Although Mr.Baskaran Kanakasabai has cleared the much of the theoretical aspects of the Stock Market. I would like to add the following inputs being the Mechanism of Trading as here under : -
The three important limbs of the Stock Market are individual and Institutional Investor, a Depository Member/Stock Exchange and Regulator being SEBI.
A client can buy and sell shares listed on a Stock Exchange only through a Member registered with the respective Stock Exchange viz. NSE or BSE. Every Member has also to be compulsorily registered with SEBI.
Every client desirous of trading in shares first gets himself registered with the Member by entering into a Member Client Agreement which contains the terms and conditions including order/trade confirmation, brokerage charged by a trading member, delivery of securities and funds etc. Every client is, then, allotted a code number, which is called Unique Client Code. It acts as identification for the client. The Member also allots a password to the client to enable him to access the website of Member for verifying all the transactions executed by the broker on his behalf every day and also to have daily access to the transaction statement and financial position.
The client can thereafter place an order for purchase and sale of shares either in writing or over telephone or through Internet. However before executing any order the trading member has to ensure that the client deposits with him a sufficient up front margin money for the value of shares intended to be purchased or sold.
In actual practice the clients place their orders for purchase or sale of their shares mostly on telephones both mobile and landlines. The share market is so dynamic and fast moving that rates of shares change most of the times in a fraction of a second. Therefore it is imperative that the order of a client is executed immediately lest the rate changes to the disadvantage of a client. The exact working pattern therefore is that the person attending a call from a client holds the telephone line with one hand and executes the order with the other hand on the computer lying in his front.
The share market is a most fluctuating market involving enormous risks of various unforeseen losses while the investors speculate accrual of only profits. It is always for the client to vouchsafe his/her interest using his/her own intellect and wisdom and knowledge of the stock market. It is thus only the best imagination and competence of the client himself/herself to adjudge where to invest and when to invest and therefore the entire risk of losing or gain of profit is absolutely to the account of the client. To put it in a more simple language, the Member provides only the service to the client for either purchasing or selling share. Neither the money invested in the purchase nor the money received by selling, goes to the Member The member gets only his commission which in certain cases is as low as 3 paise per hundred rupees. Thus a Member is only a facilitator and not a beneficiary either in sale or purchase of shares. Any amount charged by a Member either as service tax or transaction charges levied by the Stock Exchange or on account of the losses suffered by the client, goes to the concerned authorities i.e. either the Government or the Stock Exchange.
The trading system generates and maintains an audit trail of the orders entered on the Computer system by assigning a unique order number to all the orders placed on the system. As soon as an Order is executed the Computer system generates the trade number, trade time, quantity and price at which the trade took place. At the end of the day, the trading member issues to his client a contract note. Earlier the contract note could be delivered to the client either by hand or through courier or in the manner mutually agreed. After the enactment of Information Technology Act, 2000 a member is empowered to display the digitally signed contract notes of his clients on its website which has to be accessed by the client daily using his password as explained above.
The Stock Exchange maintains details of the order/trade number and other details pertaining to all the trades of the trading members on a particular day for a period of eight years.
In case of any discrepancy, the clients should bring the same to the notice of the trading member immediately by way of written communication duly acknowledged by the trading member, clearly mentioning the deals (in dispute) which do not pertain to him.
It would be worthwhile to highlight that Securities and Exchange Board of India (SEBI), is an extended arm of Government of India and was formed by an Act of Parliament in 1992 with the objective to regulate all Capital Market intermediaries and particularly to protect the interests of small investors. All the Stock Exchanges work under the aegis of SEBI All our activities are under the watchful eyes of Stock Exchanges and SEBI through their Inspection Audit and Surveillance mechanisms. Stock Exchanges have also evolved a system of looking into the grievances of the investors. In case of any dispute is not resolved through that mechanism, the concerned Stock Exchange has its ARBITRATION system where such disputes are referred, arbitrated and awarded, and the Award of the Arbitrator is final and binding on both the parties. SEBI Regulations, Bylaws of the Stock Exchanges, Member Client Agreement and Contract Notes stipulate that Arbitration mechanism of the Stock Exchanges is the only means to resolve all disputes between the brokers, and their clients in respect of trades done on the Stock Exchange. Persons who have expertise in the field of Capital Market operations are empanelled by the Stock Exchanges as Arbitrators. Both the client and the broker are empowered to choose an arbitrator from the panel of arbitrators. In case of disagreement the exchange can decide the Arbitrator.
ARBITRATION system where such disputes are referred, arbitrated and awarded, and the Award of the Arbitrator is final and binding on both the parties. SEBI Regulations, Bylaws of the Stock Exchanges, Member Client Agreement and Contract Notes stipulate that Arbitration mechanism of the Stock Exchanges is the only means to resolve all disputes between the brokers, and their clients in respect of trades done on the Stock Exchange. Persons who have expertise in the field of Capital Market operations are empanelled by the Stock Exchanges as Arbitrators. Both the client and the broker are empowered to choose an arbitrator from the panel of arbitrators. In case of disagreement the exchange can decide the Arbitrator. It would thus be kindly appreciated that our entire transactional activities are being constantly watched and governed by the Stock Exchange and the Government through SEBI which provides a separate mechanism of espousing, adjudication and redressal of disputes amongst the parties to the Know Your Client, Member Constituent Agreement.
The only problem is that the investors usually don't stick to the basic (knowledge about the fundamentals of a Corporate entity) and indulge in Speculative Trading for whatever reasons and yes there is a problem of incorrect SQUARING OFF OF THE TRADES NOW AND THEN.
In view of the facts it would be improper to term the stock markets as tools to fool people by businessmen through Government.