Indian Financial Market

Gilt-Edged (Government) Securities Market

Government securities refer to the marketable debt issued by the government of semi-government bodies. A government security is a claim on the government. It is a totally securer financial instrument ensuring safety of both capital and income. That is why it is called gilt-edged security or stock. Central Government securities are the safest  among  all securities.  Government securities are issues by:

  • Central Government
  • State Government
  • Semi-Government authorities like local government authorities, e.g., city corporations and municipalities
  • Autonomous institutions, such as metropolitan authorities, port trusts, development trusts, state electricity boards.
  • Public Sector Corporations
  • Other governmental agencies, such as SFCs, NABARD, LDBs, SIDCs, housing boards etc.
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Role of NBFCs in the Indian Financial Sector

The financial institutions are usually classified as banking institutions and non-banking financial institutions (NBFCs). The banks subject to legal reserve requirements can advance credit by creating claims against themselves, while the non-banking financial institutions can lend only out of resources put at their disposal by the ultimate savers. The distinction between the two has been highlighted by savers while characterizing the former as “creators” of credit, and the letter as mere “purveyors” of credit.

NBFCs and Monetary Policy

The proliferation of NBFCs in India has coincided with a major structural transformation in the Indian financial system, which has an important bearing on the conduct of monetary policy.… Read the rest

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Advantages of Rolling Settlement

Rolling settlement system replaced the badla system from July 2, 2001. On July 2, 2001, 215 scrips were brought under the riling systems, bringing the total to 414 scrips. By January 2, 2002 all scrips were brought under compulsory rolling mode. Internationally most developed countries follow a T+3 cycle and are aiming to move to a T+1 cycle (next day settlement) or a T+0 cycle where trades are settled on the day they are executed (same evening settlement). This is system of T+0 is prevalent in Switzerland and volumes are phenomenal when compared to the T+3 system. Indian stock markets moved to the T+3 system from April 2002, in line with the recommendations of the “Group of Thirty” which suggested it as minimum international standard.… Read the rest

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Clearing and Settlement of Futures and Options

National Securities Clearing Corporation Limited (NSCCL) undertakes clearing and settlement of all trades executed on the futures and options (F&O) segment of the NSE. It also acts as legal counterparty to all trades on the F&O segment and guarantees their financial settlement.

Clearing Entities

Clearing and settlement activities in the F&O segment are undertaken by NSCCL with the help of the following entities:

  • Clearing members: In the F&O segment, some members, called self clearing members, clear and settle their trades executed by them only either on their own account or on account of their clients. Some others called trading member–cum–clearing member, clear and settle their own trades as well as trades of other trading members (TMs).
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Role of Stock Markets in an Economy

Financial market is one of the components of financial system. Financial market facilitates the efficient allocation of financial resources of the economy so as to achieve socially desirable and economically productive purposes. Existence of an efficient financial market is a pre requisite for promoting savings, investments and consequent economic growth.

Financial markets are extremely important to the general health of an economy. The main function of financial system, viz. capital formation takes place practically in financial markets. Financial institutions work as financial intermediaries and establish link between suppliers and users of funds in financial market. Financial products, including the supply of credit, mortgages, company shares and insurance, are bought and sold in primary and secondary financial markets.… Read the rest

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Organization of Foreign Exchange Department

The Foreign Exchange department, which is also being called as the International Banking Division, is one of the important departments of the banks operating in international market. In India also all scheduled commercial banks, both in the nationalized or non-nationalized sectors, do have Foreign Exchange departments, both at their principal offices as well as offices, in metropolitan centers. This department functions independently under the overall change of some senior executive or a senior officer well-versed in foreign exchange operations as well as in the rules and regulations in force from time to time pertaining to foreign exchange transactions advised by various government agencies.… Read the rest

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