated as shown by the significant correlation
figures in the table. However, one thing to notice is the lessened impact of the Hong
Kong market on the Indian market which, going by the past trend, comes as a surprise.
This may be due to easing of restrictions which previously insulated the economy from
foreign exposures. The increased cross border flow of capital also contributed to this
phenomenon.
4.2.2 Risk and Return
This section tries to compare the various exchanges on the basis of returns and the
corresponding risks associated with it, returns being, perhaps, the single most
important factor affecting the performance of any index. While risk can be termed as
the major factor underlying all activity, it becomes imperative to compare the
exchanges based on this parameter. Table exhibits the historical risk-return figures of
the exchanges. From the return perspective, NYSE seems to be most stable among all
of these stock exchanges. There are only two years when NYSE has given the negative
returns, i.e. in the years 2001 and 2002. Russian stock exchange is the most volatile of
all these and has given returns from 108% to -194%. NSE seems to have followed or
moved in tandem with the NYSE more after year 2000. Hang Sengexchange follows
long cycles. If returns turn negative, they remain negative for two or three years.
Similarly if return turns positive, then they remain so again for two or more years.
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Table 4.2.2 showing risk and return of stock exchanges
Hong New Korean
years NSE Kong York Exchange BSE
risk return risk return Risk return risk Return Risk return
1995 60.1 -26% 323.5 20% 240.4 27% 40 -14% 10.1 -19%
1996 100.4 -1% 418.7 30% 193 17% 71.4 -31% 47 83%
1997 82.4 14% 905.1 -20% 411 27% 108.3 -55% 93.5 62%
1998 115.4 -20% 637.9 -20% 328.4 15% 88.2 38% 114 -194%
1999 184.0 51% 784.0 54% 220 9% 156.8 56% 24.7 108%
2000 157.2 -23% 521.8 -18% 218.2 3% 143.8 -74% 24.5 -22%
2001 129.2 -17% 659.8 -21% 374.9 -8% 48.1 29% 23.9 69%
2002 67.7 4% 336.5 -17% 560 -22% 80.0 -14% 32.4 29%
2003 254.2 54% 654.9 36% 480.3 22% 84.2 24% 81.3 45%
2004 159.0 8% 371.2 9% 229.5 12% 53.1 9% 55.6 -14%
2005 263.5 29% 278.3 7% 230.7 8% 136.3 43% 155.0 62%
2006 252.3 10% 335.0 15% 182.2 5% 60.3 -3% 128.9 31%
Russian stock exchange has shown the least variation and hence appears to be least
risky. But actually there is very less trading in the Russian stock market during the
period of 1999 to 2003 due to stagnation and political instability and uncertainties about
economy.
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4.2.3 Risk Return Comparison
Korean stock market is also very stable form the standard deviation angle. But this
market has also not much appreciated over these years and it remains more or less
range- bound. Hong Kong has shown the highest volatility as it is a much traded stock
exchange. Also, the events like East Asian crisis have also affected the volatility of this
exchange. But, nevertheless, the volatility has reduced in the recent years than it has in
the period 1997-1999. Yet, it is more volatile than the other stock exchanges that we
have compared. NYSE is a mature and most stable market of all these. The volatility
has remained more or less constant over the years. The volatility of the NSE has risen
steadily over these years as the trading and market capitalization of the companies has
increased. Now the volatility of NSE is almost at par with the other exchanges.
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CHAPTER 5
FINDINGS, CONCLUSION & SUGGESTIONS
5.1 FINDINGS
Finally, we can sum up with the following findings from this study:
 In 1995, the risk was 60.1, the return was -26% in NSE. But when it came to
2006 the risk became 252.3 and the return increased to 10% (when risk
increased return also showed an increase), where in Hong Kong and New York
stock exchange showed a different picture. In these two exchanges when the risk
decreased the return also reduced.
 The markets have indeed started to integrate and Indian market has no exception
especially after 2002-03.
 In the period 1995-1997, very little correlation was existing among the
exchanges. This signifies that the impact of other exchanges was negligible on
the Indian capital markets. But in the period 2004-2006, except for Hong Kong
stock exchange, all other stock exchanges had a serious impact on Indian stock
exchange.
 Lastly, although it has to be accepted that the market is evolving but the Indian
system has already attained the minimum level of robustness and efficiency to
be counted among the best in the world and stand equipped to attain higher
sophistication as well as heightened activities.
 As for the existence of any signals or patterns among the stock exchanges, it can
safely be said that the markets do react to global cues and any happening in the
global scenario be it macro-economic or country specific (foreign trade channel)
affect the various markets.
 In short, the Indian exchanges are ready to make the transition should the
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government decides to further relax the regulations and open up. The financial
sector as a whole, with the stock markets as its indicator, has indeed come a long
way and are ready for the next level with regards to efficient trading and variety
in the instruments traded.
Thus this study validates the popular belief that the markets in general and Indian
market in particular is more integrated with other global exchanges from 2002-03
onwards. This can very well be seen since the South Asian crisis of the mid- late
nineties barely affected us particularly because we were insulated due to government
policies and was just making the transition. However, in the later time periods, the
influence of other stock markets increased on our BSE or NSE, but at a very low
almost insignificant level. At the time of 9/11 incident, NYSE had started to exert its
influence on us but at lower levels and hence the economic downturn did not impact
for long. The increased trend of Indian companies going for ADR and GDR issues has
also contributed as a channel for information transfer between the exchanges where
the particular company is listed. This has not only facilitated the integration process
but also increased the sensitivity of the home country’s stock exchange to the
movements of various other exchanges especially where the home company is listed.
As for the existence of any signals or patterns among the stock exchanges, it can
safely be said that the markets do react to global cues and any happening in the global
scenario be it macro-economic or country specific (foreign trade channel) affect the
various markets.
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5.2 CONCLUSIONS
 The study brings forth some distinct conclusions many of which validate
popular beliefs. The objective of the whole research was to try and compare the
various stock exchanges based on certain parameters in order to understand the
impact of integration of the financial world on the various entities within it
especially in the context of globalization and increased interest in the capital
markets fuelled by surging growth.
 The various research papers that have been studied traced the gradual ‘coming
of age’ of the Indian stock market over the past decade without actually arriving
at any conclusive evidence on the comparative position of our stock exchange
with that of other global ones. The studies mainly looked at various aspects of
efficiency in the stock market on a standalone basis and tried to draw conclusion
regarding the state of our maturity. However, we have tried to use the
comparison method to benchmark the performance of our stock market with that
of a selection of global stock exchanges on the basis of their diversity with
respect to geo-socio-politico-economy.
 With regard to the initial hypothesis of this study, it is clearly found that the
stock markets do impact each other, more so in the recent times, i.e. post-2000.
This has been due to the fact that ‘cross holdings’ are increasingly becoming
common wherein the geographical barrier is dissolving with respect to
investing. In India also, deliberations are on to ‘cross list’ Indian shares in Asian
exchanges to start off. This will increase the degree of integration manifold.
Moreover, the automation of the exchanges has played a vital role in making the
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financial markets integrated. In this context, the pioneer is the Swiss exchange,
followed by Brussels as an early adapter. The spate of ‘ADR’s and ‘GDR’s,
along with the increased opening up of various economies, increasing foreign
trade and the rise of the ‘MNC’s have contributed immensely to the integration
process. It leaves us with the conclusion that the strategy of globally
diversifying investments is slowly losing its profitability. Especially after 2000,
the markets are fast converging. It has now become a global market operating 24
hours, with opening of markets in different time zones at various points of time
appearing to be seamless. Thus, in hindsight, it would not be an exaggeration to
say that the impact of the South East Asian currency crisis, if happened today,
would have much more drastic effect on India, as the country is more in sync
with the global markets. Actually, it can be said that, in the current scenario, any
apprehension about stocks in one country can escalate into a panic selling.
However, a caveat needs to be put here with respect of the attractiveness of the
global diversification strategy. In a way, though the attractiveness of the strategy
is gradually diminishing, it can still be profitably used for investing in countries
whose stock exchanges do not yet have high correlation amongst each other.
Moreover, although the stocks listed in the stock exchanges of the sample in this
study do impact each other and move in tandem, the magnitude of that
movement as a result of reacting to global cues varies and, to that limited extent
of variation, the global diversification strategy can prove useful. In short, the
‘transaction cost’ for investment is coming down as is ‘informational cost’.
 Qualitatively, the comparison showed that Indian stock exchange has the
governance system and an efficient mechanism in place to be a world class
institute, specially the requirements of Clause 49 promulgated by SEBI and the
78
advanced trading and settlement mechanism of NSE, respectively. However,
unfortunately our implementation of the same remains a problem area with
almost 15-20% of the listed companies yet to align their operations as required
under the law.
 Moreover, there are also issues regarding the extent to which the sophisticated
systems of the stock exchanges (NSE, BSE) are utilized in terms of the volume
and frequency of transactions and the range of instruments traded. The
commodity segment, derivatives and such other segments are yet to see
activities like the equity segment of the market. The reasons that can be
attributed to this is the fact that it has been only 5 years (derivatives started in
2000) that the various segments, apart from equity and debt, have started
operating and hence it is reasonably nascent compared to its global counterparts.
It would, therefore, not be unjustified to say that the system is still evolving and
it would take some time not only to attain efficiency of operation, but also to
generate increased interest and awareness about the various other segments of
the market. Then only can we expect the operations to match its global
counterparts in terms of volumes, frequency and variety of instruments traded.
 One more reason that can be attributed for the lag between a global benchmark
like NYSE and BSE or NSE can be the fact that, in our country, listing of
foreign companies are still not allowed on the lines of ADRs or GDRs. This can
be due to lack of depth and breadth of the market. Again, as this study points
out, the listing criteria differ in terms of size as well as their disclosure norms.
This implies that the depth of the market judged by the total capitalization is less
for the Indian markets compared to its counterparts. Moreover, the disclosure
norms affect the governance aspect as also the information availability.
79
 The opening up of the economy and its subsequent impact on the financial
sector has only started barely in the last six years and, hence, the ‘teething
problems’ of initial scepticism, lack of awareness and interest exist, besides
cautious approach towards bringing about changes with keenly monitored
impact of those changes.
 However, Indian stock market is very much at the same pedestal and, in fact,
better than most of its Asian counterparts especially the emerging economies.
Indian system enjoys creditability even when compared with a stock exchange
like Nikkei (Japan).
 If we look at the efficiency of trading captured by the ‘trading and settlement’
mechanism, then we have found that the Indian mechanism is faster than the
NYSE and at par with the best in the world. In fact, it is one of the fastest.
 One problem area that came out as a possible barrier in the path of Indian stock
exchanges attaining global level is the fact that India has a very low rank in
terms of market capitalization (ranked 14 th). All other stock exchanges that we
used in our study rank above Indian stock exchange. This is in spite of the fact
that Indian stock exchanges have the highest number of companies listed
(around 9000) and BSE accounting for almost 75%. Therefore, volume-wise,
Indian market is still pretty small.
 One more aspect that we have tried to look at in this study is the extent of
influence the various stock markets cast on each other, specifically the impact of
other stock exchanges on their Indian counterpart. In order to understand, we
divided our study period in parts based on certain events that had economic
implications. Here, we found the results validating popular belief that the
markets in general and Indian market in particular became more integrated with
80
other global exchanges from 2002-03. This can very well be seen since the
South Asian crisis of the mid-late nineties barely affected us, particularly
because we were insulated due to government policies and were just making the
transition. However, in the later time periods, the influence of other stock
markets increased on BSE or NSE but at a very low - almost insignificant -
level. At the time of crucial 9/11, NYSE had started to exert its influence on us
but at lower levels and, though the economic downturn impacted, it did not last
long. The increased trend of Indian companies going for ADR and GDR issues
has also contributed as a channel for information transfer between the exchanges
where the particular company is listed. This has not only facilitated the
integration process, but also increased the sensitivity of the home country’s
stock exchange to the movements of various other exchanges especially where
the home company is listed.
81
5.3 SUGGESTIONS
 The regulatory authorities can remove any ambiguity that may be existing when
compared to the regulations of other exchanges before they can actually make
the trade.
 In present scenario, as the risk in Indian capital market is increasing, the return
is also increasing. Whereas all other stock markets are showing a gradual
decline in the risk as well as return. So analyzing the present world market it
would be better choice for the investors to invest in Indian Stock exchange.
 In order to attract the small and medium size companies which are not yet listed
in the capital market, the stock exchange can relax the criteria and agreements
for listing which will lead to an increase in market capitalization.
82
BIBLIOGRAPHY
References
1. Masih, A. M. M. & Masih, R. (1997). A comparative analysis of the
propagation of stock market fluctuations in alternative models of dynamic
causal linkages. Applied Financial Economics, 7 (1), 59-74.
2. Agarwal, R N (2000): ‘Financial Integration and Capital Markets in
Developing Countries: A Study of Growth, Volatility and Efficiency in the
Indian Capital Market’, mimeo, Institute of Economic Growth, Delhi.
3. Bae, K, Cha, B, & Cheung, Y (1999): ‘The Transmission of Pricing
Information of Dually- Listed Stocks’, Journal of Business Finance and
Accounting, 26 (5) and (6), June/July,709-23.
4. Becker, K, Finnerty, J., & Gupta, M. (1990): ‘The Intertemporal Relation
between the US and Japanese Stock Markets’, Journal of Finance, 45, 1297-
1306.
5. Bennett, P., & Keller, J. (1988): ‘The International Transmission of Stock
Price Disruption in October 1987’, Federal Reserve Bank of New York
Quarterly Review, Summer, 17-33.
6. Froot, K., & Dabora, E. (1999): ‘How are Stock Prices Affected by the
Location of Trade?’, Journal of Financial Economics, 53, 189- 216.
7. Hansda, S. K., & Ray, P. (2002): ‘BSE and Nasdaq: Globalisation, Information
Technology and Stock Prices’, Economic and Political Weekly, 37 (5),
February 2, 459 468.
83
8. Howe, J S., & Madura, J. (1990): ‘The Impact of International Listings on
Risk: The Implications for Capital Market Integration’, Journal of Banking and
Finance, 14, 1133 42.
9. Lau, S T., & Diltz, J.D. (1994): ‘Stock Returns and the Transfer of
Information Between the New York and Tokyo Stock Exchanges’, Journal of
International Money and Finance, 13 (2), 211-22.
Websites Referred
 www.bseindia.com
 www.nse-india.com
 www.ebsco.com
 www.tse.or.jp/english/index.shtml
 www.hkex.com.hk/
 www.krx.co.kr/webeng/index.jsp
 www.tse.or.jp/english/index.shtml
 www.nyse.com
 www.rts.ru
 www.kse.or.kr
 https://en.wikipedia.org/
 www.moneycontrol.com/
84

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A COMPARATIVE STUDY ON INDIAN STOCK EXCHANGE AND SELECTED

FOREIGN STOCK EXCHANGES

the emergence of new international financial institutions offering financial services

regardless of geographical jurisdictions, trends of liberalization and the removal of

diversification, and use arbitrage in a relevant way.

KRISTU JAYANTI COLLEGE AUTONOMOUS BANGALORE Page 1

"An association, organization or body of individuals, whether incorporated or not,

selling and dealing in securities."

Features of Stock Exchange

Characteristics or features of stock exchange are:-

1. Market for securities

government bodies are bought and sold.

2. Deals in second hand securities

3. Regulates trade in securities

KRISTU JAYANTI COLLEGE AUTONOMOUS BANGALORE Page 2

and fair trade

4. Allows dealings only in listed securities

5. Transactions effected only through members

the stock exchange through the authorised brokers only.

A stock exchange is an association of persons or body of individuals which may be

7. Recognition from Central Government

Stock exchange is an organised market. It requires recognition from the Central

8. Working as per rules

KRISTU JAYANTI COLLEGE AUTONOMOUS BANGALORE Page 3

the rules and guidelines is allowed in any case.

conducted and controlled through computers and electronic system.

10. Financial Barometers

Functions of Stock Exchange - Main Functions in the Market

1. Continuous and ready market for securities

also acts as an outlet/counter for the sale of listed securities.

2. Facilitates evaluation of securities

KRISTU JAYANTI COLLEGE AUTONOMOUS BANGALORE Page 4

3. Encourages capital formation

into profitable investment. It acts as an instrument of capital formation. In addition, it

also acts as a channel for right (safe and profitable) investment.

4. Provides safety and security in dealings

custodian of funds of genuine investors.

5. Regulates company management

6. Facilitates public borrowing

Stock exchange serves as a platform for marketing Government securities. It enables

government to raise public debt easily and quickly.

7. Provides clearing house facility

KRISTU JAYANTI COLLEGE AUTONOMOUS BANGALORE Page 5

net dues (balance amounts) because of the clearing house facility.

8. Facilitates healthy speculation

provides more business to the exchange. However, excessive speculation is undesirable

as it is dangerous to investors & the growth of corporate sector.

9. Serves as Economic Barometer

acts as a barometer of the economic situation / conditions.

10. Facilitates Bank Lending

corporate securities. This gives convenience to the owners of securities.

Services given by Stock Exchange to Investors

1. Provides liquidity to investment

Stock exchange provides liquidity (i.e. easy convertibility to cash) to investment in

provided by the stock exchange. Stock exchange provides easy marketability to

2. Provides collateral value to securities

KRISTU JAYANTI COLLEGE AUTONOMOUS BANGALORE Page 6

borrowing from a bank against securities on easy terms.

3. Offers opportunity to participate in the industrial growth