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Archive for 2011

Narain Karthikeyan

Kumar Ram Narain Karthikeyan was born on January 14th, 1977 into an illustrious family renowned as much for its endeavours in education, enterprising businesses and philanthropic passion as it is on the racing circuit. Narain was quick to inherit the racing genes from his father Shri.G.R.Karthikeyan who was a former Indian National rally champion, winning the South India rally seven times.

Recognising his son’s love for the sport, Narain’s father had him enrolled into the prestigious Elf-Winfield School in France to undergo professional training. Since then, there has been no looking back for Narain.

Placing India on the world map of motorsport and called ‘The Fastest Indian in the World’ by Autosport (the world’s premier automotive racing magazine), Narain Karthikeyan continues to bring laurels to the country…

Prime Minister Dr. Manmohan Singh has congratulated Narain Karthikeyan for winning the Feature Race in A1GP. Applauding Karthikeyan’s victory, Dr. Singh said “He is a true representative of India’s young spirit and he has set an example for the entire motorsports fraternity of India to follow.

Narain Karthikeyan featured among the 50 Most Admired People in India, according to a survey by ICMR & 4Ps Magazine. The Business Week issue commemorating the 60th year of Indian Independence listed Narain Kartikeyan as one of the 50 Most Powerful Indians.

Congress President – Ms. Sonia Gandhi congratulated Narain for his entry into F1. Our Indian President – Ms. Pratibha Patil felicitating Narain Karthikeyan for his feature race victory at the A1GP.

Narain Karthikeyan is back again to Formula 1 with HRT in 2011 that he has signed a deal to race for the team. The Indian driver says – “I’ve always maintained that my time in F1 was not over and now making good on that promise. I’m looking forward to racing for HRT and to working again with Dr. Colin Kolles. We have a long standing and excellent working relationship together.”

Speaking to The Times of India about his drive, Karthikeyan said: “It’s been a while in the making, but I am delighted to be racing again in Formula 1 in 2011. I have always maintained that I have not given up on my desire to return to the top level of motorsport. I am confident that I have the pace, the fitness and the will to succeed in Formula 1. I am extremely grateful to the Tata Group, without whose unwavering support this comeback would not have been possible.

Karthikeyan’s return to F1 coincides with the first Indian Grand Prix, which is scheduled to take place in October 2011.

Year Event
2011 Formula 1 World Championship, Team HRT
2010 Superleague Formula – PSV Eindhoven, NASCAR Camping World Truck Series – Starbeast Motorsports, Wyler Racing
2009 A1 GP World Championship A1 Team
2008 A1 GP World Championship A1 Team
2007 A1 GP World Championship A1 Team India
2006 Formula One World Championship Williams F1
2005 Formula 1 World Championship, Team Jordan
2004 World Series by Nissan
2003 World Series by Nissan
2002 Formula Nissan World Series
2001 Formula Nippon
2000 British Formula 3
1999 British Formula 3
1998 British Formula 3
1997 British Formula 3 Vauxhall
1996 Formula Asia
1995 Formula Asia
1994 British Formula Ford Winter Series
1993 Indian Formula Maruti + British Formula Vauxhall Junior
1992 ELF Winfield Racing School

Carlin Motorsport, RC Motorsport, Team Impul, Williams F1 Team, Jordan Toyota

British Formula 3, Formula Nippon, Formula Nissan (now merged as Formula Renault)

Where does NARAIN rank in the most common names in the U.S.? NARAIN is identified by the U.S. Bureau of the Census as a surname with more than 100 occurrences in the United States for the year-2000 U.S. Census. In “Demographic Aspects of Surnames from Census 2000″, the Census Bureau tabulated the surnames of all people who had obtained Social Security Numbers by the year 2000.

NARAIN ranks # 32161 in terms of the most common surnames in the United States for 2000.

NARAIN had 676 occurrences in the 2000 Census, according the U.S. government records.

Out of a sample of 100,000 people in the United States, NARAIN would occur an average of 0.25 times.

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Race / ethnic origin

The race categories shown in these files are the modified race categories used in the Census Bureau’s population estimates program. All people were categorized into six mutually exclusive racial and Hispanic origin groups: “White only”, “Black only”, “American Indian and Alaskan Native only”, “Asian and Pacific Islander only”, “Two or More Races”, and “Hispanic”.

For the last name of NARAIN the Census Bureau reports the following race / ethnic origin breakdown:

  • 4.44 percent, or 30 total occurrences, were “Non-Hispanic White Only”
  • 9.02 percent, or 61 total occurrences, were “Non-Hispanic Black Only”
  • 57.25 percent, or 387 total occurrences, were “Non-Hispanic Asian and Pacific Islander Only”
  • 3.11 percent, or 21 total occurrences, were “Non-Hispanic American Indian and Alaskan Native”
  • 22.04 percent, or 149 total occurrences, were “Non-Hispanic of Two or More Races”
  • 4.14 percent, or 28 total occurrences, were “Hispanic Origin”


NOTE: Fields suppressed for confidentiality are assigned the value “Insignificant”

The presentation of data on this site focuses on summarized aggregates of counts and characteristics associated with surnames, and, as such, do not in any way identify any specific individuals.

All data is derived from David L. Word, Charles D. Coleman, Robert Nunziata and Robert Kominski (2008). “Demographic Aspects of Surnames from Census 2000″. U.S. Census Bureau.


Rooting for Dummies: A Beginner’s Guide to Rooting your Android Device

Rooting your Android phone is a term that you are bound to across at some point or another while searching on how to optimize your Android device. With millions of new Android owners each month we decided to give a basic introduction into the world of rooting and to let you decide if it’s something you’d like to do.

What is Rooting?

Rooting is the process by which you regain administrative access to your phone. Even though Android is an open source operating system you still don’t have full “root access” to do what you please. Back when the iPhone launched in 2007 the hardcore techies quickly realized the true potential of the device, and the cruel software limitations that Apple had sealed it with. What became ‘Jailbreaking’ on iPhone was quickly translated to other platforms as well, and when the world saw the first Android back in 2008, the term “Rooting” was born.

Why Root your Android Phone/Tablet?

Rooting AndroidThe main reason people root their Android device for freedom and control, when you root your Android phone or tablet you gain full control over your system and can tweak it to your liking.

Improved Performance: You can speed up your Android device by relocating your phones cache thus allowing you to save phone memory and have a faster phone. There are applications available in the Android Market that will allow you to overclock your device to make it go as fast as you dare.

Alter System Files: You can replace many parts of the “Android Core” which include the ability to add new themes, edit the core apps (maps, calendar, clock, etc), change the recovery & boot images, add linux binaries.

More Application Choics: You will be able to install apps that are only compatible with rooted phones, some of these apps include an app that will allow you to take a screenshot on your phone, overclock your device and tether apps.

Install applications to your SD CARD: One of the most talked-about feature (or disadvantage) of any Android device is the limitation where you can install applications only in the phone’s internal memory and not the SD card. While Google may reason that SD cards are slower in general and cannot run apps as effectively as internal memory, fact of the matter is that most Android devices do not come with massive internal storage spaces, and hence greatly limit the number of applications that can be installed at a time. With rooted devices, you can use Apps2SD, which will copy ALL your applications to a ext2/3/4 formatted SD card an will also store future builds in card. Freedom to choose!

Latest Android OS (Operating System): With many carriers holding back the updates to the latest Android operating system, rooting your device will give you the option to install any current and future OS’s by installing custom-tailored ROMs.

WI-FI and Bluetooth Tethering: After having rooted your device, you can also use WiFi or Bluetooth tether to share your cellular data connection with your laptop or PC. The application works with ad hoc connections and will get you up and running online on your laptop in no time. Similarly, tethering can also be achieved over a Bluetooth connection.

How to Root Your Phone/Tablet?

To Root your phone you will have to download an application from the internet, the most popular apps are SuperOneClickZ4Root and Universal AndRoot. The procedure for rooting an Android device varies from device to device as such there are many different device specific guides. Website AddictiveTips has put together the largest guide for rooting phones that we found. Some other good resources for finding rooting guides include the XDA Developers Forums & this topic at AndroidForums. In most cases the Rooting procedure is as easy as a couple of clicks, of course there are nightmare stories and people having difficulties, so read on about the risks of rooting.
Android Root Risks

 

What are the risks of Rooting?

Rooting your phone does come with some risks, the most notable risk is that you will void any warranty that you have on your device. However you may be able to find the stock rom for your device in which case you can reverse the rooting and make your phone stock again. You may have difficulty finding the stock ROM for your device, it all depends on your device, but it’s something worth finding before you do root.

How To Root Your Android Phone And Why You Should Do It

Steve Kovach|February 16, 2011|
30,137|4

Android may have a reputation for being most open mobile platform, but some users still find themselves wanting more.

With a few exceptions, most Android phones won’t let you tether your phone to a computer for free, control your processor speed, or download apps that are only available on other phones.

The answer is to root your Android phone. It’s similar to jailbreaking for iPhone, but the process varies for each manufacturer and model.

If you want to root your Android phone, be warned: it phone voids the warranty and should only be done by the tech-savvy.

Addictive Tips has step-by-step instructions for rooting every major Android phone and tablet available right now. But the best option is to use one of the “universal” rooting programs that will work on most phones. Z4Root is the easiest of the bunch to use.

Here’s what you do:

  • Download Z4Root here, then unzip the file and save it to your desktop.
  • Connect the phone to your computer with its USB cable and drag and drop the Z4Root file to your device.
  • Now you need to find the Z4Root file on your phone. If you don’t have a file manager app, you can download one from the Android Market. Addictive Tips suggests ASTRO, but any one will do.
  • Open the file manager and find locate Z4Root and tap to open it. When it launches, tap “Root” and let Z4Root do the rest. Your phone will reboot when it’s finished.

After the root is complete, there are several apps in the Android Market to take advantage of. We suggest starting with Wireless Tether, a free tethering app, and Screenshot It, a screen grabber.

Want more Android tips? Follow Business Insider T

Read more: http://articles.businessinsider.com/2011-02-16/tech/30085785_1_android-phone-android-market-download-apps#ixzz1bWUJuqSUOther then the voiding your warranty, there isn’t that much risk involved. There have been some users on Android forums that have run into problems,  bricking your device is a possibility if a freak accident occurs while flashing archives. You should however not run into any problems, most users report the process as being a painless easy process.

People say there are always two classes of technology users; those who take and use technology the way it is brought to them, no questions or complaints, while others who want to indulge deep into the very essence of what’s being offered, and want to empower themselves with everything to take the maximum out of that technology. This rule of thumb holds true for mobile phones as well. The power user crowd has always been different from the average.

 

If you want to skip the details and get straight to the rooting process, feel free to head over to our guide on how to root your Android phone or tablet device.

Back from the old Windows Mobile ROM cooking days, people have been questioning limitations of every device and finding workarounds. When iPhone was launched back in 2007, the power user (a.k.a hackers and geeks) side of the users quickly realized the true potential the device held, and the cruel software limitations that Apple had sealed it with. What became ‘Jailbreaking’ on iPhone was quickly translated to other platforms as well, and when the world saw the first Android back in 2008, the same concept got adapted there too.

phone status

Android, despite being open source, still did not give a user complete control over the device. This laid basis for many potential abilities remaining dormant, and subsequently Android devices began to get ‘rooted’. Now this begets the question, why root? With so many Android-based handsets out there now, this question has become even more important.

Rooting essentially means gaining root-level access to your device. Those who have used Linux OS will easily understand, but for users like me who have been loyal to Microsoft’s operating system all theirlives, this means that by rooting your device you get complete control over what should remain in the device and what not. Rooting means you are the master and in control, not to mention the fun of it.

Hence, here’s a list of my top 10 reasons (in no particular order) that I consider worthy of rooting your device for.

Performance Update

There are just too many flavors of Android in the market, with every OEM or carrier adding their own personalization and customization to devices. While they may appeal to some, they do not let the device take full advantage of what the hardware is capable of. With root access, you can actually tweak the OS to behave entirely differently, and with infamous developers like Cyanogen working on custom ROMs and mods, people have actually reported performance boosts. Take the G1 for example. The device never got 2.1 officially, but thanks to Cyanogonmod G1 owners can not only the tastiness of Eclair but also report much better performance than the stock ROMs.

Hardware/Software Interaction

Most Android devices come with hardware that is fairly heavily capable, yet the OS limits them and becomes the bottleneck. By rooting, you actually remove the bottleneck and hence can take full advantage of your beloved Android. For example, overclocking a device’s CPU is fairly simple and rather safe thanks to many third-party apps, yet the OS does not allow it natively, and hence overclocking can only be done with a rooted phone. Or suppose you want to use your mobile’s LED as flashlight (HTC Desire, anyone?) but cannot because HTC won’t allow it? Rooting will allow you to bypass this limitation!

APPS2Sd

One of the most talked-about feature (or disadvantage) of any Android device is the limitation where you can install applications only in the phone’s internal memory and not the SD card. While Google may reason that SD cards are slower in general and cannot run apps as effectively as internal memory, fact of the matter is that most Android devices do not come with massive internal storage spaces, and hence greatly limit the number of applications that can be installed at a time. With rooted devices, you can use Apps2SD, which will copy ALL your applications to a ext2/3/4 formatted SD card an will also store future builds in card. Freedom to choose!

Unavailable Features

When Google brought forth the Nexus One, one of the aesthetically pleasing features was Live Wallpapers. Unfortunately, most of the Android phones vary so greatly, that despite the hardware being compatible with Live Wallpapers, the software won’t allow them to run. My Samsung Galaxy Spica is a perfect example. The handset’s hardware can easily handle Live Wallpapers, yet Samsung chose to exclude it. Thanks to rooting, you can have them on your device as long as hardware allows.

EXTRA APPLICATIONS

Folks at XDA-Developers have created a wonderful application, SetCPU, which allows easy overclocking of various Android CPUs. However, due to the permissions required for such level of operation, a superuser access is necessary, and that can come only from a root access. This is just one example. Theinternet is flooded with many such applications that remain useless unless you have rooted your phone.

Multitouch

If you have ever typed on an iPhone, you would always remember the smooth, fast typing action that you achieve on that amazing keyboard. Or if you can recall that pinch-zoom actions. These are the products of a multitouch screen.

While most Androids can deal with multitouch, various manufacturers have decided to omit it in their devices. This is not always because the hardware is incapable, but because the software does not let it happen. This becomes even more irritating when you see that HTC Hero had multitouch input support back from the Android 1.6 days, but more modern more powerful 2.1 devices never got it (again, my Spica).

Thanks to rooting, it has become possible to get multitouch input in various devices, most notably the G1.

WIFI AND Bluetooth Tethering

After having rooted your device, you can also use WiFi or Bluetooth tether to share your cellular data connection with your laptop or PC. The application works with ad hoc connections and will get you up and running online on your laptop in no time. Similarly, tethering can also be achieved over a Bluetooth connection. You may check out the app in question here, but remember, rooted-phones only!

Better Keyboard

I have expressed before and I will say again; I do not dislike the Android keyboard. However, it just isn’t enough. HTC, with their SenseUI, brought to their devices the revered HTC IME keyboard which had predictive text input, and made typing a breeze. Since it was an HTC only keyboard, people with phones from other manufacturers were left blindfolded. Again, the root-developer community ported the keyboard for all platforms, making possible for all rooted phones to take advantage of the better input method.

APPS From Other Builds

Almost every build of Android OS differs from others when it comes to default apps. G1 hasn’t got the same stuff as myTouch 3G; Nexus One differs from HTC Desire. What’s more, these applications from one build cannot be ported to another. Hence you are stuck in more than one ways. However, with custom ROMs, the developers usually gather the best of the lot in one complete package, that would leave a user satisfied, not craving. And to get these custom ROMs running on your phone, you need root.

Because You Can!

I am serious, I consider this a reason. You have a powerful, capable device that you have paid for. You should have the right to modify or change it in any way you like. The device is your property, and you would naturally want to see it working at its maximum potential. Hence the point of rooting.

With the latest Froyo announcement at Google’s 2010 I/O conference, most of these reasons may become useless. But Froyo will not be pushed for all devices, at least not immediately. While it will aim to reduce the fragmentation in Android division, until it happens, a rooted device is the only option you have.

Last, please do remember that rooting voids your warranty. Although you can always go back to a stock version of the OS, it is risky business, hence proceed with caution.

Start rooting

Now that you have learned all about what rooting is and why you should root your phone, head over to our guide on how to root your Android phone or tablet device and start rooting!

Rooting your device can be a fun process, giving you the freedom and control to take your phone to a whole new level of function. We do recommend that you do your due diligence to ensure the rooting process goes as smoothly as possible. What are your thoughts on rooting? Was it an easy experience? Do you recommend it to others? We’d love to hear your thoughts.


Gaddafi bleeds to death

Gaddafi

Hunted Gaddafi bleeds to death in birthplace

SIRTE, Libya (Reuters) – Muammar Gaddafi is dead, Libya’s new leaders said, killed by fighters who overran his home town and final bastion on Thursday. His bloodied body was stripped and displayed around the world from cellphone video. More »Gaddafi killed as Libya’s revolt takes hometown

PROFILE: Flamboyant Gaddafi no stranger to bloodshed

LONDON (Reuters) – Muammar Gaddafi’s love of comic-opera uniforms, exotic female bodyguards … More »Gaddafi no stranger to bloodshed

Gaddafi killed as Libya's revolt claims hometown

Former Libyan dictator Gaddafi’s name gave news editors nightmares with its tricky spelling … More »Bet you didn’t know this about Gadda …

______________________________________________________________________

Muammar Gaddafi, who ruled Libya with an iron fist for over 40 years, was killed Thursday after being on the run for some two months when he repeatedly vowed to keep fighting until death.

The eccentric 69-year-old, who preached a strange cocktail of ideology based on Islam and socialism, died in his hometown Sirte, apparently after being wounded in the legs. 
______________________________________________________________________

Gaddafi caught hiding like a ‘rat’
Muammar Gaddafi called the rebels who rose up against his 42-years of one-man rule “rats”, but in the end it was he who was captured cowering in a drainage pipe full of rubbish and filth.

“He called us rats, but look where we found him,” said Ahmed Al Sahati, a 27-year-old government fighter, standing next to two stinking drainage pipes under a six-lane highway.

Government fighters, video evidence and the scenes of sheer carnage nearby told the story of the dictator’s final hours. Read on

City of Gaddafi’s birth and death buried under rubble
For the world’s less-scrupulous dignitaries, officials and “high-ups” of various stripes, a trip to Muammar Gaddafi’s hometown of Sirte was a treat.

They were fed like royalty, slept on fluffy pillows and some of the luckier ones even left with pockets bulging with 100 dollar bills.

“He wanted to impress us,” a senior African Union official told Reuters. “The ‘King of Kings’ behaviour. Part of it was creating this city of his own and having dreams of it being the capital of Africa.”

Those dreams lay in ruins on Thursday, along with much of the city where Gaddafi was born and died, killed by fighters who overran his final bastion after two months of relentless bombardment from Libyan interim government forces. More on this story

Gaddafi shown alive, manhandled before death
Al Jazeera television showed images of Muammar Gaddafi, apparently wounded but still alive when he was captured.

Gaddafi was shown being manhandled by a group of fighters and appearing to struggle against them at one point. He was shown with a bloodied face and being pushed against a car and being struck on the head by a pistol.

ANALYSIS – Libya’s next tests: Big expectations, power plays
Jockeying for power among Libya’s well-armed and fractious new leadership may intensify after the death of deposed autocrat Muammar Gaddafi, an anxious and, for many, joyous moment in a country hungry for stability and impatient to swap the bullet for the ballot box.

Finally, a hunted Gaddafi bleeds to death
Muammar Gaddafi, who ruled Libya with an iron fist for over 40 years, was killed Thursday after being on the run for some two months when he repeatedly vowed to keep fighting until death.

The eccentric 69-year-old, who preached a strange cocktail of ideology based on Islam and socialism, died in his hometown Sirte, apparently after being wounded in the legs.

Don’t shoot, pleaded Gaddafi
‘Don’t shoot,’ pleaded Libyan leader Muammar Gaddafi when he was captured Thursday by fighters of the Libyan National Transitional Council (NTC) in Sirte. More

Libya’s deposed leader Gaddafi captured: A profile
Libya’s deposed leader Muammar Gaddafi has been captured. Here is a brief profile:

Muammar Gaddafi was born to nomadic parents in the desert region of Sirte in 1942. He went to study history at the University of Libya in 1961 and then entered the Benghazi Military Academy.

Photos: 10 facts about Colonel Muammar Gaddafi

 

Muammar Gaddafi: A man of eccentricities, enigma
Libyan leader Muammar Gaddaffi, who was killed by National Transitional Council fighters in his hometown Sirte Thursday, will be remembered as a ‘mercurial and eccentric’ man.

In a leaked diplomatic cable, US American ambassador to Libya Gene A. Cretz threw light upon Gaddafi’s personality and lifestyle. More

Gaddafi captured, dies of wounds
Muammar Gaddafi, who ruled Libya for 42 years after coming to power in a coup, was killed Thursday by National Transitional Council fighters in his hometown Sirte. More

 ANALYSIS – Death of Libya’s Gaddafi avoids awkward trial
Muammar Gaddafi’s apparent death from wounds received during the fall of Sirte means a long and complex trial that could have divided Libya and embarrassed Western governments and oil firms will be avoided.

Tripoli celebrates fall of GaddafiCelebrations on the streets of Libya’s capital Tripoli as Sirte falls amid news of Gaddari’s death. Rough cut (no reporter narration)

FACTBOX – Tribal ties held key to Gaddafi rule
Muammar Gaddafi, killed on Thursday when forces loyal to Libya’s new rulers took his home town of Sirte, stayed in power for four decades in part because of his adept manipulation of tribes, centres of power in what remains a conservative, sparsely populated desert country. Read more

Reuters sees video of bloodied Gaddafi son Mo’tassim
A Reuters witness saw a video on Thursday of the captured son of Muammar Gaddafi, Mo’tassim, lying on a bed and covered in blood, but alive. More

NTC official confirms picture shown to be of Gaddafi – Jazeera TV
A Libyan military official confirmed that a picture of a dead man who resembled Muammar Gaddafi and was shown on Al Jazeera was that of the former Libyan leader, the Arab satellite station reported.Gadhafi, Libya’s leader for 42 years, killedSIRTE, Libya (AP) — Moammar Gadhafi, who ruled Libya with a dictatorial grip for 42 years until he was ousted by rebels in a bloody civil war, was killed Thursday when revolutionary forces overwhelmed his hometown, Sirte, the last major bastion of resistance two months after the regime fell. Prime Minister Mahmoud Jibril confirmed Gadhafi had been killed. “We have been waiting for this moment for a long time. Moammar Gadhafi has been killed,” Jibril told a news conference in the capital Tripoli. Initial re

Saif Al-Islam Gaddafi believed still in desert – NTC
Muammar Gaddafi’s son Saif al-Islam is believed to be still at large in Libya’s desert, a member of the National Transitional Council said on Thursday after NTC officials said the former Libyan leader had been found and killed.



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knowing the indian stock market

Indian Capital Market
Recent Developments and Policy Issues
Yoon Je Cho
Yoon Je Cho is Professor, Graduate School of International Studies,
Sogang University, Seoul, Korea.112 A STUDY OF FINANCIAL MARKETS
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
Introduction
There are 22 stock exchanges in India, the first being the Bombay Stock Exchange (BSE), which began formal trading in 1875, making it one of the oldest in Asia. Over the last few years, there has been
a rapid change in the Indian securities market, especially in the secondary market. Advanced technology and online-based transactions have  modernized
the stock exchanges. In terms of the number of companies listed and total market capitalization, the Indian equity market is considered large relative to the
country’s stage of economic development. The number of listed companies increased from 5,968 in March
1990 to about 10,000 by May 1998 and market capitalization has grown almost 11 times during the same
period.
The debt market, however, is almost nonexistent
in India even though there has been a large volume
of Government bonds traded. Banks and financial
institutions have been holding a substantial part of
these bonds as statutory liquidity requirement. The
portfolio restrictions on financial institutions’ statutory liquidity requirement are still in place. A primary
auction market for Government securities has been
created and a primary dealer system was introduced
in 1995. There are six authorized primary dealers.
Currently, there are 31 mutual funds, out of which 21
are in the private sector. Mutual funds were opened
to the private sector in 1992. Earlier, in 1987, banks
were allowed to enter this business, breaking the
monopoly of the Unit Trust of India (UTI), which
maintains a dominant position.
Before 1992, many factors obstructed the expansion of equity trading. Fresh capital issues were controlled through the Capital Issues Control Act. Trading practices were not transparent, and there was a
large amount of insider trading. Recognizing the importance of increasing investor protection, several
measures were enacted to improve the fairness of
the capital market. The Securities and Exchange
Board of India (SEBI) was established in 1988. Despite the rules it set, problems continued to exist, including those relating to disclosure criteria, lack of
broker capital adequacy, and poor regulation of merchant bankers and underwriters.
There have been significant reforms in the regulation of the securities market since 1992 in conjunction
with overall economic and financial reforms. In 1992,
the SEBI Act was enacted giving SEBI statutory status as an apex regulatory body. And a series of reforms was introduced to improve investor protection,
automation of stock trading, integration of national
markets, and efficiency of market operations.
India has seen a tremendous change in the secondary market for equity. Its equity market will most
likely be comparable with the world’s most advanced
secondary markets within a year or two. The key
ingredients that underlie market quality in India’s
equity market are:
• exchanges based on open electronic limit order
book;
• nationwide integrated market with a large number of informed traders and fluency of short or
long positions; and
• no counterparty risk.
Among the processes that have already started
and are soon to be fully implemented are electronic
settlement trade and exchange-traded derivatives.
Before 1995, markets in India used open outcry, a
trading process in which traders shouted and handsignaled from within a pit. One major policy initiated
by SEBI from 1993 involved the shift of all exchanges
to screen-based trading, motivated primarily by the
need for greater transparency. The first exchange to
be based on an open electronic limit order book was
the National Stock Exchange (NSE), which started
trading debt instruments in June 1994 and equity in
November 1994. In March 1995, BSE shifted from
open outcry to a limit order book market. Currently,
17 of India’s stock exchanges have adopted open
electronic limit order.
Before 1994, India’s stock markets were dominated by BSE. In other parts of the country, the fi-INDIAN CAPITAL MARKET: RECENT DEVELOPMENTS AND POLICY ISSUES 113
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nancial industry did not have equal access to markets and was unable to participate in forming prices,
compared with market participants in Mumbai
(Bombay). As a result, the prices in markets outside
Mumbai were often different from prices in Mumbai.
These pricing errors limited order flow to these markets. Explicit nationwide connectivity and implicit
movement toward one national market has changed
this situation (Shah and Thomas, 1997). NSE has
established satellite communications which give all
trading members of NSE equal access to the market. Similarly, BSE and the Delhi Stock Exchange
are both expanding the number of trading terminals
located all over the country. The arbitrages are eliminating pricing discrepancies between markets.
Despite these big improvements in microstructure,
the Indian capital market has been in decline during
the last three years. The amount of capital issued
has dropped from the level of its peak year,1994/95,
and so have equity prices. In 1994/95, Rs276 billion
was raised in the primary equity market. This figure
fell to Rs208 billion in 1995/96 and to Rs142 billion in
1996/97. The BSE-30 index or Sensex, the sensitive
index of equity prices, peaked at 4,361 in September
1994 and fell during the following years. A leading
cause was that financial irregularities and overvaluations of equity prices in the earlier years had
eroded public confidence in corporate shares. Also,
there was a reduced inflow of foreign investment
after the Mexican and Asian financial crises. In a
sense, the market is now undergoing a period of adjustment. Thus, it is time for regulatory authorities to
make greater efforts to recover investors’ confidence
and to further improve the efficiency and transparency of market operations.
The Indian capital market still faces many challenges if it is to promote more efficient allocation
and mobilization of capital in the economy. First,
market infrastructure has to be improved as it hinders the efficient flow of information and effective
corporate governance. Accounting standards will
have to adapt to internationally accepted accounting
practices. The court system and legal mechanism
should be enhanced to better protect small shareholders’ rights and their capacity to monitor corporate activities. Second, the trading system has to be
made more transparent. Market information is a crucial public good that should be disclosed or made
available to all participants to achieve market efficiency. SEBI should also monitor more closely cases
of insider trading. Third, India may need further integration of the national capital market through consolidation of stock exchanges. The trend all over the world
is to consolidate and merge existing stock exchanges.
Not all of India’s 22 stock exchanges may be able to
justify their existence. There is a pressing need to develop a uniform settlement cycle and common clearing system that will bring an end to unnecessary speculation based on arbitrage opportunities. Fourth, the
payment system has to be improved to better link the
banking and securities industries. India’s banking system has yet to come up with good electronic funds
transfer (EFT) solutions. EFT is important for problems such as direct payments of dividends through
bank accounts, eliminating counterparty risk, and facilitating foreign institutional investment. The capital
market cannot thrive alone; it has to be integrated with
the other segments of the financial system. The global
trend is for the elimination of the traditional wall between banks and the securities market.
Securities market development has to be supported
by overall macroeconomic and financial sector environments. Further liberalization of interest rates, reduced fiscal deficits, fully market-based issuance of
Government securities, and a more competitive banking sector will help in the development of a sounder
and a more efficient capital market in India.
Capital Market Reforms
and Developments
Reforms in the Capital Market
Over the last few years, SEBI has announced several far-reaching reforms to promote the capital114 A STUDY OF FINANCIAL MARKETS
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market and protect investor interests. Reforms in the
secondary market have focused on three main areas: structure and functioning of stock exchanges,
automation of trading and post trade systems, and
the introduction of surveillance and monitoring systems. (See Appendix 1 for a listing of reforms since
1992). Computerized online trading of securities, and
setting up of clearing houses or settlement guarantee funds were made compulsory for stock exchanges. Stock exchanges were permitted to expand
their trading to locations outside their jurisdiction
through computer terminals. Thus, major stock exchanges in India have started locating computer terminals in far-flung areas, while smaller regional exchanges are planning to consolidate by using centralized trading under a federated structure. Online
trading systems have been introduced in almost all
stock exchanges. Trading is much more transparent
and quicker than in the past.
Until the early 1990s, the trading and settlement
infrastructure of the Indian capital market was poor.
Trading on all stock exchanges was through open
outcry, settlement systems were paper-based, and
market intermediaries were largely unregulated. The
regulatory structure was fragmented and there was
neither comprehensive registration nor an apex body
of regulation of the securities market. Stock exchanges were run as “brokers clubs” as their management was largely composed of brokers. There
was no prohibition on insider trading, or fraudulent
and unfair trade practices (see Appendix 2).
Since 1992, there has been intensified market reform, resulting in a big improvement in securities trading, especially in the secondary market for equity.
Most stock exchanges have introduced online trading and set up clearing houses/corporations. A depository has become operational for scripless trading and the regulatory structure has been overhauled
with most of the powers for regulating the capital
market vested with SEBI. The Indian capital market
has experienced a process of structural transformation with operations conducted to standards equivalent to those in the developed markets. It was opened
up for investment by foreign institutional investors
(FIIs) in 1992 and Indian companies were allowed
to raise resources abroad through Global Depository
Receipts (GDRs) and Foreign Currency Convertible
Bonds (FCCBs). The primary and secondary segments of the capital market expanded rapidly, with
greater institutionalization and wider participation of
individual investors accompanying this growth. However, many problems, including lack of confidence in
stock investments, institutional overlaps, and other
governance issues, remain as obstacles to the improvement of Indian capital market efficiency.
Stock Market
PRIMARY MARKET
Since 1991/92, the primary market has grown fast
as a result of the removal of investment restrictions
in the overall economy and a repeal of the restrictions imposed by the Capital Issues Control Act. In
1991/92, Rs62.15 billion was raised in the primary
market. This figure rose to Rs276.21 billion in 1994/
95. Since 1995/1996, however, smaller amounts have
been raised due to the overall downtrend in the market and tighter entry barriers introduced by SEBI for
investor protection (Table 1).
Table 1: Issues in the Primary Market
Source: Reserve Bank of India.
Year Number Amount (Rs billion) Number Amount (Rs billion) Number Amount (Rs billion)
1994/95 1,342 210.44 350 65.88 1,692 276.32
1995/96 1,426 142.39 299 65.64 1,725 208.03
1996/97 753 115.65 131 27.19 884 142.84
Dec 1997 59 21.99
Public Rights TotalINDIAN CAPITAL MARKET: RECENT DEVELOPMENTS AND POLICY ISSUES 115
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Total market capitalization as of 1997/98 was
Rs5,898 billion (Table 2), equivalent to about half of
India’s annual gross domestic product (GDP) for the
same fiscal year. India compares favorably with other
emerging markets in this respect. The market capitalization-GDP ratio at end-1995 was 22.4 percent
for Brazil; 12.6 percent for Hong Kong, China;
40 percent for Indonesia; 41 percent for Korea;
and 37.1 percent for Mexico.
1
 It was higher however, in Malaysia (281.9 percent), Philippines
(81.3), Singapore (233 percent), and Thailand
(152.9 percent).
EQUITY PRICE
For the past 12 years, equity prices have seen two
extended periods of declining prices and two periods
of rising prices. Between April 1986 and March 1988,
Sensex  decreased from 589 to 398, or by 32 percent. Prices also fell between March 1992, when
the monthly closing level of Sensex was 4,258, and
April 1993, when the level was 2,122, a decline of
50.5 percent. Prices generally rose for extended periods from March 1988 to March 1992 and from May
1993 to August 1994. The monthly closing level of
Sensex climbed from 398 in March 1988 to 4,285 in
March 1992, an increase of more than 10 times. In
the second period of extended rising equity prices,
Sensex increased 1.16 times. Since 1995, it has fluctuated around the 3,000-4,000 mark (see Figure 1).
In April 1998, it hovered around 3,000.
In the period of declining prices, from August 1994
to March 1998, the price-earnings (P/E) ratio fell
more sharply than prices (Figure 1). In March 1998,
the monthly average Sensex P/E ratio was 15.65
while the figure for October 1993 was 38.76.
Risk Management System
SEBI has taken several measures to improve the
integrity of the secondary market. Legislative and
regulatory changes have facilitated the corporatization
of stockbrokers. Capital adequacy norms have been
prescribed and are being enforced. A mark-to-market margin and intraday trading limit have also been
imposed. Further, the stock exchanges have put in
place circuit breakers, which are applied in times of
excessive volatility. The disclosure of short sales and
long purchases is now required at the end of the day
to reduce price volatility and further enhance the integrity of the secondary market.
MARK-TO-MARKET MARGIN AND INTRADAY LIMIT
Under the current clearing and settlement system, if
an Indian investor buys and subsequently sells the
same number of shares of stock during a settlement
period, or sells and subsequently buys, it is not necessary to take or deliver the shares. The difference
between the selling and buying prices can be paid or
received. In other words, the squaring-off of the trading position during the same settlement period results in nondelivery of the shares that the investor
traded. A short-term and speculative investment is
Table 2: Number of Listed Companies and Market
Capitalization
a
 As of March.
Source: Reserve Bank of India, Report on Currency and Finance, 1998–1999.
Number Amount of
of Listed Capitalization
Year Companies (Rs billion)
1995/96 9,100 5,723
1996/97 9,890 4,883
1997/98 9,833 5,898
1999
a
9,877 5,741
Figure 1: Price and P/E Ratio for the Sensitive
Index of the Stock Exchange
Data from January 1991 to January 1998.
Source:  Bombay Stock Exchange
Sensex
P/E Ratio
1992 1993 1994 1995 1996 1997 1998116 A STUDY OF FINANCIAL MARKETS
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thus possible at a relatively low cost. FIIs and domestic institutional investors are, however, not permitted to trade without delivery, since nondelivery
transactions are limited only to individual investors.
One of SEBI’s primary concerns is the risk of
settlement chaos that may be caused by an increasing number of nondelivery transactions as the stock
market becomes excessively speculative. Accordingly, SEBI has introduced a daily mark-to-market
margin and intraday trading limit. The daily mark-tomarket margin is a margin on a broker’s daily position. The intraday trading limit is the limit to a broker’s
intraday trading volume. Every broker is subject to
these requirements.
Each stock exchange may take any other measures to ensure the safety of the market. BSE and
NSE impose on members a more stringent daily
margin, including one based on concentration of business.
A daily mark-to-market margin is 100 percent of
the notional loss of the stockbroker for every stock,
calculated as the difference between buying or selling
price and the closing price of that stock at the end of
that day. However, there is a threshold limit of 25 percent of the base minimum capital plus additional capital kept with the stock exchange or Rs1 million, whichever is lower. Until the notional loss exceeds the threshold limit, the margin is not payable.
This margin is payable by a stockbroker to the
stock exchange in cash or as a bank guarantee from
a scheduled commercial bank, on a net basis. It will
be released on the pay-in day for the settlement period. The margin money is held by the exchange for
6-12 days. This costs the broker about 0.4-1.2 percent of the notional loss, assuming that the broker’s
funding cost is about 24-36 percent (Endo 1998).
Thus, speculative trading without the delivery of
shares is no longer cost-free.
Each broker’s trading volume during a day is not
allowed to exceed the intraday trading limit. This limit
is 33.3 times the base minimum capital deposited with
the exchange on a gross basis, i.e., purchase plus
sale. In the event of brokers wishing to exceed this
limit, they have to deposit additional capital with the
exchange and this cannot be withdrawn for six
months.
CIRCUIT BREAKER
SEBI has imposed price limits for stocks whose market prices are above Rs10 up to Rs20, a daily price
change limit and weekly price change limit of 25 percent. BSE imposes price limits as a circuit breaker
system to maintain the orderly trading of shares on
the exchange (Table 3).
BSE’s computerized trading system rejects buy
or sell orders of a stock at prices outside the price
limits. The daily price limit of a stock is measured
from the stock’s closing price in the previous trading
session. The weekly price limit is based on its closing price of the last trading in the previous week,
usually its closing price on the previous Friday.
SHORT SALES AND LONG PURCHASES
SEBI regulates short selling in the stock market by
requiring all stock exchanges to enforce reporting
by members of their net short sale and long purchase positions in each stock at the end of each
trading day.
Table 3: Bombay Stock Exchange Price Limits
Source: Endo (1998).
Category Market Price of Share Daily Weekly
A Group Shares Over Rs20 10 25
B1 & B2 Group Shares Rs10 up to Rs20 25 25
Rs1 up to Rs10 50 No Limit
Up to Rs1 75 No Limit
Price Limit (percent)INDIAN CAPITAL MARKET: RECENT DEVELOPMENTS AND POLICY ISSUES 117
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Stock Lending
A scheme for regulating stock lending was introduced in February 1997, following changes in tax
regulations. Stock lending can take place through
an intermediary registered for this purpose with
SEBI, and which has a minimum capital of Rs500
million. Lenders and borrowers of securities have
to enter into agreements with the intermediary. Stock
lending facilitates the timely settlement of transactions on the stock exchanges, especially in an environment where physical delivery of certificates is
required for settlement.
Introduction of Derivatives Trading
At present, there are no exchange traded derivatives or over-the-counter derivative markets in the
country. However, a new law has been passed permitting the trading of derivatives. This followed recommendations for the establishment of a regulatory
framework for derivatives by a committee chaired
by L.C. Gupta. It is expected that derivatives trading
will soon form part of the Indian securities market.
Institutional Investors
MUTUAL FUNDS
Indian investors have been able to invest through
mutual funds since 1964, when UTI was established.
Indian mutual funds have been organized through the
Indian Trust Acts, under which they have enjoyed
certain tax benefits. Between 1987 and 1992, public
sector banks and insurance companies set up mutual
funds. Since 1993, private sector mutual funds have
been allowed, which brought competition to the mutual fund industry. This has resulted in the introduction of new products and improvement of services.
The notification of the SEBI (Mutual Fund) Regulations of 1993, brought about a restructuring of the
mutual fund industry. An arm’s length relationship is
required between the fund sponsor, trustees, custodian, and asset management company. This is in contrast to the previous practice where all three functions, namely trusteeship, custodianship, and asset
management, were often performed by one body,
usually the fund sponsor or its subsidiary. The regulations prescribed disclosure and advertisement norms
for mutual funds, and, for the first time, permitted
the entry of private sector mutual funds. FIIs registered with SEBI may invest in domestic mutual funds,
whether listed or unlisted.
The 1993 Regulations have been revised on the
basis of the recommendations of the Mutual Funds
2000 Report prepared by SEBI. The revised regulations strongly emphasize the governance of mutual
funds and increase the responsibility of the trustees
in overseeing the functions of the asset management
company. Mutual funds are now required to obtain
the consent of investors for any change in the “fundamental attributes” of a scheme, on the basis of
which unit holders have invested. The revised regulations require disclosures in terms of portfolio composition, transactions by schemes of mutual funds
with sponsors or affiliates of sponsors, with the asset management company and trustees, and also with
respect to personal transactions of key personnel of
asset management companies and of trustees.
FOREIGN INSTITUTIONAL INVESTORS
FIIs have been allowed to invest in the Indian securities market since September 1992 when the Guidelines for Foreign Institutional Investment were issued
by the Government. The SEBI (Foreign Institutional
Investors) Regulations were enforced in November
1995, largely based on these Guidelines. The regulations require FIIs to register with SEBI and to obtain
approval from the Reserve Bank of India (RBI) under the Foreign Exchange Regulation Act to buy and
sell securities, open foreign currency and rupee bank
accounts, and to remit and repatriate funds. Once
SEBI registration has been obtained, an FII does not
require any further permission to buy or sell securities or to transfer funds in and out of the country,
subject to payment of applicable tax.
Foreign investors, whether registered as FIIs or
not, may also invest in Indian securities outside the118 A STUDY OF FINANCIAL MARKETS
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FII process. Such investment requires case-by-case
approval from the Foreign Investment Promotion
Board (FIPB) in the Ministry of Industry and RBI,
or only from RBI depending on the size of investment and the industry in which the investment is to
be made. Investment in Indian securities is also possible through the purchase of GDRs. Foreign currency convertible bonds and foreign currency bonds
issued by Indians that are listed, traded, and settled
overseas are mainly denominated in dollars. Foreign
financial service institutions have also been allowed
to set up joint ventures in stockbroking, asset management companies, merchant banking, and other
financial services firms along with Indian partners.
Foreign portfolio investments in Indian companies
are limited to individual foreign ownership at 10 percent of the total issued capital of any one company
and to aggregate foreign ownership at 30 percent of
the total issued capital of any one company.
FIIs’ net investment was positive until October
1997 and their cumulative investments reached $9.1
billion in the same month. But since then, it has turned
negative due to the Asian financial crisis (Table 4).
As of May 1998, 496 FIIs were registered with SEBI,
with a cumulative net investment of $9.2 billion in
the Indian securities market.
Since 1993/94, foreign portfolio investment has so
far exceeded foreign direct investment, which has also
increased rapidly (Table 5). Investment through FIIs
constituted the bulk of portfolio investment. Annual
inflows have been about $1.5 billion-$2 billion from
1993/94 to 1996/97 through FIIs, while inflows through
GDRs have declined after peaking at $1.8 billion in
1994/95. In 1996/97, India received $5.6 billion in foreign investment of which $1.9 billion was through FIIs.
During 1997/98, FIIs’ investment fell while foreign
direct investment rose. Improvement in inflow of foreign investment raised India’s foreign exchange reserves from $17 billion at the end of 1994/95 to $29.3
billion at the end of June 1997.
Following the changes to the 1995 SEBI (Foreign
Institutional Investors) Regulations, an FII is allowed
to set up an investment fund to invest in Indian bonds
if it registers the fund with SEBI as a new separate
FII or its new subaccount. In 1996, SEBI approved
nine debt funds with a cumulative investment exposure of $1.278 billion for investment in securities.
FIIs seem to have a strong impact on equity price
movements in India. Trend analysis has shown a significantly positive relationship between BSE Sensex
and the lagged net investment by FIIs. Figure 2 suggests that monthly net investment has been taking
Table 4: Investment by FIIs in Primary and Secondary Markets
a
FII = foreign institutional investor.
( ) = negative values are enclosed in parentheses.
a
Data include debt instruments.
Source: Securities and Exchange Board of India.
No. of Cumulative
Registered Net
FIIs
Gross Purchase Gross Sales Net Investment
Investment
Year/Month (cumulative) Rs  billion $ million Rs billion $ million Rs billion $ million ($ million)
Jan–Mar 1993 18 0.17 5.6 0.04 1.3 0.13 4.3 4.2
1993/94 158 55.92 1,782.8 4.66 1,48.7 51.26 1,634.1 1,638.3
1994/95 308 76.31 2,431.2 28.34 9,02.9 47.96 1,528.3 3,166.6
1995/96 367 96.75 2,858.6 27.51 8,22.9 69.42 2,035.7 5,202.3
1996/97 439 154.57 4,364.6 69.73 1,957.5 84.84 2,407.1 7,609.5
1996/97 (Apr-Jan) 429 127.01 3,595.6 52.15 1,467.0 74.86 2,128.6 7,331.0
1997/98 (Apr-Jan ) 476 143.82 3,979.4 102.12 2,807.4 41.69 1,172.0 8,781.5
Total (since Jan 1993) 476 527.57 15,422.2 232.43 6,640.6 295.32 8,781.5 8,781.5
Oct 1997 471 16.0 442.0 9.66 267.0 6.33 174.9 9,090.3
Nov 1997 475 10.93 295.4 15.05 406.7 (4.11) (111.3) 8,979.0
Dec 1997 476 9.34 251.0 14.60 392.3 (5.26) (141.3) 8,837.7
Jan 1998 476 6.52 175.2 8.62 231.5 (2.09) (56.3) 8,781.4INDIAN CAPITAL MARKET: RECENT DEVELOPMENTS AND POLICY ISSUES 119
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• depositories, participants, custodians of securities, FIIs, credit rating agencies, and other such
intermediaries who may be associated with the
securities market in any manner; and
• venture capital funds and collective investment
schemes, including mutual funds.
However, the registration system is far from complete. For some professional categories such as subbrokers, the registration system is in place, but limitations to SEBI’s enforcement power permits hundreds of thousands of unregistered subbrokers to
conduct their securities businesses, while registered
subbrokers are not effectively regulated. There is no
registration system at all for investment advisors.
The capital adequacy requirements for registered
market participants are surprisingly low. Consequently, entry barriers are also low. This is probably
because the vested interest of existing market participants cannot be totally ignored since the Indian
capital market would stop functioning without them.
The majority are thinly capitalized. As a result, SEBI’s
limited resources are spread too thinly to register
many small participants and regulate them.
Stockbrokers
The Indian law defines a stockbroker simply as
a member of a recognized stock exchange. Therefore, a registered stockbroker is a member of at
least one of the recognized Indian stock exchanges.
Table 5: Foreign Investment Inflows ($ million)
FII = foreign institutional investor, FIPB =    Foreign Investment Promotion Board, GDR = global depository receipt, NRI = nonresident Indian, RBI = Reserve Bank of India,
SIA = Secretariat for Industrial Assistance.
Source: Reserve Bank of India, Report on Currency and Finance, various issues.
Item 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97
Direct investment 150 341 566 1314 2,133 2,696
Government (SIA/FIPB) 87 238 280 701 1,249 1,922
RBI 42 89 171 169 135
NRI 63 61 217 442 715 639
Portfolio investment 8 92 3,649 3,581 2,748 2,864
GDRs 86 1,602 1,839 683 918
FIIs 1 1,665 1,503 2,009 1,926
Offshore funds and others 8 5 382 239 56 20
Total 158 433 4,215 4,895 4,881 5,560
Figure 2: Monthly Net FII Investment and BSE-30 Index
BSE = Bombay Stock Exchange, FII = foreign institutional investor.
Source: Securities and Exchange Board of India, Annual Report, 1995/96.
Stockbrokers are not allowed to buy, sell, or deal in
securities, unless they hold a certificate granted by
SEBI. At the end of March 1997, they numbered 8,867.
Each stockbroker is subject to capital adequacy
requirements consisting of two components: basic
minimum capital and additional or optional capital
related to volume of business.
The basic minimum capital requirement varies
from one exchange to another. A SEBI regulation
requires stockbrokers of BSE or NSE to maintain a
minimum of Rs500,000 (about $14,000), which is the
largest requirement among the stock exchanges.
However, BSE and NSE require their respective
members to deposit with them larger amounts. The
additional or optional capital and the basic minimum
capital combined have to be maintained at 8 percent
or more of the gross outstanding business in the exchange (the gross outstanding business means the
cumulative amount of sales and purchases by a stockbroker in all securities at any point during the settlement period). Sales and purchases on behalf of customers may not be netted but may be included to
those of the broker.
There is no mandatory qualification test for stockbrokers and other market participants in India, unlike
other countries such as Japan, United Kingdom, and
United States.
Subbrokers
Most stockbrokers in India are still relatively small.
They cannot afford to directly cover every retail investor in a geographically vast country and in such a
complex society. Thus, they are permitted to transact with subbrokers as the latter play an indispensable role in intermediating between investors and the
stock market.
An applicant for a subbroker certificate must be
affiliated with a stockbroker of a recognized stock
exchange. A subbroker application may take the form
of sole proprietorship, partnership, or corporation.
There are two major issues concerning subbrokers
in the Indian capital market:
• majority of subbrokers are not registered with
SEBI; and
• the function of the subbroker is not clearly defined.
No subbroker is supposed to buy, sell, or deal in
securities, without a certificate granted by SEBI.
Nevertheless, there were only about 2,593 subbrokers registered with SEBI as of end-June 1997,
while the number of stock subbrokers in India was
estimated in the range of 50,000 to 200,000 (Endo,
1998).
The Indian law defines a subbroker as any person, not being a member of a stock exchange, who
acts on behalf of a stockbroker as an agent, or otherwise, to assist the investors in buying, selling, or
dealing securities through such a stockbroker. Based
on this definition, the subbroker is either a stockbroker’s agent or an arranger for the investor. Thus,
legally speaking, the stockbroker as a principal will
be responsible to the investor for a subbroker’s conduct if a subbroker acts as his or her agent. However, the market practice is different from this legally defined relationship. In reality, the stockbroker,
in general, issues a contract note of a transaction
even to a registered subbroker, thus treating the latter as a counterparty.  This implicitly denies the
stockbroker’s privity with the investor.
NSE does not officially allow its members to transact with end-investors through a subbroker. This is
probably because NSE has liberal membership criteria and its computerized trading network can easily provide geographically scattered stockbrokers with
direct access to trading on NSE. Nevertheless, many
trading members of NSE have been using registered
and unregistered subbrokers.
To sort out this confusion, SEBI enforced the following measures in March 1997:
• initiation of criminal actions on complaints received against unregistered sub-brokers in suitable cases;
• revival of the institution of “remisier” under rules
and bylaws of the stock exchanges; andINDIAN CAPITAL MARKET: RECENT DEVELOPMENTS AND POLICY ISSUES 121
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• prohibition of stockbrokers in dealing with unregistered subbrokers or unregistered remisiers
after 1 June 1997 (this deadline was later extended to 1 July 1997).
In spite of these actions, the confusion has remained.  There is a need to address the basic issue of clarifying the role of the subbroker and to
operationally define its relationship with the stockbrokers.
Merchant Bankers
Under the old regulations, there were four categories of registered merchant bankers with different minimum net worth requirements (Table 6). Under the new regulations, the categories were abolished. Among other provisions, a merchant banker
applicant is required to have a minimum net worth of
Rs50 million.
The new regulations have drawn a clear-cut line
between the merchant banker and the nonbanking
finance company (NBFC). Under the old regulations,
a merchant banker is permitted to carry out fundbased activities such as deposit-taking, leasing, bill
discounting and hire-purchasing. The new regulations
no longer allow a merchant banker to engage in these
fund-based activities except for those related exclusively to the capital market such as underwriting.
The merchant banker is required to cease such activities within two years. Correspondingly, an existing NBFC performing merchant banking activities is
required to relinquish such activities after a certain
period of time.
The merchant banking industry in India has many
problems, the main ones being that there are too many
merchant bankers, and that they are considered to
be relatively incompetent.
Only 20 merchant bankers account for 60-85 percent of the merchant banking business, while 148 of
them are in business only on paper. In May 1997, a
substantial number of merchant bankers were found
to be professionally imprudent or negligent (Endo
1998). SEBI listed 134 merchant bankers of Categories I, II, and III who broke their underwriting
commitments for possible disciplinary actions. Of this
number, 95 were in Category I. Furthermore, there
have been records of listing delay or rejection of initial public offerings (IPOs) in the recent past.
FRAGMENTATION OF REGULATORY
AUTHORITIES
The present functions and powers of regulatory agencies for the securities market seem to be fragmented.
SEBI is the primary body responsible for regulation
of the securities market, deriving its powers of registration and enforcement primarily from the SEBI Act.
There was an existing regulatory framework for the
securities market, provided by the Securities Contract Regulation (SCR) Act and the Companies Act,
administered by the Ministry of Finance and the
Department of Company Affairs (DCA) of the Ministry of Law, respectively. SEBI has been delegated
most of the functions and powers under the SCR
Act, and shares the rest with the Ministry of Finance.
It has also been delegated certain powers under the
Companies Act. RBI also has regulatory involvement in the capital market regarding foreign exchange
control liquidity support to market participants and
debt management through primary dealers. It is RBI
and not SEBI that regulates primary dealers in the
Government securities market. However, securities
transactions that involve a foreign exchange transaction need the permission of RBI.
So far, fragmentation of the regulatory authorities
has not been a major obstacle to effective regulation
Table 6: Capital Adequacy Requirement for
Merchant Banker Applicant (old regulations)
.. = nil
Source: Endo (1998).
Minimum Amount of
Category Net Worth (Rs million)
I 50
II 5
III 2
IV ..122 A STUDY OF FINANCIAL MARKETS
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of the securities market. Rather, lack of enforcement capacity by SEBI has been a more significant
cause of poor regulation. But since the Indian stock
markets are rapidly being integrated, the authorities
may follow the global trend of consolidation of regulatory authorities or better coordination among them.
SELF-REGULATORY BODY
Self-regulatory organizations (SROs) have been
adopted in many countries to regulate various participants in the securities market. Members are bound
by the SRO’s bylaws and codes of conduct. Through
the SEBI Act of 1992, SROs were introduced in the
Indian capital market, but they are not yet operational. A clear regulatory framework has yet to be
set up, and relevant market participants are not ready
to regulate themselves for professional purposes. The
only securities-related SROs in India whose regulatory frameworks have been well established and
which are actually functioning are the recognized
stock exchanges. Participants in the Indian capital
market seem to have successfully preserved the spirit
and practice of self-regulation or self-governance in
the old stock exchanges such as BSE. However, it is
true that the old stock exchanges have been rife with
vested interests of member brokers who are not fully
friendly to investors.
Stock Market
FRAGMENTED MARKET
Of the 22 stock exchanges in the country, 17 have
introduced screen-based trading. With the expansion of trading networks of BSE and other stock
exchanges beyond their original jurisdictions, an increasing number of investors in different parts of
the country are within the reach of a national market system. This has raised informational efficiency
and helped rapid market integration.
NSE, which provides a screen-based order driven
system, has already extended its network to more
than 100 centers in the country that are connected to
its central computer via its satellite network. The
Over-the-Counter Exchange of India (OTCEI) also
provides a nationwide electronic system for trading
relatively smaller stocks. BSE has introduced its own
screen-based quote-driven trading system. However,
the market is still fragmented and needs further integration.
The international trend is to consolidate and merge
existing stock exchanges rather than to set up new
ones. In the UK, there were about 20 stock exchanges in the late 1960s, which were reduced to
about half a dozen in 1972 and further down to one,
i.e., the  London Stock Exchange, in 1986. NSE has
already provided connectivity to more than 100 cities, and other major stock exchanges are in the process of extending their trading terminals outside their
places of operation. Thus, it is questionable whether
India needs as many as 22 stock exchanges, even
taking into account the vastness of the country.
SPECULATIVE INVESTMENT
Turnover in the Indian stock exchanges is high, implying that they are dominated by speculative investments, which is not unusual in emerging markets.
However, trading volumes in the Indian capital market are fairly large compared to those in other emerging markets. While price levels have been depressed,
the total turnover on BSE and NSE has been increasing. The combined turnover for 1996/97 was almost
three times the level of the previous year. Figure 3
shows the total turnover of stock trading on all 22
stock exchanges in India. The annual average growth
rate from 1994/95 to 1996/97 was 56 percent in nominal terms.
Table 7 compares the dollar turnovers and liquidity ratios on BSE and NSE with stock exchanges in
other economies in 1996. The combined turnover on
BSE and NSE, which are both located in Mumbai,
exceeded that of some other stock markets in Asia.
This is because of the remarkably high liquidity ratio
on NSE. Considering that the majority of about 6,000
stocks listed on BSE have low liquidity, it can be inferred that a group of the 1,500 most traded stocksINDIAN CAPITAL MARKET: RECENT DEVELOPMENTS AND POLICY ISSUES 123
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on BSE would also have a considerably high liquidity
ratio (Endo 1998). The substantial increase in turnover may be attributed primarily to the recent expansion of the NSE’s trading network. But this also
reflects the fact that the Indian stock market is dominated by speculative investments for short-term capital gains, rather than long-term investment.
BARRIERS TO INITIAL PUBLIC OFFERINGS
In April 1996, SEBI announced a policy initiative
that makes access to the primary market more restrictive. SEBI requires that a firm that wishes to
go public should have a three-year track record of
dividends. If this is not satisfied, it should at least
have a project with investment from a financial institution of at least 5 percent of the total project
cost. There has been a debate on whether this entry condition is too restrictive. But the measure
seems necessary to help recover investor confidence
in the corporate sector.
The process of public subscription in the Indian
market is lengthy and fraught with uncertainty. For
domestic equity issues, the process requires compulsory fallback underwriting, setting up of 30 mandatory collection centers across the country for collecting subscriptions from investors, and price determination of at least 45 days before the date of issue.
Once an issue has been subscribed, postsubscription
procedures require 60 days to elapse before the securities are listed. Investors are forced to remain illiquid during that period, or resort to the gray market
to meet liquidity needs. The cost of delay is likely to
be incorporated by investors in the price at which
they are prepared to subscribe to an issue. This raises
costs to an issuer, besides encouraging clandestine
activities such as gray markets.
Transaction Costs in the
Secondary Market
Screen-based trading introduces a greater degree
of transparency and reduces spreads. Market manipulation becomes more difficult with screen-based
trading and easier to investigate on account of the
Figure 3: Turnover of Stock Trading in India
Source: Securities and Exchange Board of India, Annual Report, 1995/96 and 1996/97.
1994/95 1995/96 1996/97
0
2,000
4,000
6,000
8,000
Rs billion
Table 7: Turnovers and Liquidity Ratios of Indian and Foreign Stock Exchanges, 1996
a
  Converted into dollar amounts, using the simple averages of the year-end rates in 1995 and 1996; foreign companies and investment funds are excluded.
b
  Turnover/average market capitalization.
c
  Stocks listed and permitted to trade.
d
  The first section only. The second section was not included.
Source: Bombay Stock Exchange, National Stock Exchange, and Nikko Research Center.
Item Turnover ($ billion)
a
Liquidity Ratio
b
Indian Stock Exchanges
Bombay
c
26.5 0.22
National
c
69.1 0.65
Foreign Stock Exchanges
Hong Kong, China 182.6 0.48
Jakarta 32.6 0.41
Kuala Lumpur 183.0 0.68
London 390.1 0.25
New York 3,728.4 0.58
Singapore 51.9 0.27
Thailand 51.3 0.43
Tokyo
d
885.7 0.28124 A STUDY OF FINANCIAL MARKETS
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transparent audit trails that are established. As estimated by Shah and Thomas (1997), the total transaction costs in India’s equity market have been reduced by half, i.e., from 5 to 2.5 percent since the
introduction of screen-based trading (Table 8). But
this is still high compared to advanced markets.
When depository, derivatives, and indexation are
fully in place, the transaction costs of the Indian equity market could be even lower than those of most
advanced countries.
CLEARING, SETTLEMENT, AND DEPOSITORIES
Account settlement period of stock exchanges that
earlier had a 14-day trading cycle has been shortened to seven days (effectively five days because of
two intervening no trading days on Saturday and
Sunday). Both BSE and NSE process net obligations over a five-day account period and complete
the settlement on the 15th day from the commencement of trading for an account period. Other stock
exchanges are also moving into this cycle. In the
case of NSE, the National Securities Clearing Corporation, Ltd., its wholly owned subsidiary, provides
a settlement guarantee. In the case of BSE, the clearing house is operated by Bank of India Shareholding
Ltd., which is jointly owned by BSE and the Bank of
India.
In India, certificates of securities are registered
with the issuer. For Government securities, the
record of ownership is kept by RBI, which maintains a Subsidiary General Ledger in its Public Debt
Office. Transfer of ownership takes place through
book entry transfer in this ledger. In the case of
corporate securities, the issuer maintains a register
of members or holders of securities, and the issuers or their register or transfer agents have to physically receive the securities from a transferee accompanied by a transfer deed signed by the transferor before a transfer is effected. There are no
bearer securities in India. The majority of the settlement of transactions in the securities market continues to be based on physical movement of certificates. This results in delays, bottlenecks, and an
increase in transaction costs besides creating various risks for market participants such as bad delivery, fraud, and theft. Because the clearing and
settlement infrastructure in the stock exchanges
cannot keep up with the flow of paper, especially
as trading expands to different parts of the country,
the exchanges have been unable to shorten settlement cycles or move to rolling settlement, which
are essential to reduce settlement risk.
The Depositories Act of 1996 allows for dematerialization of securities in depositories and the transfer of securities through electronic book entry. As
the depository network expands and the proportion
of dematerialized securities in depositories increases,
the benefits are expected to extend to the vast majority of market participants. The National Securities
Depository, Ltd. (NSDL) has been granted a certifiTable 8: Comparison of Transaction Costs Between Indian and New York Equity Markets (percent)
a
 1996-1997
Source: Shah and Thomas (1997).
India
New York
Component Mid-1993 Today
a
Future Scenario Today
a
Trading 3.75 0.75 0.40 1.23
Brokerage 3.00 0.50 0.25 1.00
Market impact cost 0.75 0.25 0.15 0.23
Clearing
Counterparty risk Present In part 0.00 0.00
Settlement 1.25 1.75 0.10 0.05
Paperwork cost 0.75 0.75 0.10 0.05
Bad paper risk 0.50 1.00 0.00 0.00
Total 5.00 (+ risk) 2.50 0.50 1.28INDIAN CAPITAL MARKET: RECENT DEVELOPMENTS AND POLICY ISSUES 125
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cate of commencement of business by SEBI. As of
May 1998, 197 issues (about 50 percent of market
capitalization) have applied for dematerialization and
about 10 percent of them have been dematerialized.
In contrast, only three issues had signed for the same
as of November 1996. If about 300 to 400 issues
apply for dematerialization, they will cover about 90
percent of trading volume. As of May 1998, there
were 52 depository participants, which include brokers, banks, and custodians—an increase from 22
participants in 1996. Thus, it is expected that dematerialization of trade will proceed quickly although its
completion may still take some time.
Debt Market
HIGH STATUTORY LIQUIDITY REQUIREMENT
The debt market is not well developed in India. Even
though the volume of Government bonds outstanding is large, banks and other financial institutions
hold a substantial part of these bonds as liquidity
requirement. The statutory liquidity requirement (on
top of cash requirement of 10 percent) has been
reduced from 25 to 23 percent. But this is still high
and should be further decreased to activate the private debt market.
MARK-TO-MARKET
Banks tend to hold Government securities to maturity to avoid a capital loss on the balance sheet. Until
1996, only 40 percent of the portfolio of Government
securities had to be marked-to-market. Starting fiscal year 1996/97, the requirement has been raised to
50 percent for existing banks and 100 percent for
the new private sector banks.
The pattern of ownership of Government securities is shown in Table 9. The biggest holders of
both central and state Government securities are
commercial banks, with more than two thirds of
the total. Life insurance companies have also increased their holdings of Government securities.
Banks and life insurance companies are captive
markets for Government securities due to the portfolio restrictions imposed on them. Meanwhile, the
market for private companies’ debentures is not
yet well developed.
PRIMARY DEALERS
Table 10 shows the market borrowings of the central and state Governments. The total issue of Government securities and net borrowing of the Government have increased.
Table 9: Pattern of Ownership of Gilt-edged Securities (percent)
na = not available.
LIC = Life Insurance Corporation of India, PPF = Public Provident Funds.
Source: Reserve Bank of India, Report on Currency and Finance, various issues.
Item
Central Government
Securities
Reserve Bank of India
Commercial banks
LIC
PPF
Others
Total
State Government
Securities
Reserve Bank of India
Commercial banks
    LIC
PPF
Others
Total
1996
9.0
na
17.8
0.6
na
100.0
0.0
na
12.2
4.0
na
100.0
1995
2.5
68.0
17.2
0.5
3.3
100.0
0.0
73.0
11.8
2.8
12.4
100.0
1994
3.0
71.9
16.9
0.6
0.4
100.0
0.0
74.8
11.1
2.8
11.2
100.0
1993
10.6
64.6
16.3
0.8
5.2
100.0
0.0
72.7
9
2.9
15.5
100.0
1992
22.3
59.9
na
1.1
na
100.0
0.0
79.1
7.8
3.4
na
100.0
1991
24.8
55.1
13.4
0.0
6.7
100.0
0.0
78.6
6.9
0.0
15.5
100.0
1990
22.6
53.4
12.9
1.1
10.0
100.0
0.0
79.5
6.0
2.7
11.8
100.0
1980
20.3
44.9
11.8
15.3
7.7
100.0
0.0
56.5
19.1
21.0
3.4
100.0
1969
37.5
20.4
11.5
23.3
7.3
100.0
0.3
37.9
24.0
3.1
34.7
100.0126 A STUDY OF FINANCIAL MARKETS
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A primary auction market for Government securities has been created and six primary dealers have
been authorized by RBI.
2
 However, the auctions still
do not seem to take place fully on a market basis,
mainly because Government securities are not issued at completely market rates.
Other factors seem to be inhibiting the market
clearing mechanism in the primary auction market.
First, there is yet no preannounced notification amount
in 364-day and 14-day auctions. This procedure enables RBI to determine in a flexible manner either
the cutoff price or the amounts to be accepted. Removing uncertainty by notifying auction volumes will
bring about more transparency in the auction procedure. Second, noncompetitive bids are allowed in 91-
day and 14-day Treasury bill auctions. Since state
Governments are major noncompetitive bidders in
India, their participation in Treasury bill auctions
causes further uncertainty in auction volumes.
PRIVATE PLACEMENT
The number of private placements has risen in recent years. It is estimated that about 40 percent
of total resources mobilized by public and private
companies in the Indian capital market in 1995/96
was through private placement, and this increased
further to close to 50 percent in 1996/97 (Table
11). The share of the public sector in total private
placements was about 70 percent in 1995/96, which
rose to about 84 percent in 1996/1997. There are
several advantages to tapping private placements
instead of resorting to public issues. However, certain  problems need to be addressed  for the welldirected and efficient functioning of the market.
At present, there is no transparency in this market
and virtually little information. In developed markets, the regulatory authorities indicate the framework within which private placements have to
function.
Table 10: Market Borrowings of the Government of India (Rs billion)
Source: Reserve Bank of India, Report on Currency and Finance, various issues.
Y e a r
    1970/71
    1975/76
    1980/81
    1985/86
    1990/91
    1991/92
    1992/93
    1993/94
    1994/95
    1995/96
    1996/97
    1970/71
    1975/76
    1980/81
    1985/86
    1990/91
    1991/92
    1992/93
    1993/94
    1994/95
    1995/96
    1996/97
Total
Issues
4.0
6.0
26.3
53.3
89.9
89.1
138.9
490.1
381.1
405.1
296.2
1.4
2.5
3.0
12.8
25.6
33.4
38.0
41.4
51.2
62.7
65.4
Total
4.3
6.6
28.7
57.6
89.9
89.1
138.9
490.1
381.1
405.1
296.2
1.6
2.7
3.3
14.1
25.7
33.6
38.1
41.4
51.2
62.7
65.4
Cash
2.3
4.7
27.3
55.5
85.3
78.4
137.4
490.1
381.1
405.1
296.2
1.2
2.7
2.8
11.9
25.7
33.6
37.1
41.4
51.2
62.7
65.4
Conversion
2.0
1.9
1.4
2.1
4.6
10.7
1.5
0.3
0.5
2.3
1.0
Net
Borrowing
1.3
4.5
26.0
50.0
80.0
75.0
47.9
261.5
200.7
267.9
200.0
1.0
2.7
2.0
9.7
25.7
33.6
34.7
36.4
51.2
59.3
65.4
Subscription
Cent ral  Government
State GovernmentINDIAN CAPITAL MARKET: RECENT DEVELOPMENTS AND POLICY ISSUES 127
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DEVELOPMENT OF SECONDARY MARKET
While there has been increased activity in primary
debt issues, the secondary market for debt is yet to
become active. The entry of FIIs into the debt market and the launching of fixed income schemes and
money market schemes by mutual funds are expected
to activate the debt market. Several technical impediments that prevented more active secondary
market trading in Government securities have been
removed over the past few years. But still there are
significant barriers to the active development of the
secondary market for fixed income assets.
Investors
MUTUAL FUNDS
Table 12 shows increasing resource mobilization by
mutual funds. However, over the last few years, the
performance of mutual funds has not been encouraging. Investor confidence in mutual funds, which
ideally should be the most preferred investment vehicles for the lay investor, has been low and the lukewarm response seen in 1995/96 continued in 1996/
97 (Table 13). This could be attributed partly to market conditions, which have affected the perception
of investors. With the revised SEBI (Mutual Fund)
Regulations of 1996, mutual funds have been given
greater flexibility to operate schemes. It is expected
that as a result of this liberalization, mutual funds will
introduce innovative products to attract investors. The
revised regulations have also introduced greater transparency and accountability, which is anticipated to
boost investor confidence.
Table 13: Resource Mobilization, by Type of Mutual
Funds (Rs billion)
a
As of  January 1997.
Source: Submaranian (1998).
Item 1994/95 1995/96 1996/97
a
Public sector mutual funds 21.43 2.96 1.51
Private sector mutual funds 20.84 3.12 3.46
United Trust of India 95.00 59.00 42.80
Total 137.27 65.08 47.77
Table 12: Resources Mobilized by Domestic Mutual
Funds (Rs billion)
a
Until January 1997.
Source: Submaranian (1998).
Period Resources Mobilized
1964-1987 45.63
1987-1992 329.77
1992-1997
a
458.45
Total 833.85
FOREIGN INSTITUTIONAL INVESTORS
Accumulated net investment of FIIs contribute less
than 7 percent of total market capitalization of the
Indian capital market and less than 10 percent of
the outstanding external debt of the country. India’s
external debt position has shown considerable improvement in the recent past. The debt-GDP ratio
fell from 41 percent in March 1992 to 25.9 percent in March 1997. Short-term debt and the volatility of FIIs may well affect the performance of
India’s stock markets, but would not yet pose a
significant threat to cause a foreign exchange crisis. However, if these were coupled with an increase in nonresident Indian (NRI) deposits, there
Table 11: Private Placement in the Capital Market
a
Provisional.
   Source: Submaranian (1998).
Total Resources Percentage
Private Placement
Mobilized
a
of Private
Year Private sector Public sector Total (Rs billion) Placements
Amount (Rs billion)
a
1995/96 40.71 92.90 133.61 339.98 39.3
1996/97 24.93 125.73 150.66 306.74 49.1
Share (%)
1995/96 30.50 69.50 100.00
1996/97 16.50 83.50 100.00128 A STUDY OF FINANCIAL MARKETS
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may well be the potential for a currency crisis if
India fails to carefully manage its macroeconomic
environment.
Policy Recommendations
Over the last few years, there have been substantial
reforms in the Indian capital market. But there are
still many issues to be addressed to make it more
efficient in mobilizing and allocating capital.
Investor confidence in stock investment is low.
This must be regained in order to encourage capital
Table 14: India’s External Debt ($ billion)
Source: Reserve Bank of India, Report in Currency and Finance, various issues.
Item 1985 1990 1991 1992 1994 1995 1996 1997
Medium- and long-term
External assistance 19.31 32.15 34.28 38.10 43.71 48.81 47.29 46.28
International Monetary Fund 3.93 1.50 2.62 3.45 5.04 4.30 2.37 1.31
External commercial borrowing 5.56 13.74 14.78 16.08 17.57 19.62 18.27 18.85
Nonresident Indian deposits 3.08 10.36 10.58 7.85 12.67 12.38 11.01 11.13
Short-term na na 4.80 3.19 3.63 4.27 5.03 6.73
mobilization through primary market issues. Further
strengthening of investor protection, and improvements in transparency, corporate governance, and
monitoring will be necessary. The capital market infrastructure, such as accounting standards and legal
mechanisms, should also be improved to this end.
On the supply side, to encourage corporate firms to
rely more on stock markets for their source of financing, the issuing costs in terms of length of time
required and administrative burden should be streamlined (Table 15).
Table 15: Matrix of Policy Recommendations
Issues
A. Market infrastructure
1. Accounting
principles
2. Legal mechanism
B. Corporate
governance
C. Cost of capital issue
D. Debt market
1. Diversification of
investors
2. Stamp duty
3. Private placement
E. Integration of stock
exchanges and
consolidation of
intermediaries
F. Risk management
G. Integration of the
capital market with
the banking sector
Policy Recommendation
• Improve accounting principles, make them consistent with international practice.
• Strictly enforce punitive measures for inaccurate accounting practice.
• Establish prompt and effective settlement of disputes to protect small investors’ interests.
• Grant institutional investors voting power.
• Allow hostile takeovers.
• Require consolidated balance sheets for conglomerates-affiliated firms to better monitor crosssubsidization and internal transactions between affiliated firms.
• Streamline the procedure for public subscription of securities to reduce transaction costs in
terms of time lag and uncertainty.
• Apply fully market-based interest rates for issuing Government securities.
• Further reduce statutory liquidity requirements.
• Further enhance the credibility of credit rating agencies.
• Amend stamp duty regime by the Government of Maharashtra, where Mumbai is located, in the
form of one time levy or consolidated fee payable by National Securities Depository, Ltd (NSDL).
• Indicate the framework within which the private placement has to function to protect investors
from risk associated with subscriptions in the private placement market.
• Provide favorable environment or some incentives for establishing central trading system through
interconnectivity.
• Encourage the corporatization and merger of brokers and merchant bankers through tax
incentives.
• Securities and Exchange Board of India to more closely monitor and inspect the intermediaries
and stock exchanges and, if necessary, strengthen punitive measures.
• Banking system to establish a good electronic funds transfer (EFT) solution to enable direct
payments of dividends to bank accounts, eliminate counterparty risk, and facilitate FIIs.
• Encourage sound competition between the banking sector and the capital market through more
banking liberalization.INDIAN CAPITAL MARKET: RECENT DEVELOPMENTS AND POLICY ISSUES 129
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Market Infrastructure Improvement
ACCOUNTING PRINCIPLES
The financial statements of an issuing company in its
disclosure documents are prepared in accordance
with India’s generally accepted accounting principles
(GAAP). The increasing exposure of Indian listed
firms to international investors has compelled them
to adopt more internationally acceptable accounting
principles. The Institute of Chartered Accountants
of India has issued a note to introduce new accounting standards starting fiscal year 1995/96. Yet, Indian GAAP is considerably different from that of
internationally accepted principles.
3
 To raise the credibility of corporate financial statements and transparency, accounting principles should be improved
further to make them consistent with international
practice. In relation to this, the credibility of the accounting profession should also be enhanced through
stricter enforcement of punitive measures for inaccurate accounting practices.
LEGAL MECHANISM
The problems of the court system and legal mechanism to settle disputes in India have been frequently
raised. After floating shares in the market, investors
should be able to monitor corporate performance
closely to protect their interests. Prompt and effective settlement of disputes is also critical. According
to a recent survey by Gupta (1998), 65 percent of
those who brought complaints to court indicated that
the cases have not been resolved. Even though minority shareholders can now bring their complaints
to the court, they are discouraged from doing so because the legal mechanism is very slow. Measures
are therefore needed to expedite court decisions and
protect small investors’ interests.
Improvement of Corporate
Governance Environment
To boost corporate governance, the authorities may
consider giving institutional investors voting power,
which is prohibited now, and allow hostile takeovers,
a practice not yet done in India. Furthermore, the
authorities may enforce a consolidated accounting
principle for conglomerate-affiliated firms in order
to better monitor cross-subsidization and internal
transactions between affiliated firms. These measures will greatly improve the capital market environments for corporate governance.
Reduction of Cost of Capital Issue
Transaction costs involved in the public issue of securities seem high due to the length of time required.
This time-consuming process also increases issuers’
uncertainty and tends to push them towards private
placements. Streamlining the procedure for public
subscription of securities is necessary not only to reduce administrative burdens and transaction costs,
but also to lessen firms’ uncertainty.
Activation of the Debt Market
Several policy measures have been taken to activate the debt market, such as competitive pricing
of Government securities, initiation of open market
operation including repo operation, and a larger percentage of mark-to-market valuation. These measures have had a beneficial impact on the system,
such as greater market absorption of Government
securities, lower absorption by RBI, and increased
attention by investors to interest rate risk management. For instance, RBI’s absorption of primary
issues was 13.3 and 16.6 percent in 1996/97 and
1997/98,
4
 respectively, as against 32.6 percent in
1995/96 and 45.6 percent in 1992/93. However, further measures have to be implemented to encourage the development of the debt market, including
reduction of the 23 percent statutory liquidity requirement ratio and 100 percent mark-to-market
valuation for all banks.
DIVERSIFICATION OF INVESTOR BASE
In order to increase liquidity of Government securities, diversification of the investor base with nontraditional investor groups such as individuals, firms,130 A STUDY OF FINANCIAL MARKETS
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trusts, and corporate entities is necessary. Diversification is also important to promote an active market
in which investors’ buying and selling needs vary
across time. Banks, financial institutions, and provident funds are the predominant holders of Government securities. To promote diversification of investors, mutual funds could be encouraged to establish
gilt funds to invest in Government securities through
tax incentives, and for primary dealers to diversify
the investor base. Fully market-based interest rates
for issuing Government securities are also necessary. The credibility of credit-rating companies should
be further established.
STAMP DUTY
With the establishment of NSDL, a sizable stock of
private debt instruments and Public Sector Unit (PSU)
bonds was expected to be dematerialized and covered by a secured payment and settlement system. At
present, NSDL is able to dematerialize only those scrips
that are exempted from stamp duty and are transferable by endorsement and delivery. As most bonds and
other corporate debt instruments are not exempted
from stamp duty on transfer of bonds, NSDL has encountered difficulties in dematerializing them. In the
automated environment of the depository, it is not possible for NSDL to keep track of them. Therefore, unless the issue of the waiver of stamp duty on transfer
of debt is settled with the state governments, NSDL
would not be able to extend its services to bonds and
other private debt instruments. A suitable amendment
t o   s t amp   d u t y   r e g ime   b y   t h e  Go v e r nme n t   o f
Maharashtra in the form of a one-time levy or consolidated fee payable by NSDL could resolve the issue to a significant degree.
PRIVATE PLACEMENT MARKET
The proportion of total resources mobilized by government and nongovernment companies through private placements has been increasing. In private
placements, bonds have emerged as the most preferred instrument. The popularity of private placement could be attributed to lower issuing cost and
savings on issue management time lag, apart from
the fact that private placement has not been subject
to the strict regulatory provisions applicable to public
issues. At present, there is no transparency in this
market, with virtually little information issued. In developed markets, the regulatory authorities indicate
the framework within which the private placement
has to function, such as the number of persons per
placement, arrangements with only qualified investors and strict regulations to access certain qualified
investors. The issue of extending the regulatory
framework to protect investors’ interests from risks
associated with subscriptions in the private placement market needs to be addressed. With a proper
regulatory framework and more transparency, the
private placement market can develop further as an
integral and important constituent of the primary
market for raising resources by corporates.
Furthermore, favorable tax treatment may be extended to institutional investors to encourage individual investment in the private placement market
through professional fund managers, which can reduce asymmetric information and provide better investor protection.
SECONDARY DEBT MARKET DEVELOPMENT
In order to activate the secondary market for debt
instruments, several measures need to be undertaken.
Further deregulation of domestic interest rates,
greater reliance on borrowing at market rates by the
Government and other quasi-state issuers, more utilization of open market operations as a tool for monetary policy, and better procedures for trading, clearing, and settlement will facilitate secondary market
development. Investor groups should be further diversified in order to provide better liquidity, and statutory
liquidity requirement should be reduced. A suitable
solution to stamp duty in relation to dematerialization
of nongovernment securities is also necessary. In the
case of Government securities, RBI provides depository, and coverage of book-entry holding is expand-INDIAN CAPITAL MARKET: RECENT DEVELOPMENTS AND POLICY ISSUES 131
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ing. With respect to PSU bonds and corporate debentures, which are held mostly in scrip form, a proper
settlement system is yet to be put in place. As noted,
NSDL was expected to dematerialize a sizable stock
of nongovernment debt but it has been able to dematerialize only those securities that are exempt from
stamp duty. Therefore, suitable amendments to the
stamp duty regime are necessary to reduce transaction costs in the secondary markets for private securities. This will also encourage the development of a
repo market in nongovernment securities.
Integration of Stock Exchanges and
Consolidation of Intermediaries
A recent movement in India is the formation of the
Federation of Indian Stock Exchanges (FISE) by 12
regional stock exchanges and the setting up of a central trading system, the Indian Stock Exchanges Services Corporation (ISESC). If this materializes, there
will be three entities of national stature: NSE, BSE,
and ISESC. The Government should make the environment favorable and, if necessary, provide incentives to facilitate this process.
A related aspect is the consolidation of intermediaries. The number of intermediaries in the Indian
capital market has mushroomed over the last 10 years.
As a result, turnover per member is quite low and
transaction costs are high in most stock exchanges.
Corporatization of broking, entry of foreign brokers,
drying up of retail investments, and increasing overhead costs have created survival problems, particularly for the individual and small brokers.
5
 Also, the
number of merchant banks (more than 1,000) seems
large for the Indian capital market. The Government
should consider favorable tax treatment for brokers
and merchant bankers who want to engage in mergers and takeovers.
Risk Management
The rules that have been introduced during the last
few years to contain market risks seem to have operated reasonably well. Strict enforcement of these
rules is as important as the rules themselves to effectively manage risk. In this regard, SEBI should
more closely inspect intermediaries and the stock
exchanges and, if necessary, strengthen punitive
measures.
Integration of the Capital Market
with the Banking Sector
Capital markets cannot thrive alone—they have to
be integrated with the other segments of the financial system. Effective and efficient capital markets
require a stable and strong payment, settlement, and
clearing systems. India’s banking system is yet to
come up with good EFT solutions. EFT is important
for solving problems such as those related to direct
payment of dividends to bank accounts, eliminating
counterparty risk, and facilitating FII investments.
Global trends in recent years have seen a blurring of borders between financial market segments.
The traditional wall between banks and the securities market is being eliminated, leaving banks with
greater investment flexibility. Banks are also increasingly providing long-term loans and entering
the capital market to raise resources through equity capital and subordinated debt. India is experiencing the same trends and they are expected to
increase the competitiveness of its capital market.
However, the country should pursue further expansion of banking activities in conjunction with further efforts to liberalize the banking system, and
enhance asset quality to encourage sound competition between the banking sector and the capital
market.132 A STUDY OF FINANCIAL MARKETS
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Appendix 1
Reforms in Indian Securities Market
Since 1992
The development in Indian securities market since
1992 can be summarized as follows:
• Capital Issues (Control) Act of 1947 repealed
and the office of Controller of Capital Issues abolished; control over price and premium of shares
removed. Companies now free to raise funds
from securities markets after filing prospectus
with the Securities and Exchange Board of India (SEBI).
• The power to regulate stock exchanges delegated
to SEBI by the Government.
• SEBI introduces regulations for primary and
other secondary market intermediaries, bringing
them within the regulatory framework.
• Reforms by SEBI in the primary market include
improved disclosure standards, introduction of
prudential norms, and simplification of issue procedures. Companies required to disclose all material facts and specific risk factors associated
with their projects while making public issues.
• Listing agreements of stock exchanges amended
to require listed companies to furnish annual
statement to the exchanges showing variations
between financial projections and projected utilization of funds in the offer document and actual figures. This is to enable shareholders to
make comparisons between performance and
promises.
• SEBI introduces a code of advertisement for
public issues to ensure fair and truthful disclosures.
• Disclosure norms further strengthened by introducing cash flow statements.
• New issue procedures introduced—book building for institutional investors—aimed at reducing costs of issue.
• SEBI introduces regulations governing substantial acquisition of shares and takeovers and lays
down conditions under which disclosures and
mandatory public offers are to be made to the
shareholders. Regulations further revised and
strengthened in 1996.
• SEBI reconstitutes the governing boards of the
stock exchanges and introduces capital adequacy
norms for broker accounts.
• Private mutual funds permitted and several such
funds already set up. All mutual funds allowed
to apply for firm allotment in public issues—also
aimed at reducing issue costs.
• Regulations for mutual funds revised in 1996,
giving more flexibility to fund managers while
increasing transparency, disclosure, and accountability.
• Over-the-Counter Exchange of India formed.
• National Stock Exchange (NSE) establishment
as a stock exchange with nationwide electronic
trading.
• Bombay Stock Exchange (BSE) introduces
screen-based trading; 15 stock exchanges now
have screened-based trading. BSE granted permission to expand its trading network to other
centers.
• Capital adequacy requirement for brokers enforced.
• System of mark-to-market margins introduced
in the stock exchanges.
• Stock lending scheme introduced.
• Transparency brought out in short selling.
• National Securities Clearing Corporation, Ltd.
set up by NSE.
• BSE in the process of implementing a trade guarantee scheme.
• SEBI strengthens surveillance mechanisms and
directs all stock exchanges to have separate surveillance departments.
• SEBI strengthens enforcement of its regulations.
Begins the process of prosecuting companies for
misstatements and ensures refunds of application money in several issues on account of misstatements in the prospectus.INDIAN CAPITAL MARKET: RECENT DEVELOPMENTS AND POLICY ISSUES 133
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• Indian companies permitted to access international capital markets through Euro issues.
• Foreign direct investment allowed in stockbroking, asset management companies, merchant
banking, and other nonbank finance companies.
• Foreign institutional investors (FIIs) allowed access to Indian capital markets on registration with
SEBI.
Appendix 2
The Indian Securities Market
Before 1992
The Indian securities market before 1992 had the
following characteristics:
• Fragmented regulation; multiplicity of administration.
• Primary markets not in the mainstream of the
financial system.
• Poor disclosure in prospectus. Prospectus and
balance sheet not made available to investors.
• Investors faced problems of delays (refund,
transfer, etc.)
• Stock exchanges regulated through the Securities Contracts (Regulations) Act. No inspection
of stock exchanges undertaken.
• FIIs also permitted to invest in unlisted securities and corporate and Government debt.
• The Depositories Act enacted to facilitate the
electronic book entry transfer of securities
through depositories.
• Guidelines for Offshore Venture Capital Funds
announced. SEBI regulations for venture capital
funds become effective.
• Stock Exchanges run as brokers clubs; management dominated by brokers.
• Merchant bankers and other intermediaries unregulated.
• No concept of capital adequacy.
• Mutual funds—virtually unregulated with potential for conflicts of interest in structure.
• Poor disclosures by mutual funds; net asset value
(NAV) not published; no valuation norms.
• Private sector mutual funds not permitted.
• Takeovers regulated only through listing agreement between the stock exchange and the company.
• No prohibition of insider trading, or fraudulent
and unfair trade practices.134 A STUDY OF FINANCIAL MARKETS
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Appendix 3
Regulatory Framework
INSTITUTIONS
Securities and Exchange Board of India
Securities and Exchange Board of India (SEBI)
was set up as an administrative arrangement in 1988.
In 1992, the SEBI Act was enacted, which gave
statutory status to SEBI. It mandates SEBI to perform a dual function: investor protection through regulation of the securities market, and fostering the development of this market. SEBI has been delegated
most of the functions and powers under the Securities Contract Regulation (SCR) Act, which brought
stock exchanges, their members, as well as contracts
in securities which could be traded under the regulations of the Ministry of Finance (see Figure A3 for
the present regulatory structure of the Indian securities market). It has also been delegated certain powers under the Companies Act. In addition to registering and regulating intermediaries, service providers, mutual funds, collective investment schemes,
venture capital funds, and takeovers, SEBI is also
vested with power to issue directives to any person(s)
related to the securities market or to companies in
areas of issue of capital, transfer of securities, and
disclosures. It also has powers to inspect books and
records, suspend registered entities, and cancel registration.
Reserve Bank of India
Reserve Bank of India (RBI) has regulatory involvement in the capital market, but this has been
limited to debt management through primary dealers, foreign exchange control, and liquidity support
to market participants. It is RBI and not SEBI that
regulates primary dealers in the Government securities market. RBI instituted the primary dealership of
Government securities in March 1998. Securities
transactions that involve a foreign exchange transaction need the permission of RBI.
Department of Company Affairs
In 1947, the Capital Issues (Control) Act was enacted, which formalized and continued initial controls on the issue of securities that were introduced
during World War II. This Act was administered by
the office of the Controller of Capital Issues (CCI),
which was a part of the Ministry of Finance. In line
with economic reforms, it was repealed in 1992 to
liberalize capital issuance and pricing. While capital
issuance used to be regulated by the office of the
CCI, both private and public companies were governed by the Companies Act of 1956, which was
and continues to be administered by the Department
of Company Affairs (DCA) under the Ministry of
Law, Justice and Company Affairs. Besides governing the incorporation, management, mergers, and
winding up of companies, this Act also specifies certain aspects concerning capital issuance and securities trading, particularly the issue of prospectus for
public offers, contents of the prospectus, completion
of allotment, issue, and trading of securities, and
transfer and registration of securities.
Stock Exchanges
SEBI issued directives that require that half the
members of the governing boards of the stock exchanges be nonbroker public representatives and include a SEBI nominee. To avoid conflicts of interest,
stock brokers are a minority in the committees of
stock exchanges set up to handle matters of discipline, default, and investor-broker disputes. The exchanges are required to appoint a professional, nonmember executive director who is accountable to
SEBI for the implementation of its directives on the
regulation of stock exchanges. SEBI has introduced
a mechanism to remedy investor grievances against
brokers.
DISCLOSURE
Similar to companies in capital markets in other countries, a company offering securities in the IndianINDIAN CAPITAL MARKET: RECENT DEVELOPMENTS AND POLICY ISSUES 135
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
capital market is required to make a public disclosure of all relevant information through its offer documents. These documents are as follows:
• prospectus,
• application form and the abridged prospectus (in
case of an issue to the public), or
• letter of offer (in case of a rights issue to existing shareholders or debenture holders of a company with or without the right to renounce in favor of other persons).
After a security is issued to the public and subsequently listed on a stock exchange, the issuing company is required under the listing agreement to continue to disclose in a timely manner to the exchange,
to the holders of the listed securities (the shareholders or the bondholders), and to the public (through
the exchange or the media), any information necessary to enable the holders of the listed securities to
appraise its position and to avoid the establishment
of a false market in such listed securities. Such information include:
• the date of the meeting of the board of directors
for corporate actions;
• the audited financial results on an annual basis
and the unaudited ones on a semiannual basis;
• any proposed change in the general character
or nature of the company’s business;
• any alterations of the company’s capital; and
• any change of the company’s directorate, including managing directors and auditors.
Figure A3: Regulatory Framework of the Indian Securities Market
DCA = Department of Company Affairs, FII = foreign institutional investor, SCR = Securities Contract Regulation, SEBI =Securities and Exchange Board of India.136 A STUDY OF FINANCIAL MARKETS
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
Notes
1
Euromoney  (1996).
2
They are the Discount and Finance House of India
Ltd. (DFHI), the Securities Trading Corporation of India (STCI), State Bank of India, Gilts Ltd., PNB Gilts
Ltd., Industrial Credit and Investment Corporation of
India (ICICI) Securities, and Gilt Securities Trading Corporation.
3
See Endo (1998) for comparison of Indian GAAP with
those of the UK and US.
4
Up to August 1997.
5
The one-time exemption on capital gains tax provided in
the Union Budget 1997/98 should be of help to brokers for
corporatizing their businesses.
References
Endo, Tadashi. 1998. The Indian Securities Market—A
Guide for Foreign and Domestic Investors. Vision
Books. India.
Gupta, L.C. 1998. “What Ails the Indian Capital Market?”
Economic and Political Weekly, 23 (29-30).
Misra, B. M. 1997. “Fifty Years of the Indian Capital Market:
1947-1997.” In Banking and Financial Sector Reforms
in India, Vol. 6, edited by Kapila, Raj and Uma Kapila.
Rangarajan, C. 1997. “Activating Debt Markets in India.”
Reserve Bank of India Bulletin. October.
Reddy, Y. V. 1997. “The Future of India’s Debt Market.”
Reserve Bank of India Bulletin, November.
Reserve Bank of India. Report on Currency and Finance,
various issues.
Securities and Exchange Board of India. 1995/96 and
1996/97. Annual Report. India: SEBI.
Shah, Ajay, and Susan Thomas. 1997. “Securities Markets—Towards Greater Efficiency.” In India Development Report, edited by K. Parikh. UK: Oxford University Press.
Subramanian, V. V. 1998. “Impact Assessment of Capital
Market Reforms.” Draft paper submitted to Asian Development Bank.
Tarapore, S. S. “The Government Securities Market: The
Next Stage of Reform.” Banking and Financial Sector
Reforms in India, Vol. 4.
Euromoney. 1996. World Equity Guide. UK: Euromoney
Publications.

SECURITIES AND EXCHANGE BOARD OF INDIA
(DELISTING OF SECURITIES) GUIDELINES - 2003
1.  These guidelines shall be called “Securities and Exchange Board of India
(Delisting of Securities) Guidelines 2003”.
2.  These guidelines are being issued under section 11(1) of SEBI Act, 1992, read
with sub-section (2) of Section 11A of SEBI Act, with the objective to protect the
interest of investors in the securities market.
3.   DEFINITIONS
3.1  In these Guidelines, unless the context otherwise requires:-
(a) Act’ means the Securities and Exchange Board of India Act, 1992;
(b) Authority’ means the Central Listing Authority established under the
Securities and Exchange Board of  India (Central Listing Authority)
Regulations, 2003.
(c)  ‘Board’ means the Securities and Exchange Board of India established
under section 3 of the Act;
(d)  ‘compulsory delisting’ means delisting of the securities of a company by
an exchange.
(e)  ‘delisting exchange’ means the exchange from which the securities of the
company are proposed to be delisted in accordance with these Guidelines;
(f)  ‘exchange’ means any stock exchange which has been granted recognition
under section 4 of the Securities Contracts (Regulation) Act, 1956;
(g)  ‘promoter’ means a promoter as defined in clause (h) of sub-regulation (1)
of  Regulation 2 of the Securities and Exchange Board of India
(Substantial Acquisition of shares and Takeovers) Regulation, 1997 and
includes a person   who is desirous of getting the securities of the company
delisted under these Guidelines;
(h)  ‘public shareholding’ means the  shareholding in a company held by
persons other than the promoter, the acquirer or the persons acting in
concert with him as defined in regulation 2(1)(j) of  the Securities and
Exchange Board of India (Substantial Acquisition of shares and
Takeovers) Regulation, 1997 and the term ‘public holders of securities’
shall be construed accordingly;
(i)  ‘schedule’ means a schedule appended to these Guidelines.
(j)  ‘voluntary delisting’  means delisting of securities of a body corporate
voluntarily by a promoter or an acquirer or any other person other than the
stock exchange(s).
3.2  Words and expressions not defined in these Guidelines shall have the same
meaning as have been assigned to them under the Act or the Securities Contracts
(Regulation) Act, 1956 or the Companies Act, 1956, or any statutory modification
or re-enactment thereof, as the case may be. 4.   APPLICABILITY
4.1  These guidelines shall be applicable to delisting of securities of companies and
specifically shall apply to:
a.  Voluntary delisting being sought by the promoters of a company
b.  any acquisition of shares of the company (either by a promoter or by any
other person) or scheme or arrangement, by whatever name referred to,
consequent to which the public shareholding falls below the minimum
limit specified in the listing conditions or listing agreement that may result
in delisting of securities;
c.  Promoters of the companies who voluntarily seek to delist their securities
from all or some of the stock exchanges;.
d.  Cases where a person in control  of the management is seeking to
consolidate his holdings in a company, in a manner which would result in
the public shareholding in the company falling below the limit specified in
the listing conditions or in the listing agreement that may have the effect
of company being delisted;
e.  companies which may be compulsorily delisted by the stock exchanges;
4.2  Provided that company shall not be permitted to use the buy-back provision to
delist its securities.
5.   DELISTING OF SECURITIES (VOLUNTARY) OF A LISTED COMPANY
5.1  A company may delist from stock exchange where its securities are listed.
Provided that the securities of the company have been listed for a minimum
period of 3 years on any stock exchange.
Provided further that an exit opportunity has been given to the investors for the
purpose of which an exit price shall be determined in accordance with the “book
building process” described in clauses 7-10 and 13 and 14 of these guidelines.
5.2  An exit opportunity need not be given in cases where securities continue to be
listed in a stock exchange having nation wide trading terminals.
Explanation: For the purposes of these guidelines, stock exchange having
nationwide trading terminals means the Stock Exchange, Mumbai, the National
Stock Exchange and any other stock exchange, which may be specified by the
Board.
6.   PROCEDURE FOR VOLUNTARY DELISTING
6.1  Any promoter or acquirer desirous of delisting securities of the company under
the provisions of these guidelines shall : - (a)  obtain the prior approval of shareholders of the company by a special
resolution passed at its general meeting;
(b)  make a public announcement in the manner provided in these Guidelines.
(c)  make an application to the delisting exchange in the form specified by the
exchange, annexing therewith a copy  of the special resolution passed
under sub-clause (a); and;
(d)  comply with such other additional conditions as may be specified by the
concerned stock exchanges from where securities are to be delisted.
7.   PUBLIC ANNOUNCEMENT FOR VOLUNTARY DELISTING
7.1  Before making application for delisting, the promoters or the acquirers of the
ompany shall make a public announcement.
7.2  The public announcement shall contain inter-alia information specified in
Schedule I.
7.3  Before making the public announcement, the promoter shall appoint a merchant
banker registered with the Board, who is not an associate of the promoter.
8.   EXIT PRICE FOR VOLUNTARY DELISTING OF SECURITIES
8.1  Any promoter of a company which desires to delist from the stock exchange shall
determine an exit price for delisting of securities in accordance with the book
building process described in Schedule II of these guidelines.
8.2  The offer price shall have a floor price, which will be the average of 26 weeks
traded price quoted on the stock exchange where the shares of the company are
most frequently traded preceding 26 week from the date of the public
announcement and without any ceiling of maximum price.
8.3  In the case of infrequently traded securities the offer price shall be as per
regulation 20(5) of the SEBI (Substantial Acquisition and Takeover) Regulations,
and the infrequently traded securities shall be determined in the manner explained
under regulation 20(5) of the SEBI  (Substantial Acquisition and Takeover)
Regulations.
8.4  The stock exchange(s) shall provide the infrastructure facility for display of the
price at the terminals of the trading members to enable the investors to access the
price on the screen to bring transparency to the delisting process.
8.5  In the event of securities being delisted, the acquirer shall allow a further period
of 6 months for any of the remaining shareholders to tender securities at the same
price; 8.6  The stock exchanges shall monitor the possibility of price manipulation and keep
under special watch the securities for which announcement for delisting has been
made.
8.7  To ascertain the genuineness of physical securities if tendered and to avoid the
bad delivery, Registrar and Transfer Agent shall co-operate with the Clearing
House / Clearing Corporation to determine the quality of the papers upfront.
8.8  If the quantity eligible for acquiring securities at the final price offered does not
result in public shareholding falling below required level of public holding for
continuous listing, the company shall remain listed. 

8.9  The paid up share capital shall not be extinguished as in the case of buyback of
securities;
8.10  In case of partly paid-up securities, the price determined by the book building
process shall be applicable to the extent the call has been made and paid.
8.11  The amount of consideration for the  tendered and acceped securities shall be
settled in cash;
9.   RIGHT OF PROMOTER
9.1  The promoter may not accept the securities at the offer price determined by the
book building process.
9.2  Where the promoter decides not to accept the offer price so determined:
(a)  he shall not make an application  to the exchange for delisting of the
securities; and
(b)  the promoter shall ensure that the public shareholding is brought up to the
minimum limits specified under the listing conditions within a period of 6
months from the date of such decision, by any of the modes specified in
sub-clause 9.3.
9.3  For the purposes of sub-clause 9.2(b), the public shareholding may be increased
by any of the following means:
(a)  by issue of new shares by the company in compliance with the provisions
of the Companies Act, 1956 and the Securities and Exchange Board of
India (Disclosure and Investor Protection) Guidelines, 2000;
(b)  by the promoter making an offer for sale of his holdings in compliance
with the provisions of the Companies Act, 1956 and the Securities and
Exchange Board of India (Disclosure and Investor Protection) Guidelines,
2000; (c ) by the promoter making sale of his holdings through the secondary market
in a transparent manner; 

9.4  In the event of the promoter not being  able to raise the public shareholding in
accordance with sub-clause 9.3 within six months, he shall offer for sale to the
public such portion of his holdings as would bring up the public shareholding to
the minimum limits specified in the listing agreement or the listing conditions at
the price determined by the Central Listing Authority.
10.   PUBLIC ANNOUNCEMENT OF FINAL PRICE
10.1  On determination of the final price pursuant to the book building, the promoter or
the acquirer shall within a period of two working days from such determination:
(a) make a public announcement in the newspapers of the final price as
discovered by the book building process and whether or not the promoter
or the acquirer has accepted the price; and,
(b)  communicate to, exchange or exchanges from which delisting is sought to
be made, the final price discovered and whether the promoter has accepted
the price.
11.  DELISTING FROM ONE OR MORE STOCK EXCHANGES
11.1  When a company which is listed on any stock exchange or stock exchanges other
than the stock exchanges having nationwide trading terminals, seeks delisting, an
exit offer shall be made to the shareholders in accordance with these guidelines.
11.2  There shall not be any compulsion for the existing company to remain listed on
any stock exchange merely because it is a regional stock exchange.
12.   MINIMUM NUMBER OF SHARES TO BE ACQUIRED
12.1 Where the offer for delisting results in acceptance of a fewer number of shares
than the total shares outstanding and as a consequence the  public shareholding
does not fall below the minimum limit specified by the listing conditions or the
listing agreement, the offer shall be considered to have failed and no securities
shall be acquired pursuant to such offer.
13.   PAYMENT OF CONSIDERATION
13.1 The payment of consideration for delisting of securities shall be paid in cash by
the promoter or acquirer.
14.   DELISTING OF ONE OR ALL CLASS OF SECURITIES 14.1 A company may delist one or all of its class of securities subject to the provisions
of this clause.
14.2  If the equity shares of a company are  delisted, the fixed income securities may
continue to remain listed on the stock exchange.
14.3  A company which has a convertible instrument outstanding,  it shall not be
permitted to delist its equity shares till the exercise of the conversion options. 15. COMPULSORY DELISTING OF COMPANIES BY STOCK
EXCHANGES
15.1 The Stock Exchanges may delist companies which have been suspended for a
minimum period of six months for non-compliance with the Listing Agreement.
15.2  The Stock Exchanges may also delist companies as per the norms provided in
Schedule III.
15.3 The Stock Exchange shall give adequate and wide public notice through news
papers ( including one English national daily of wide  circulation) and through
display of the notice on the notice board/ website/ trading systems of the Exchange.
15.4  The stock exchange shall give a show cause notice to a company or adopt
procedure provided under Part B of Schedule III for delisting under sub-clause
15.1 and 15.2.
15.5 The exchange shall provide a time period of 15 days within which representation
may be made to the exchange by any person who may be aggrieved by the
proposed delisting.
1
15.6 The stock exchange may, after consideration of the representations received
from aggrieved persons, delist the securities of such companies.
15.6 A Where the stock exchange delists the securities of a company, it shall ensure that
adequate and wide public  notice of the fact of delisting is given through
newspapers and on the notice boards/trading systems of the stock exchange and
shall ensure disclosure in all such notices of the fair value of such securities
determined in accordance with the Explanation to clause 16.1
15.7   The stock exchange shall display the name of such company on its website.
16.  RIGHTS OF SECURITIES HOLDERS IN CASE OF COMPULSORY
DELISTING
16.1 Where the securities of the company are delisted by an exchange, the promoter of
the company shall be liable to compensate the security-holders of the company by 

1
Substituted by amendment vide circular dated January 31, 2006. The earlier clause read as –
15.6   The stock exchange shall ensure that adequate and wide public notice is given
through newspapers and on the notice boards/trading systems of the stock
exchanges after the period of show cause is over. paying them the fair value of the securities held by them and acquiring their
securities, subject to their option to remain security-holders with the company. 

2
Explanation: For the purposes of this sub-clause, fair value of  securities shall be
determined by persons appointed by the stock exchange out of a panel of experts, which
shall also be selected by the stock exchange, having regard to the factors mentioned in
regulation 20 of the Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997
3
16.2 – deleted
17.   DELISTING PURSUANT TO RIGHTS ISSUE
17.1 In case of rights issue, allotment to the promoters or the persons in control of the
management shall be allowed even if  they subscribe to unsubscribed portion
which may result in public shareholding falling below the permissible minimum
level.
Provided that the adequate disclosures have been made in the offer document to
that effect.
Provided further that they agree to buy out the remaining holders at the price of
rights issue or make an offer for sale to bring the public shareholding at the level
specified in the listing conditions or listing agreement to remain listed.
17.2  In case the rights issue is not fully subscribed, which may result in the public
shareholding falling below the permissible minimum level as specified in the
listing condition or listing agreement, the promoter(s) of the company shall be
required to delist by providing an exit opportunity in the manner specified in
clause 17.1 of these guidelines or may be required to make offer for sale of their
holdings so that the public shareholding is raised to the minimum level specified
in the listing agreement or in the listing conditions within a period of 3 months. 

2
Substituted by amendment vide circular dated January 31, 2006. The earlier clause read as –
Explanation: For the purposes of this sub-clause fair value shall be determined by the
arbitrator having regard to the factors mentioned in Regulation 20 of the  Securities and
Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulations,
1997 .
3
Deleted by amendment vide circular dated January 31, 2006. The deleted  clause read as –
16.2  The security holders may enforce their claim to compensation/fair value under this
clause through the arbitration mechanism of the exchange in the manner laid down
in its byelaws. 18.   REINSTATEMENT OF DELISTED SECURITIES
18.1 Reinstatement of delisted securities should be permitted by the stock exchanges
with a cooling period of 2 years. In other words, relisting of securities should be
allowed only after 2 years of delisting of the securities. It would be based on the
respective norms/criteria for listing at the time of making the application for
listing and the application will be initially scrutinized by the Central Listing
Authority. SCHEDULE I
[See Guideline 7.2]
CONTENTS OF THE PUBLIC ANNOUNCEMENT
1.  The floor price and how it was reached
2.  The dates of opening and closing of the bidding
3.  The name of the exchange or exchanges from which the securities are sought to
be delisted.
4.  The names and addresses of the trading members as well as the bidding terminals
and centres through which bids can be placed.
5.  Description of the methodology to be adopted for determination of acceptable
price
6.  Period for which the offer shall be valid
7.  The necessity and the object of the delisting
8.  A full and complete disclosure of all material facts.
9.  The proposed time table from opening of the offer till the settlement of the
transfers.
10.  Details of the escrow account and the amount deposited therein.
11.  Listing details and stock market data:
(a)  high, low and average market prices of the securities of the company during the
preceding three years;
(b)  monthly high and low prices for the six months preceding the date of the public
announcement; and,
(c)  the volume of securities traded in each month during the six months preceding the
date of public announcement.
12.  Present capital structure and shareholding pattern.
13.  The likely post-delisting capital structure.
14.  The aggregate shareholding of the promoter group and of the directors of the
promoters, where the promoter is a company and of persons who are in control of
the company.
15.  Name of compliance officer of the company.
16.  It should be signed and dated by the promoter. SCHEDULE II
[See Guideline 8.1]
THE BOOK BUILDING PROCESS
1. The book building process shall be made through an electronically linked transparent
facility.
2. The number of bidding centres shall not be less than thirty, including all stock
exchange centres and there shall be at  least one electronically linked computer
terminal at all bidding centres.
3. The promoter shall deposit in an escrow account, 100 per cent of the estimated
amount of consideration calculated on the basis of the floor price indicated and the
number of securities required to be acquired. The provisions of clause 10 of the
Securities and Exchange Board of India  (Buyback of Securities) Regulations,1998
shall be applicable mutatis mutandis to such escrow account.
4. The offer to buy shall remain open to the security holders for a minimum period of
three days. The security holders shall have a right to revise their bids before the
closing of the bidding.
5. The promoter or acquirer shall appoint ‘trading members’ for placing bids on the online electronic system.
6. Investors may approach trading members for placing offers on the on-line electronic
system. The format of the offer form and  the details that it must contain shall be
specified.
7. The security holders desirous of availing the exit opportunity shall deposit the shares
offered with the trading members prior to placement of orders. Alternately they may
mark a pledge for the same to the trading member. The trading members in turn may
place these securities as margin with the exchanges/clearing corporations.
8. The offers placed in the system shall have an audit trail in the form of confirmations
which gives broker ID details with time stamp and unique order number
9. The final offer price shall be determined as the price at which the maximum number
of shares has been offered. The acquirer shall have the choice to accept the price. If
the price is accepted then the acquirer shall be required to accept all offers upto and
including the final price but may not have to accept higher priced offers, subject to
clause 15. An illustration is given below:
Offer Quantity Offer Price Remarks
50 120 Floor price
82 125
108 130 Final price (as qty offered is max)
27 135
5 140
10 If final price is accepted the acquirer shall have to accept offers up to and including
the final price i.e. 240 shares at the final price of Rs. 130/-.
11 At the end of the book build period the merchant banker to the book building exercise
shall announce in the press and to the concerned exchanges the final price and the
acceptance (or not) of the price by the acquirer. 12 The acquirer shall make the  requisite funds available with the exchange/clearing
corporation on the final settlement day (which shall be three days from the end of the
book build period). The trading members shall correspondingly make the shares
available. On the settlement day the funds and securities shall be paid out in a process
akin to secondary market settlements.
13 The entire exercise shall only be available for demat shares. For holders of physical
certificates the acquirer shall keep the offer open for a period of 15 days from the
final settlement day for the shareholders to lodge the certificates with custodian(s)
specified by the merchant banker. SCHEDULE III
(GUIDELINE 17.1]
NORMS AND PROCEDURE FOR DELISTING OF SECURITIES
BY THE STOCK EXCHANGES
A NORMS
1. The percentage of equity capital (floating stock) in the hands of public investors.
This may be seen with reference to ---
• Existing paid-up equity capital
• Market lot
• Share price – very high, medium, low  
• Market Capitalisation  
• SEBIs Takeover Regulations-Regulation 21(3)  
• Clause 40A of the Listing Agreement  
2. The minimum trading level of shares of a company on the exchanges. There should
be some liquidity in every trading cycle. There should be some volume of trading for
price discovery on the market. The Company should appoint market makers. Criteria
of no-trading may be considered.
3. Financial aspect/Business aspects
a) The company should generate reasonable revenue/income/profits. It should be
operational/working. It must demonstrate earning power through its financial
results, profits, reserves, dividend payout for last 2/3 years.
b) If there is hardly any public interest in the securities the company then it is for
consideration whether its “listed company” label needs to be retained any
more.
c) The company should have some tangible asset. It is for consideration as to
what value of assets the company should own in order to be listed
continuously listed.
4. Track records of compliance of the Listing Agreement requirements for the past three
years.
ƒ Submission of audited/unaudited results, annual report, other
documents required to be furnished to the Exchange,
ƒ Book closure Record date with due notice
ƒ Payment of listing fee
ƒ Service to investors especially with regard to timely return of
shares duly transferred, timely payment of dividend,
communication of price sensitive information, etc.
ƒ Failure to observe good accounting practises in reporting earnings
and financial position
ƒ Publishing half yearly unaudited/audited results
ƒ Frequent changes in – Accounting year, Share transfer agent,  
Registered office, Name.
5. Promoters’ Directors’ track record especially with regard to insider trading,
manipulation of share prices, unfair market practises (e.g. returning of share transfer documents under objection on frivolous grounds with a view to creating scarcity of
floating stock, in the market causing unjust aberrations in the share prices, auctions,
close-out, etc. (Depending upon the trading position of directors or the firms).
6. If whereabouts of the company, its promoters directors are not available and even the
letters sent by the Exchange return undelivered and the company fails top remain in
touch with the Exchange.
7. The company has become sick and unable to meet current debt  obligations or to
adequately finance operations, or has not paid interest on debentures for the last 2- 3
years, or has become defunct,or there are no employees, or liquidator appointed, etc.
8. On the basis of the above norms and other  relevant information available about the
company, its promoters/directors, project, litigations, etc., a profile of the company
should be prepared and then a decision on delisting should be taken by an Exchange.
B PROCEDURE
1. The decision on delisting should be taken by a panel to be constituted by the
Exchange comprising the following :
a. Two directors/officers of the Exchange (one director to be a public
representative)
b. One representative of the investors
c. One representative from the Central Government (Department of
Company Affairs)/ Regional Director / Registrar of Companies
d. Executive Director / Secretary of the Exchange
2. Due notice of delisting and intimation to the company as well as other Stock
Exchanges where the company’s securities are listed to be given.
3. Notice of termination of the Listing Agreement to be given.
4. An appeal against the order of compulsory delisting may be made to the SEBI.
SECURITIES AND EXCHANGE BOARD OF INDIA
(DELISTING OF SECURITIES) GUIDELINES - 2003
1.  These guidelines shall be called “Securities and Exchange Board of India
(Delisting of Securities) Guidelines 2003”.
2.  These guidelines are being issued under section 11(1) of SEBI Act, 1992, read
with sub-section (2) of Section 11A of SEBI Act, with the objective to protect the
interest of investors in the securities market.
3.   DEFINITIONS
3.1  In these Guidelines, unless the context otherwise requires:-
(a) Act’ means the Securities and Exchange Board of India Act, 1992;
(b) Authority’ means the Central Listing Authority established under the
Securities and Exchange Board of  India (Central Listing Authority)
Regulations, 2003.
(c)  ‘Board’ means the Securities and Exchange Board of India established
under section 3 of the Act;
(d)  ‘compulsory delisting’ means delisting of the securities of a company by
an exchange.
(e)  ‘delisting exchange’ means the exchange from which the securities of the
company are proposed to be delisted in accordance with these Guidelines;
(f)  ‘exchange’ means any stock exchange which has been granted recognition
under section 4 of the Securities Contracts (Regulation) Act, 1956;
(g)  ‘promoter’ means a promoter as defined in clause (h) of sub-regulation (1)
of  Regulation 2 of the Securities and Exchange Board of India
(Substantial Acquisition of shares and Takeovers) Regulation, 1997 and
includes a person   who is desirous of getting the securities of the company
delisted under these Guidelines;
(h)  ‘public shareholding’ means the  shareholding in a company held by
persons other than the promoter, the acquirer or the persons acting in
concert with him as defined in regulation 2(1)(j) of  the Securities and
Exchange Board of India (Substantial Acquisition of shares and
Takeovers) Regulation, 1997 and the term ‘public holders of securities’
shall be construed accordingly;
(i)  ‘schedule’ means a schedule appended to these Guidelines.
(j)  ‘voluntary delisting’  means delisting of securities of a body corporate
voluntarily by a promoter or an acquirer or any other person other than the
stock exchange(s).
3.2  Words and expressions not defined in these Guidelines shall have the same
meaning as have been assigned to them under the Act or the Securities Contracts
(Regulation) Act, 1956 or the Companies Act, 1956, or any statutory modification
or re-enactment thereof, as the case may be. 4.   APPLICABILITY
4.1  These guidelines shall be applicable to delisting of securities of companies and
specifically shall apply to:
a.  Voluntary delisting being sought by the promoters of a company
b.  any acquisition of shares of the company (either by a promoter or by any
other person) or scheme or arrangement, by whatever name referred to,
consequent to which the public shareholding falls below the minimum
limit specified in the listing conditions or listing agreement that may result
in delisting of securities;
c.  Promoters of the companies who voluntarily seek to delist their securities
from all or some of the stock exchanges;.
d.  Cases where a person in control  of the management is seeking to
consolidate his holdings in a company, in a manner which would result in
the public shareholding in the company falling below the limit specified in
the listing conditions or in the listing agreement that may have the effect
of company being delisted;
e.  companies which may be compulsorily delisted by the stock exchanges;
4.2  Provided that company shall not be permitted to use the buy-back provision to
delist its securities.
5.   DELISTING OF SECURITIES (VOLUNTARY) OF A LISTED COMPANY
5.1  A company may delist from stock exchange where its securities are listed.
Provided that the securities of the company have been listed for a minimum
period of 3 years on any stock exchange.
Provided further that an exit opportunity has been given to the investors for the
purpose of which an exit price shall be determined in accordance with the “book
building process” described in clauses 7-10 and 13 and 14 of these guidelines.
5.2  An exit opportunity need not be given in cases where securities continue to be
listed in a stock exchange having nation wide trading terminals.
Explanation: For the purposes of these guidelines, stock exchange having
nationwide trading terminals means the Stock Exchange, Mumbai, the National
Stock Exchange and any other stock exchange, which may be specified by the
Board.
6.   PROCEDURE FOR VOLUNTARY DELISTING
6.1  Any promoter or acquirer desirous of delisting securities of the company under
the provisions of these guidelines shall : - (a)  obtain the prior approval of shareholders of the company by a special
resolution passed at its general meeting;
(b)  make a public announcement in the manner provided in these Guidelines.
(c)  make an application to the delisting exchange in the form specified by the
exchange, annexing therewith a copy  of the special resolution passed
under sub-clause (a); and;
(d)  comply with such other additional conditions as may be specified by the
concerned stock exchanges from where securities are to be delisted.
7.   PUBLIC ANNOUNCEMENT FOR VOLUNTARY DELISTING
7.1  Before making application for delisting, the promoters or the acquirers of the
ompany shall make a public announcement.
7.2  The public announcement shall contain inter-alia information specified in
Schedule I.
7.3  Before making the public announcement, the promoter shall appoint a merchant
banker registered with the Board, who is not an associate of the promoter.
8.   EXIT PRICE FOR VOLUNTARY DELISTING OF SECURITIES
8.1  Any promoter of a company which desires to delist from the stock exchange shall
determine an exit price for delisting of securities in accordance with the book
building process described in Schedule II of these guidelines.
8.2  The offer price shall have a floor price, which will be the average of 26 weeks
traded price quoted on the stock exchange where the shares of the company are
most frequently traded preceding 26 week from the date of the public
announcement and without any ceiling of maximum price.
8.3  In the case of infrequently traded securities the offer price shall be as per
regulation 20(5) of the SEBI (Substantial Acquisition and Takeover) Regulations,
and the infrequently traded securities shall be determined in the manner explained
under regulation 20(5) of the SEBI  (Substantial Acquisition and Takeover)
Regulations.
8.4  The stock exchange(s) shall provide the infrastructure facility for display of the
price at the terminals of the trading members to enable the investors to access the
price on the screen to bring transparency to the delisting process.
8.5  In the event of securities being delisted, the acquirer shall allow a further period
of 6 months for any of the remaining shareholders to tender securities at the same
price; 8.6  The stock exchanges shall monitor the possibility of price manipulation and keep
under special watch the securities for which announcement for delisting has been
made.
8.7  To ascertain the genuineness of physical securities if tendered and to avoid the
bad delivery, Registrar and Transfer Agent shall co-operate with the Clearing
House / Clearing Corporation to determine the quality of the papers upfront.
8.8  If the quantity eligible for acquiring securities at the final price offered does not
result in public shareholding falling below required level of public holding for
continuous listing, the company shall remain listed. 

8.9  The paid up share capital shall not be extinguished as in the case of buyback of
securities;
8.10  In case of partly paid-up securities, the price determined by the book building
process shall be applicable to the extent the call has been made and paid.
8.11  The amount of consideration for the  tendered and acceped securities shall be
settled in cash;
9.   RIGHT OF PROMOTER
9.1  The promoter may not accept the securities at the offer price determined by the
book building process.
9.2  Where the promoter decides not to accept the offer price so determined:
(a)  he shall not make an application  to the exchange for delisting of the
securities; and
(b)  the promoter shall ensure that the public shareholding is brought up to the
minimum limits specified under the listing conditions within a period of 6
months from the date of such decision, by any of the modes specified in
sub-clause 9.3.
9.3  For the purposes of sub-clause 9.2(b), the public shareholding may be increased
by any of the following means:
(a)  by issue of new shares by the company in compliance with the provisions
of the Companies Act, 1956 and the Securities and Exchange Board of
India (Disclosure and Investor Protection) Guidelines, 2000;
(b)  by the promoter making an offer for sale of his holdings in compliance
with the provisions of the Companies Act, 1956 and the Securities and
Exchange Board of India (Disclosure and Investor Protection) Guidelines,
2000; (c ) by the promoter making sale of his holdings through the secondary market
in a transparent manner; 

9.4  In the event of the promoter not being  able to raise the public shareholding in
accordance with sub-clause 9.3 within six months, he shall offer for sale to the
public such portion of his holdings as would bring up the public shareholding to
the minimum limits specified in the listing agreement or the listing conditions at
the price determined by the Central Listing Authority.
10.   PUBLIC ANNOUNCEMENT OF FINAL PRICE
10.1  On determination of the final price pursuant to the book building, the promoter or
the acquirer shall within a period of two working days from such determination:
(a) make a public announcement in the newspapers of the final price as
discovered by the book building process and whether or not the promoter
or the acquirer has accepted the price; and,
(b)  communicate to, exchange or exchanges from which delisting is sought to
be made, the final price discovered and whether the promoter has accepted
the price.
11.  DELISTING FROM ONE OR MORE STOCK EXCHANGES
11.1  When a company which is listed on any stock exchange or stock exchanges other
than the stock exchanges having nationwide trading terminals, seeks delisting, an
exit offer shall be made to the shareholders in accordance with these guidelines.
11.2  There shall not be any compulsion for the existing company to remain listed on
any stock exchange merely because it is a regional stock exchange.
12.   MINIMUM NUMBER OF SHARES TO BE ACQUIRED
12.1 Where the offer for delisting results in acceptance of a fewer number of shares
than the total shares outstanding and as a consequence the  public shareholding
does not fall below the minimum limit specified by the listing conditions or the
listing agreement, the offer shall be considered to have failed and no securities
shall be acquired pursuant to such offer.
13.   PAYMENT OF CONSIDERATION
13.1 The payment of consideration for delisting of securities shall be paid in cash by
the promoter or acquirer.
14.   DELISTING OF ONE OR ALL CLASS OF SECURITIES 14.1 A company may delist one or all of its class of securities subject to the provisions
of this clause.
14.2  If the equity shares of a company are  delisted, the fixed income securities may
continue to remain listed on the stock exchange.
14.3  A company which has a convertible instrument outstanding,  it shall not be
permitted to delist its equity shares till the exercise of the conversion options. 15. COMPULSORY DELISTING OF COMPANIES BY STOCK
EXCHANGES
15.1 The Stock Exchanges may delist companies which have been suspended for a
minimum period of six months for non-compliance with the Listing Agreement.
15.2  The Stock Exchanges may also delist companies as per the norms provided in
Schedule III.
15.3 The Stock Exchange shall give adequate and wide public notice through news
papers ( including one English national daily of wide  circulation) and through
display of the notice on the notice board/ website/ trading systems of the Exchange.
15.4  The stock exchange shall give a show cause notice to a company or adopt
procedure provided under Part B of Schedule III for delisting under sub-clause
15.1 and 15.2.
15.5 The exchange shall provide a time period of 15 days within which representation
may be made to the exchange by any person who may be aggrieved by the
proposed delisting.
1
15.6 The stock exchange may, after consideration of the representations received
from aggrieved persons, delist the securities of such companies.
15.6 A Where the stock exchange delists the securities of a company, it shall ensure that
adequate and wide public  notice of the fact of delisting is given through
newspapers and on the notice boards/trading systems of the stock exchange and
shall ensure disclosure in all such notices of the fair value of such securities
determined in accordance with the Explanation to clause 16.1
15.7   The stock exchange shall display the name of such company on its website.
16.  RIGHTS OF SECURITIES HOLDERS IN CASE OF COMPULSORY
DELISTING
16.1 Where the securities of the company are delisted by an exchange, the promoter of
the company shall be liable to compensate the security-holders of the company by 

1
Substituted by amendment vide circular dated January 31, 2006. The earlier clause read as –
15.6   The stock exchange shall ensure that adequate and wide public notice is given
through newspapers and on the notice boards/trading systems of the stock
exchanges after the period of show cause is over. paying them the fair value of the securities held by them and acquiring their
securities, subject to their option to remain security-holders with the company. 

2
Explanation: For the purposes of this sub-clause, fair value of  securities shall be
determined by persons appointed by the stock exchange out of a panel of experts, which
shall also be selected by the stock exchange, having regard to the factors mentioned in
regulation 20 of the Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997
3
16.2 – deleted
17.   DELISTING PURSUANT TO RIGHTS ISSUE
17.1 In case of rights issue, allotment to the promoters or the persons in control of the
management shall be allowed even if  they subscribe to unsubscribed portion
which may result in public shareholding falling below the permissible minimum
level.
Provided that the adequate disclosures have been made in the offer document to
that effect.
Provided further that they agree to buy out the remaining holders at the price of
rights issue or make an offer for sale to bring the public shareholding at the level
specified in the listing conditions or listing agreement to remain listed.
17.2  In case the rights issue is not fully subscribed, which may result in the public
shareholding falling below the permissible minimum level as specified in the
listing condition or listing agreement, the promoter(s) of the company shall be
required to delist by providing an exit opportunity in the manner specified in
clause 17.1 of these guidelines or may be required to make offer for sale of their
holdings so that the public shareholding is raised to the minimum level specified
in the listing agreement or in the listing conditions within a period of 3 months. 

2
Substituted by amendment vide circular dated January 31, 2006. The earlier clause read as –
Explanation: For the purposes of this sub-clause fair value shall be determined by the
arbitrator having regard to the factors mentioned in Regulation 20 of the  Securities and
Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulations,
1997 .
3
Deleted by amendment vide circular dated January 31, 2006. The deleted  clause read as –
16.2  The security holders may enforce their claim to compensation/fair value under this
clause through the arbitration mechanism of the exchange in the manner laid down
in its byelaws. 18.   REINSTATEMENT OF DELISTED SECURITIES
18.1 Reinstatement of delisted securities should be permitted by the stock exchanges
with a cooling period of 2 years. In other words, relisting of securities should be
allowed only after 2 years of delisting of the securities. It would be based on the
respective norms/criteria for listing at the time of making the application for
listing and the application will be initially scrutinized by the Central Listing
Authority. SCHEDULE I
[See Guideline 7.2]
CONTENTS OF THE PUBLIC ANNOUNCEMENT
1.  The floor price and how it was reached
2.  The dates of opening and closing of the bidding
3.  The name of the exchange or exchanges from which the securities are sought to
be delisted.
4.  The names and addresses of the trading members as well as the bidding terminals
and centres through which bids can be placed.
5.  Description of the methodology to be adopted for determination of acceptable
price
6.  Period for which the offer shall be valid
7.  The necessity and the object of the delisting
8.  A full and complete disclosure of all material facts.
9.  The proposed time table from opening of the offer till the settlement of the
transfers.
10.  Details of the escrow account and the amount deposited therein.
11.  Listing details and stock market data:
(a)  high, low and average market prices of the securities of the company during the
preceding three years;
(b)  monthly high and low prices for the six months preceding the date of the public
announcement; and,
(c)  the volume of securities traded in each month during the six months preceding the
date of public announcement.
12.  Present capital structure and shareholding pattern.
13.  The likely post-delisting capital structure.
14.  The aggregate shareholding of the promoter group and of the directors of the
promoters, where the promoter is a company and of persons who are in control of
the company.
15.  Name of compliance officer of the company.
16.  It should be signed and dated by the promoter. SCHEDULE II
[See Guideline 8.1]
THE BOOK BUILDING PROCESS
1. The book building process shall be made through an electronically linked transparent
facility.
2. The number of bidding centres shall not be less than thirty, including all stock
exchange centres and there shall be at  least one electronically linked computer
terminal at all bidding centres.
3. The promoter shall deposit in an escrow account, 100 per cent of the estimated
amount of consideration calculated on the basis of the floor price indicated and the
number of securities required to be acquired. The provisions of clause 10 of the
Securities and Exchange Board of India  (Buyback of Securities) Regulations,1998
shall be applicable mutatis mutandis to such escrow account.
4. The offer to buy shall remain open to the security holders for a minimum period of
three days. The security holders shall have a right to revise their bids before the
closing of the bidding.
5. The promoter or acquirer shall appoint ‘trading members’ for placing bids on the online electronic system.
6. Investors may approach trading members for placing offers on the on-line electronic
system. The format of the offer form and  the details that it must contain shall be
specified.
7. The security holders desirous of availing the exit opportunity shall deposit the shares
offered with the trading members prior to placement of orders. Alternately they may
mark a pledge for the same to the trading member. The trading members in turn may
place these securities as margin with the exchanges/clearing corporations.
8. The offers placed in the system shall have an audit trail in the form of confirmations
which gives broker ID details with time stamp and unique order number
9. The final offer price shall be determined as the price at which the maximum number
of shares has been offered. The acquirer shall have the choice to accept the price. If
the price is accepted then the acquirer shall be required to accept all offers upto and
including the final price but may not have to accept higher priced offers, subject to
clause 15. An illustration is given below:
Offer Quantity Offer Price Remarks
50 120 Floor price
82 125
108 130 Final price (as qty offered is max)
27 135
5 140
10 If final price is accepted the acquirer shall have to accept offers up to and including
the final price i.e. 240 shares at the final price of Rs. 130/-.
11 At the end of the book build period the merchant banker to the book building exercise
shall announce in the press and to the concerned exchanges the final price and the
acceptance (or not) of the price by the acquirer. 12 The acquirer shall make the  requisite funds available with the exchange/clearing
corporation on the final settlement day (which shall be three days from the end of the
book build period). The trading members shall correspondingly make the shares
available. On the settlement day the funds and securities shall be paid out in a process
akin to secondary market settlements.
13 The entire exercise shall only be available for demat shares. For holders of physical
certificates the acquirer shall keep the offer open for a period of 15 days from the
final settlement day for the shareholders to lodge the certificates with custodian(s)
specified by the merchant banker. SCHEDULE III
(GUIDELINE 17.1]
NORMS AND PROCEDURE FOR DELISTING OF SECURITIES
BY THE STOCK EXCHANGES
A NORMS
1. The percentage of equity capital (floating stock) in the hands of public investors.
This may be seen with reference to ---
• Existing paid-up equity capital
• Market lot
• Share price – very high, medium, low  
• Market Capitalisation  
• SEBIs Takeover Regulations-Regulation 21(3)  
• Clause 40A of the Listing Agreement  
2. The minimum trading level of shares of a company on the exchanges. There should
be some liquidity in every trading cycle. There should be some volume of trading for
price discovery on the market. The Company should appoint market makers. Criteria
of no-trading may be considered.
3. Financial aspect/Business aspects
a) The company should generate reasonable revenue/income/profits. It should be
operational/working. It must demonstrate earning power through its financial
results, profits, reserves, dividend payout for last 2/3 years.
b) If there is hardly any public interest in the securities the company then it is for
consideration whether its “listed company” label needs to be retained any
more.
c) The company should have some tangible asset. It is for consideration as to
what value of assets the company should own in order to be listed
continuously listed.
4. Track records of compliance of the Listing Agreement requirements for the past three
years.
ƒ Submission of audited/unaudited results, annual report, other
documents required to be furnished to the Exchange,
ƒ Book closure Record date with due notice
ƒ Payment of listing fee
ƒ Service to investors especially with regard to timely return of
shares duly transferred, timely payment of dividend,
communication of price sensitive information, etc.
ƒ Failure to observe good accounting practises in reporting earnings
and financial position
ƒ Publishing half yearly unaudited/audited results
ƒ Frequent changes in – Accounting year, Share transfer agent,  
Registered office, Name.
5. Promoters’ Directors’ track record especially with regard to insider trading,
manipulation of share prices, unfair market practises (e.g. returning of share transfer documents under objection on frivolous grounds with a view to creating scarcity of
floating stock, in the market causing unjust aberrations in the share prices, auctions,
close-out, etc. (Depending upon the trading position of directors or the firms).
6. If whereabouts of the company, its promoters directors are not available and even the
letters sent by the Exchange return undelivered and the company fails top remain in
touch with the Exchange.
7. The company has become sick and unable to meet current debt  obligations or to
adequately finance operations, or has not paid interest on debentures for the last 2- 3
years, or has become defunct,or there are no employees, or liquidator appointed, etc.
8. On the basis of the above norms and other  relevant information available about the
company, its promoters/directors, project, litigations, etc., a profile of the company
should be prepared and then a decision on delisting should be taken by an Exchange.
B PROCEDURE
1. The decision on delisting should be taken by a panel to be constituted by the
Exchange comprising the following :
a. Two directors/officers of the Exchange (one director to be a public
representative)
b. One representative of the investors
c. One representative from the Central Government (Department of
Company Affairs)/ Regional Director / Registrar of Companies
d. Executive Director / Secretary of the Exchange
2. Due notice of delisting and intimation to the company as well as other Stock
Exchanges where the company’s securities are listed to be given.
3. Notice of termination of the Listing Agreement to be given.
4. An appeal against the order of compulsory delisting may be made to the SEBI.
SECURITIES AND EXCHANGE BOARD OF INDIA
(DELISTING OF SECURITIES) GUIDELINES - 2003
1.  These guidelines shall be called “Securities and Exchange Board of India
(Delisting of Securities) Guidelines 2003”.
2.  These guidelines are being issued under section 11(1) of SEBI Act, 1992, read
with sub-section (2) of Section 11A of SEBI Act, with the objective to protect the
interest of investors in the securities market.
3.   DEFINITIONS
3.1  In these Guidelines, unless the context otherwise requires:-
(a) Act’ means the Securities and Exchange Board of India Act, 1992;
(b) Authority’ means the Central Listing Authority established under the
Securities and Exchange Board of  India (Central Listing Authority)
Regulations, 2003.
(c)  ‘Board’ means the Securities and Exchange Board of India established
under section 3 of the Act;
(d)  ‘compulsory delisting’ means delisting of the securities of a company by
an exchange.
(e)  ‘delisting exchange’ means the exchange from which the securities of the
company are proposed to be delisted in accordance with these Guidelines;
(f)  ‘exchange’ means any stock exchange which has been granted recognition
under section 4 of the Securities Contracts (Regulation) Act, 1956;
(g)  ‘promoter’ means a promoter as defined in clause (h) of sub-regulation (1)
of  Regulation 2 of the Securities and Exchange Board of India
(Substantial Acquisition of shares and Takeovers) Regulation, 1997 and
includes a person   who is desirous of getting the securities of the company
delisted under these Guidelines;
(h)  ‘public shareholding’ means the  shareholding in a company held by
persons other than the promoter, the acquirer or the persons acting in
concert with him as defined in regulation 2(1)(j) of  the Securities and
Exchange Board of India (Substantial Acquisition of shares and
Takeovers) Regulation, 1997 and the term ‘public holders of securities’
shall be construed accordingly;
(i)  ‘schedule’ means a schedule appended to these Guidelines.
(j)  ‘voluntary delisting’  means delisting of securities of a body corporate
voluntarily by a promoter or an acquirer or any other person other than the
stock exchange(s).
3.2  Words and expressions not defined in these Guidelines shall have the same
meaning as have been assigned to them under the Act or the Securities Contracts
(Regulation) Act, 1956 or the Companies Act, 1956, or any statutory modification
or re-enactment thereof, as the case may be. 4.   APPLICABILITY
4.1  These guidelines shall be applicable to delisting of securities of companies and
specifically shall apply to:
a.  Voluntary delisting being sought by the promoters of a company
b.  any acquisition of shares of the company (either by a promoter or by any
other person) or scheme or arrangement, by whatever name referred to,
consequent to which the public shareholding falls below the minimum
limit specified in the listing conditions or listing agreement that may result
in delisting of securities;
c.  Promoters of the companies who voluntarily seek to delist their securities
from all or some of the stock exchanges;.
d.  Cases where a person in control  of the management is seeking to
consolidate his holdings in a company, in a manner which would result in
the public shareholding in the company falling below the limit specified in
the listing conditions or in the listing agreement that may have the effect
of company being delisted;
e.  companies which may be compulsorily delisted by the stock exchanges;
4.2  Provided that company shall not be permitted to use the buy-back provision to
delist its securities.
5.   DELISTING OF SECURITIES (VOLUNTARY) OF A LISTED COMPANY
5.1  A company may delist from stock exchange where its securities are listed.
Provided that the securities of the company have been listed for a minimum
period of 3 years on any stock exchange.
Provided further that an exit opportunity has been given to the investors for the
purpose of which an exit price shall be determined in accordance with the “book
building process” described in clauses 7-10 and 13 and 14 of these guidelines.
5.2  An exit opportunity need not be given in cases where securities continue to be
listed in a stock exchange having nation wide trading terminals.
Explanation: For the purposes of these guidelines, stock exchange having
nationwide trading terminals means the Stock Exchange, Mumbai, the National
Stock Exchange and any other stock exchange, which may be specified by the
Board.
6.   PROCEDURE FOR VOLUNTARY DELISTING
6.1  Any promoter or acquirer desirous of delisting securities of the company under
the provisions of these guidelines shall : - (a)  obtain the prior approval of shareholders of the company by a special
resolution passed at its general meeting;
(b)  make a public announcement in the manner provided in these Guidelines.
(c)  make an application to the delisting exchange in the form specified by the
exchange, annexing therewith a copy  of the special resolution passed
under sub-clause (a); and;
(d)  comply with such other additional conditions as may be specified by the
concerned stock exchanges from where securities are to be delisted.
7.   PUBLIC ANNOUNCEMENT FOR VOLUNTARY DELISTING
7.1  Before making application for delisting, the promoters or the acquirers of the
ompany shall make a public announcement.
7.2  The public announcement shall contain inter-alia information specified in
Schedule I.
7.3  Before making the public announcement, the promoter shall appoint a merchant
banker registered with the Board, who is not an associate of the promoter.
8.   EXIT PRICE FOR VOLUNTARY DELISTING OF SECURITIES
8.1  Any promoter of a company which desires to delist from the stock exchange shall
determine an exit price for delisting of securities in accordance with the book
building process described in Schedule II of these guidelines.
8.2  The offer price shall have a floor price, which will be the average of 26 weeks
traded price quoted on the stock exchange where the shares of the company are
most frequently traded preceding 26 week from the date of the public
announcement and without any ceiling of maximum price.
8.3  In the case of infrequently traded securities the offer price shall be as per
regulation 20(5) of the SEBI (Substantial Acquisition and Takeover) Regulations,
and the infrequently traded securities shall be determined in the manner explained
under regulation 20(5) of the SEBI  (Substantial Acquisition and Takeover)
Regulations.
8.4  The stock exchange(s) shall provide the infrastructure facility for display of the
price at the terminals of the trading members to enable the investors to access the
price on the screen to bring transparency to the delisting process.
8.5  In the event of securities being delisted, the acquirer shall allow a further period
of 6 months for any of the remaining shareholders to tender securities at the same
price; 8.6  The stock exchanges shall monitor the possibility of price manipulation and keep
under special watch the securities for which announcement for delisting has been
made.
8.7  To ascertain the genuineness of physical securities if tendered and to avoid the
bad delivery, Registrar and Transfer Agent shall co-operate with the Clearing
House / Clearing Corporation to determine the quality of the papers upfront.
8.8  If the quantity eligible for acquiring securities at the final price offered does not
result in public shareholding falling below required level of public holding for
continuous listing, the company shall remain listed. 

8.9  The paid up share capital shall not be extinguished as in the case of buyback of
securities;
8.10  In case of partly paid-up securities, the price determined by the book building
process shall be applicable to the extent the call has been made and paid.
8.11  The amount of consideration for the  tendered and acceped securities shall be
settled in cash;
9.   RIGHT OF PROMOTER
9.1  The promoter may not accept the securities at the offer price determined by the
book building process.
9.2  Where the promoter decides not to accept the offer price so determined:
(a)  he shall not make an application  to the exchange for delisting of the
securities; and
(b)  the promoter shall ensure that the public shareholding is brought up to the
minimum limits specified under the listing conditions within a period of 6
months from the date of such decision, by any of the modes specified in
sub-clause 9.3.
9.3  For the purposes of sub-clause 9.2(b), the public shareholding may be increased
by any of the following means:
(a)  by issue of new shares by the company in compliance with the provisions
of the Companies Act, 1956 and the Securities and Exchange Board of
India (Disclosure and Investor Protection) Guidelines, 2000;
(b)  by the promoter making an offer for sale of his holdings in compliance
with the provisions of the Companies Act, 1956 and the Securities and
Exchange Board of India (Disclosure and Investor Protection) Guidelines,
2000; (c ) by the promoter making sale of his holdings through the secondary market
in a transparent manner; 

9.4  In the event of the promoter not being  able to raise the public shareholding in
accordance with sub-clause 9.3 within six months, he shall offer for sale to the
public such portion of his holdings as would bring up the public shareholding to
the minimum limits specified in the listing agreement or the listing conditions at
the price determined by the Central Listing Authority.
10.   PUBLIC ANNOUNCEMENT OF FINAL PRICE
10.1  On determination of the final price pursuant to the book building, the promoter or
the acquirer shall within a period of two working days from such determination:
(a) make a public announcement in the newspapers of the final price as
discovered by the book building process and whether or not the promoter
or the acquirer has accepted the price; and,
(b)  communicate to, exchange or exchanges from which delisting is sought to
be made, the final price discovered and whether the promoter has accepted
the price.
11.  DELISTING FROM ONE OR MORE STOCK EXCHANGES
11.1  When a company which is listed on any stock exchange or stock exchanges other
than the stock exchanges having nationwide trading terminals, seeks delisting, an
exit offer shall be made to the shareholders in accordance with these guidelines.
11.2  There shall not be any compulsion for the existing company to remain listed on
any stock exchange merely because it is a regional stock exchange.
12.   MINIMUM NUMBER OF SHARES TO BE ACQUIRED
12.1 Where the offer for delisting results in acceptance of a fewer number of shares
than the total shares outstanding and as a consequence the  public shareholding
does not fall below the minimum limit specified by the listing conditions or the
listing agreement, the offer shall be considered to have failed and no securities
shall be acquired pursuant to such offer.
13.   PAYMENT OF CONSIDERATION
13.1 The payment of consideration for delisting of securities shall be paid in cash by
the promoter or acquirer.
14.   DELISTING OF ONE OR ALL CLASS OF SECURITIES 14.1 A company may delist one or all of its class of securities subject to the provisions
of this clause.
14.2  If the equity shares of a company are  delisted, the fixed income securities may
continue to remain listed on the stock exchange.
14.3  A company which has a convertible instrument outstanding,  it shall not be
permitted to delist its equity shares till the exercise of the conversion options. 15. COMPULSORY DELISTING OF COMPANIES BY STOCK
EXCHANGES
15.1 The Stock Exchanges may delist companies which have been suspended for a
minimum period of six months for non-compliance with the Listing Agreement.
15.2  The Stock Exchanges may also delist companies as per the norms provided in
Schedule III.
15.3 The Stock Exchange shall give adequate and wide public notice through news
papers ( including one English national daily of wide  circulation) and through
display of the notice on the notice board/ website/ trading systems of the Exchange.
15.4  The stock exchange shall give a show cause notice to a company or adopt
procedure provided under Part B of Schedule III for delisting under sub-clause
15.1 and 15.2.
15.5 The exchange shall provide a time period of 15 days within which representation
may be made to the exchange by any person who may be aggrieved by the
proposed delisting.
1
15.6 The stock exchange may, after consideration of the representations received
from aggrieved persons, delist the securities of such companies.
15.6 A Where the stock exchange delists the securities of a company, it shall ensure that
adequate and wide public  notice of the fact of delisting is given through
newspapers and on the notice boards/trading systems of the stock exchange and
shall ensure disclosure in all such notices of the fair value of such securities
determined in accordance with the Explanation to clause 16.1
15.7   The stock exchange shall display the name of such company on its website.
16.  RIGHTS OF SECURITIES HOLDERS IN CASE OF COMPULSORY
DELISTING
16.1 Where the securities of the company are delisted by an exchange, the promoter of
the company shall be liable to compensate the security-holders of the company by 

1
Substituted by amendment vide circular dated January 31, 2006. The earlier clause read as –
15.6   The stock exchange shall ensure that adequate and wide public notice is given
through newspapers and on the notice boards/trading systems of the stock
exchanges after the period of show cause is over. paying them the fair value of the securities held by them and acquiring their
securities, subject to their option to remain security-holders with the company. 

2
Explanation: For the purposes of this sub-clause, fair value of  securities shall be
determined by persons appointed by the stock exchange out of a panel of experts, which
shall also be selected by the stock exchange, having regard to the factors mentioned in
regulation 20 of the Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997
3
16.2 – deleted
17.   DELISTING PURSUANT TO RIGHTS ISSUE
17.1 In case of rights issue, allotment to the promoters or the persons in control of the
management shall be allowed even if  they subscribe to unsubscribed portion
which may result in public shareholding falling below the permissible minimum
level.
Provided that the adequate disclosures have been made in the offer document to
that effect.
Provided further that they agree to buy out the remaining holders at the price of
rights issue or make an offer for sale to bring the public shareholding at the level
specified in the listing conditions or listing agreement to remain listed.
17.2  In case the rights issue is not fully subscribed, which may result in the public
shareholding falling below the permissible minimum level as specified in the
listing condition or listing agreement, the promoter(s) of the company shall be
required to delist by providing an exit opportunity in the manner specified in
clause 17.1 of these guidelines or may be required to make offer for sale of their
holdings so that the public shareholding is raised to the minimum level specified
in the listing agreement or in the listing conditions within a period of 3 months. 

2
Substituted by amendment vide circular dated January 31, 2006. The earlier clause read as –
Explanation: For the purposes of this sub-clause fair value shall be determined by the
arbitrator having regard to the factors mentioned in Regulation 20 of the  Securities and
Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulations,
1997 .
3
Deleted by amendment vide circular dated January 31, 2006. The deleted  clause read as –
16.2  The security holders may enforce their claim to compensation/fair value under this
clause through the arbitration mechanism of the exchange in the manner laid down
in its byelaws. 18.   REINSTATEMENT OF DELISTED SECURITIES
18.1 Reinstatement of delisted securities should be permitted by the stock exchanges
with a cooling period of 2 years. In other words, relisting of securities should be
allowed only after 2 years of delisting of the securities. It would be based on the
respective norms/criteria for listing at the time of making the application for
listing and the application will be initially scrutinized by the Central Listing
Authority. SCHEDULE I
[See Guideline 7.2]
CONTENTS OF THE PUBLIC ANNOUNCEMENT
1.  The floor price and how it was reached
2.  The dates of opening and closing of the bidding
3.  The name of the exchange or exchanges from which the securities are sought to
be delisted.
4.  The names and addresses of the trading members as well as the bidding terminals
and centres through which bids can be placed.
5.  Description of the methodology to be adopted for determination of acceptable
price
6.  Period for which the offer shall be valid
7.  The necessity and the object of the delisting
8.  A full and complete disclosure of all material facts.
9.  The proposed time table from opening of the offer till the settlement of the
transfers.
10.  Details of the escrow account and the amount deposited therein.
11.  Listing details and stock market data:
(a)  high, low and average market prices of the securities of the company during the
preceding three years;
(b)  monthly high and low prices for the six months preceding the date of the public
announcement; and,
(c)  the volume of securities traded in each month during the six months preceding the
date of public announcement.
12.  Present capital structure and shareholding pattern.
13.  The likely post-delisting capital structure.
14.  The aggregate shareholding of the promoter group and of the directors of the
promoters, where the promoter is a company and of persons who are in control of
the company.
15.  Name of compliance officer of the company.
16.  It should be signed and dated by the promoter. SCHEDULE II
[See Guideline 8.1]
THE BOOK BUILDING PROCESS
1. The book building process shall be made through an electronically linked transparent
facility.
2. The number of bidding centres shall not be less than thirty, including all stock
exchange centres and there shall be at  least one electronically linked computer
terminal at all bidding centres.
3. The promoter shall deposit in an escrow account, 100 per cent of the estimated
amount of consideration calculated on the basis of the floor price indicated and the
number of securities required to be acquired. The provisions of clause 10 of the
Securities and Exchange Board of India  (Buyback of Securities) Regulations,1998
shall be applicable mutatis mutandis to such escrow account.
4. The offer to buy shall remain open to the security holders for a minimum period of
three days. The security holders shall have a right to revise their bids before the
closing of the bidding.
5. The promoter or acquirer shall appoint ‘trading members’ for placing bids on the online electronic system.
6. Investors may approach trading members for placing offers on the on-line electronic
system. The format of the offer form and  the details that it must contain shall be
specified.
7. The security holders desirous of availing the exit opportunity shall deposit the shares
offered with the trading members prior to placement of orders. Alternately they may
mark a pledge for the same to the trading member. The trading members in turn may
place these securities as margin with the exchanges/clearing corporations.
8. The offers placed in the system shall have an audit trail in the form of confirmations
which gives broker ID details with time stamp and unique order number
9. The final offer price shall be determined as the price at which the maximum number
of shares has been offered. The acquirer shall have the choice to accept the price. If
the price is accepted then the acquirer shall be required to accept all offers upto and
including the final price but may not have to accept higher priced offers, subject to
clause 15. An illustration is given below:
Offer Quantity Offer Price Remarks
50 120 Floor price
82 125
108 130 Final price (as qty offered is max)
27 135
5 140
10 If final price is accepted the acquirer shall have to accept offers up to and including
the final price i.e. 240 shares at the final price of Rs. 130/-.
11 At the end of the book build period the merchant banker to the book building exercise
shall announce in the press and to the concerned exchanges the final price and the
acceptance (or not) of the price by the acquirer. 12 The acquirer shall make the  requisite funds available with the exchange/clearing
corporation on the final settlement day (which shall be three days from the end of the
book build period). The trading members shall correspondingly make the shares
available. On the settlement day the funds and securities shall be paid out in a process
akin to secondary market settlements.
13 The entire exercise shall only be available for demat shares. For holders of physical
certificates the acquirer shall keep the offer open for a period of 15 days from the
final settlement day for the shareholders to lodge the certificates with custodian(s)
specified by the merchant banker. SCHEDULE III
(GUIDELINE 17.1]
NORMS AND PROCEDURE FOR DELISTING OF SECURITIES
BY THE STOCK EXCHANGES
A NORMS
1. The percentage of equity capital (floating stock) in the hands of public investors.
This may be seen with reference to ---
• Existing paid-up equity capital
• Market lot
• Share price – very high, medium, low  
• Market Capitalisation  
• SEBIs Takeover Regulations-Regulation 21(3)  
• Clause 40A of the Listing Agreement  
2. The minimum trading level of shares of a company on the exchanges. There should
be some liquidity in every trading cycle. There should be some volume of trading for
price discovery on the market. The Company should appoint market makers. Criteria
of no-trading may be considered.
3. Financial aspect/Business aspects
a) The company should generate reasonable revenue/income/profits. It should be
operational/working. It must demonstrate earning power through its financial
results, profits, reserves, dividend payout for last 2/3 years.
b) If there is hardly any public interest in the securities the company then it is for
consideration whether its “listed company” label needs to be retained any
more.
c) The company should have some tangible asset. It is for consideration as to
what value of assets the company should own in order to be listed
continuously listed.
4. Track records of compliance of the Listing Agreement requirements for the past three
years.
ƒ Submission of audited/unaudited results, annual report, other
documents required to be furnished to the Exchange,
ƒ Book closure Record date with due notice
ƒ Payment of listing fee
ƒ Service to investors especially with regard to timely return of
shares duly transferred, timely payment of dividend,
communication of price sensitive information, etc.
ƒ Failure to observe good accounting practises in reporting earnings
and financial position
ƒ Publishing half yearly unaudited/audited results
ƒ Frequent changes in – Accounting year, Share transfer agent,  
Registered office, Name.
5. Promoters’ Directors’ track record especially with regard to insider trading,
manipulation of share prices, unfair market practises (e.g. returning of share transfer documents under objection on frivolous grounds with a view to creating scarcity of
floating stock, in the market causing unjust aberrations in the share prices, auctions,
close-out, etc. (Depending upon the trading position of directors or the firms).
6. If whereabouts of the company, its promoters directors are not available and even the
letters sent by the Exchange return undelivered and the company fails top remain in
touch with the Exchange.
7. The company has become sick and unable to meet current debt  obligations or to
adequately finance operations, or has not paid interest on debentures for the last 2- 3
years, or has become defunct,or there are no employees, or liquidator appointed, etc.
8. On the basis of the above norms and other  relevant information available about the
company, its promoters/directors, project, litigations, etc., a profile of the company
should be prepared and then a decision on delisting should be taken by an Exchange.
B PROCEDURE
1. The decision on delisting should be taken by a panel to be constituted by the
Exchange comprising the following :
a. Two directors/officers of the Exchange (one director to be a public
representative)
b. One representative of the investors
c. One representative from the Central Government (Department of
Company Affairs)/ Regional Director / Registrar of Companies
d. Executive Director / Secretary of the Exchange
2. Due notice of delisting and intimation to the company as well as other Stock
Exchanges where the company’s securities are listed to be given.
3. Notice of termination of the Listing Agreement to be given.
4. An appeal against the order of compulsory delisting may be made to the SEBI.
SECURITIES AND EXCHANGE BOARD OF INDIA
(DELISTING OF SECURITIES) GUIDELINES - 2003
1.  These guidelines shall be called “Securities and Exchange Board of India
(Delisting of Securities) Guidelines 2003”.
2.  These guidelines are being issued under section 11(1) of SEBI Act, 1992, read
with sub-section (2) of Section 11A of SEBI Act, with the objective to protect the
interest of investors in the securities market.
3.   DEFINITIONS
3.1  In these Guidelines, unless the context otherwise requires:-
(a) Act’ means the Securities and Exchange Board of India Act, 1992;
(b) Authority’ means the Central Listing Authority established under the
Securities and Exchange Board of  India (Central Listing Authority)
Regulations, 2003.
(c)  ‘Board’ means the Securities and Exchange Board of India established
under section 3 of the Act;
(d)  ‘compulsory delisting’ means delisting of the securities of a company by
an exchange.
(e)  ‘delisting exchange’ means the exchange from which the securities of the
company are proposed to be delisted in accordance with these Guidelines;
(f)  ‘exchange’ means any stock exchange which has been granted recognition
under section 4 of the Securities Contracts (Regulation) Act, 1956;
(g)  ‘promoter’ means a promoter as defined in clause (h) of sub-regulation (1)
of  Regulation 2 of the Securities and Exchange Board of India
(Substantial Acquisition of shares and Takeovers) Regulation, 1997 and
includes a person   who is desirous of getting the securities of the company
delisted under these Guidelines;
(h)  ‘public shareholding’ means the  shareholding in a company held by
persons other than the promoter, the acquirer or the persons acting in
concert with him as defined in regulation 2(1)(j) of  the Securities and
Exchange Board of India (Substantial Acquisition of shares and
Takeovers) Regulation, 1997 and the term ‘public holders of securities’
shall be construed accordingly;
(i)  ‘schedule’ means a schedule appended to these Guidelines.
(j)  ‘voluntary delisting’  means delisting of securities of a body corporate
voluntarily by a promoter or an acquirer or any other person other than the
stock exchange(s).
3.2  Words and expressions not defined in these Guidelines shall have the same
meaning as have been assigned to them under the Act or the Securities Contracts
(Regulation) Act, 1956 or the Companies Act, 1956, or any statutory modification
or re-enactment thereof, as the case may be. 4.   APPLICABILITY
4.1  These guidelines shall be applicable to delisting of securities of companies and
specifically shall apply to:
a.  Voluntary delisting being sought by the promoters of a company
b.  any acquisition of shares of the company (either by a promoter or by any
other person) or scheme or arrangement, by whatever name referred to,
consequent to which the public shareholding falls below the minimum
limit specified in the listing conditions or listing agreement that may result
in delisting of securities;
c.  Promoters of the companies who voluntarily seek to delist their securities
from all or some of the stock exchanges;.
d.  Cases where a person in control  of the management is seeking to
consolidate his holdings in a company, in a manner which would result in
the public shareholding in the company falling below the limit specified in
the listing conditions or in the listing agreement that may have the effect
of company being delisted;
e.  companies which may be compulsorily delisted by the stock exchanges;
4.2  Provided that company shall not be permitted to use the buy-back provision to
delist its securities.
5.   DELISTING OF SECURITIES (VOLUNTARY) OF A LISTED COMPANY
5.1  A company may delist from stock exchange where its securities are listed.
Provided that the securities of the company have been listed for a minimum
period of 3 years on any stock exchange.
Provided further that an exit opportunity has been given to the investors for the
purpose of which an exit price shall be determined in accordance with the “book
building process” described in clauses 7-10 and 13 and 14 of these guidelines.
5.2  An exit opportunity need not be given in cases where securities continue to be
listed in a stock exchange having nation wide trading terminals.
Explanation: For the purposes of these guidelines, stock exchange having
nationwide trading terminals means the Stock Exchange, Mumbai, the National
Stock Exchange and any other stock exchange, which may be specified by the
Board.
6.   PROCEDURE FOR VOLUNTARY DELISTING
6.1  Any promoter or acquirer desirous of delisting securities of the company under
the provisions of these guidelines shall : - (a)  obtain the prior approval of shareholders of the company by a special
resolution passed at its general meeting;
(b)  make a public announcement in the manner provided in these Guidelines.
(c)  make an application to the delisting exchange in the form specified by the
exchange, annexing therewith a copy  of the special resolution passed
under sub-clause (a); and;
(d)  comply with such other additional conditions as may be specified by the
concerned stock exchanges from where securities are to be delisted.
7.   PUBLIC ANNOUNCEMENT FOR VOLUNTARY DELISTING
7.1  Before making application for delisting, the promoters or the acquirers of the
ompany shall make a public announcement.
7.2  The public announcement shall contain inter-alia information specified in
Schedule I.
7.3  Before making the public announcement, the promoter shall appoint a merchant
banker registered with the Board, who is not an associate of the promoter.
8.   EXIT PRICE FOR VOLUNTARY DELISTING OF SECURITIES
8.1  Any promoter of a company which desires to delist from the stock exchange shall
determine an exit price for delisting of securities in accordance with the book
building process described in Schedule II of these guidelines.
8.2  The offer price shall have a floor price, which will be the average of 26 weeks
traded price quoted on the stock exchange where the shares of the company are
most frequently traded preceding 26 week from the date of the public
announcement and without any ceiling of maximum price.
8.3  In the case of infrequently traded securities the offer price shall be as per
regulation 20(5) of the SEBI (Substantial Acquisition and Takeover) Regulations,
and the infrequently traded securities shall be determined in the manner explained
under regulation 20(5) of the SEBI  (Substantial Acquisition and Takeover)
Regulations.
8.4  The stock exchange(s) shall provide the infrastructure facility for display of the
price at the terminals of the trading members to enable the investors to access the
price on the screen to bring transparency to the delisting process.
8.5  In the event of securities being delisted, the acquirer shall allow a further period
of 6 months for any of the remaining shareholders to tender securities at the same
price; 8.6  The stock exchanges shall monitor the possibility of price manipulation and keep
under special watch the securities for which announcement for delisting has been
made.
8.7  To ascertain the genuineness of physical securities if tendered and to avoid the
bad delivery, Registrar and Transfer Agent shall co-operate with the Clearing
House / Clearing Corporation to determine the quality of the papers upfront.
8.8  If the quantity eligible for acquiring securities at the final price offered does not
result in public shareholding falling below required level of public holding for
continuous listing, the company shall remain listed. 

8.9  The paid up share capital shall not be extinguished as in the case of buyback of
securities;
8.10  In case of partly paid-up securities, the price determined by the book building
process shall be applicable to the extent the call has been made and paid.
8.11  The amount of consideration for the  tendered and acceped securities shall be
settled in cash;
9.   RIGHT OF PROMOTER
9.1  The promoter may not accept the securities at the offer price determined by the
book building process.
9.2  Where the promoter decides not to accept the offer price so determined:
(a)  he shall not make an application  to the exchange for delisting of the
securities; and
(b)  the promoter shall ensure that the public shareholding is brought up to the
minimum limits specified under the listing conditions within a period of 6
months from the date of such decision, by any of the modes specified in
sub-clause 9.3.
9.3  For the purposes of sub-clause 9.2(b), the public shareholding may be increased
by any of the following means:
(a)  by issue of new shares by the company in compliance with the provisions
of the Companies Act, 1956 and the Securities and Exchange Board of
India (Disclosure and Investor Protection) Guidelines, 2000;
(b)  by the promoter making an offer for sale of his holdings in compliance
with the provisions of the Companies Act, 1956 and the Securities and
Exchange Board of India (Disclosure and Investor Protection) Guidelines,
2000; (c ) by the promoter making sale of his holdings through the secondary market
in a transparent manner; 

9.4  In the event of the promoter not being  able to raise the public shareholding in
accordance with sub-clause 9.3 within six months, he shall offer for sale to the
public such portion of his holdings as would bring up the public shareholding to
the minimum limits specified in the listing agreement or the listing conditions at
the price determined by the Central Listing Authority.
10.   PUBLIC ANNOUNCEMENT OF FINAL PRICE
10.1  On determination of the final price pursuant to the book building, the promoter or
the acquirer shall within a period of two working days from such determination:
(a) make a public announcement in the newspapers of the final price as
discovered by the book building process and whether or not the promoter
or the acquirer has accepted the price; and,
(b)  communicate to, exchange or exchanges from which delisting is sought to
be made, the final price discovered and whether the promoter has accepted
the price.
11.  DELISTING FROM ONE OR MORE STOCK EXCHANGES
11.1  When a company which is listed on any stock exchange or stock exchanges other
than the stock exchanges having nationwide trading terminals, seeks delisting, an
exit offer shall be made to the shareholders in accordance with these guidelines.
11.2  There shall not be any compulsion for the existing company to remain listed on
any stock exchange merely because it is a regional stock exchange.
12.   MINIMUM NUMBER OF SHARES TO BE ACQUIRED
12.1 Where the offer for delisting results in acceptance of a fewer number of shares
than the total shares outstanding and as a consequence the  public shareholding
does not fall below the minimum limit specified by the listing conditions or the
listing agreement, the offer shall be considered to have failed and no securities
shall be acquired pursuant to such offer.
13.   PAYMENT OF CONSIDERATION
13.1 The payment of consideration for delisting of securities shall be paid in cash by
the promoter or acquirer.
14.   DELISTING OF ONE OR ALL CLASS OF SECURITIES 14.1 A company may delist one or all of its class of securities subject to the provisions
of this clause.
14.2  If the equity shares of a company are  delisted, the fixed income securities may
continue to remain listed on the stock exchange.
14.3  A company which has a convertible instrument outstanding,  it shall not be
permitted to delist its equity shares till the exercise of the conversion options. 15. COMPULSORY DELISTING OF COMPANIES BY STOCK
EXCHANGES
15.1 The Stock Exchanges may delist companies which have been suspended for a
minimum period of six months for non-compliance with the Listing Agreement.
15.2  The Stock Exchanges may also delist companies as per the norms provided in
Schedule III.
15.3 The Stock Exchange shall give adequate and wide public notice through news
papers ( including one English national daily of wide  circulation) and through
display of the notice on the notice board/ website/ trading systems of the Exchange.
15.4  The stock exchange shall give a show cause notice to a company or adopt
procedure provided under Part B of Schedule III for delisting under sub-clause
15.1 and 15.2.
15.5 The exchange shall provide a time period of 15 days within which representation
may be made to the exchange by any person who may be aggrieved by the
proposed delisting.
1
15.6 The stock exchange may, after consideration of the representations received
from aggrieved persons, delist the securities of such companies.
15.6 A Where the stock exchange delists the securities of a company, it shall ensure that
adequate and wide public  notice of the fact of delisting is given through
newspapers and on the notice boards/trading systems of the stock exchange and
shall ensure disclosure in all such notices of the fair value of such securities
determined in accordance with the Explanation to clause 16.1
15.7   The stock exchange shall display the name of such company on its website.
16.  RIGHTS OF SECURITIES HOLDERS IN CASE OF COMPULSORY
DELISTING
16.1 Where the securities of the company are delisted by an exchange, the promoter of
the company shall be liable to compensate the security-holders of the company by 

1
Substituted by amendment vide circular dated January 31, 2006. The earlier clause read as –
15.6   The stock exchange shall ensure that adequate and wide public notice is given
through newspapers and on the notice boards/trading systems of the stock
exchanges after the period of show cause is over. paying them the fair value of the securities held by them and acquiring their
securities, subject to their option to remain security-holders with the company. 

2
Explanation: For the purposes of this sub-clause, fair value of  securities shall be
determined by persons appointed by the stock exchange out of a panel of experts, which
shall also be selected by the stock exchange, having regard to the factors mentioned in
regulation 20 of the Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997
3
16.2 – deleted
17.   DELISTING PURSUANT TO RIGHTS ISSUE
17.1 In case of rights issue, allotment to the promoters or the persons in control of the
management shall be allowed even if  they subscribe to unsubscribed portion
which may result in public shareholding falling below the permissible minimum
level.
Provided that the adequate disclosures have been made in the offer document to
that effect.
Provided further that they agree to buy out the remaining holders at the price of
rights issue or make an offer for sale to bring the public shareholding at the level
specified in the listing conditions or listing agreement to remain listed.
17.2  In case the rights issue is not fully subscribed, which may result in the public
shareholding falling below the permissible minimum level as specified in the
listing condition or listing agreement, the promoter(s) of the company shall be
required to delist by providing an exit opportunity in the manner specified in
clause 17.1 of these guidelines or may be required to make offer for sale of their
holdings so that the public shareholding is raised to the minimum level specified
in the listing agreement or in the listing conditions within a period of 3 months. 

2
Substituted by amendment vide circular dated January 31, 2006. The earlier clause read as –
Explanation: For the purposes of this sub-clause fair value shall be determined by the
arbitrator having regard to the factors mentioned in Regulation 20 of the  Securities and
Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulations,
1997 .
3
Deleted by amendment vide circular dated January 31, 2006. The deleted  clause read as –
16.2  The security holders may enforce their claim to compensation/fair value under this
clause through the arbitration mechanism of the exchange in the manner laid down
in its byelaws. 18.   REINSTATEMENT OF DELISTED SECURITIES
18.1 Reinstatement of delisted securities should be permitted by the stock exchanges
with a cooling period of 2 years. In other words, relisting of securities should be
allowed only after 2 years of delisting of the securities. It would be based on the
respective norms/criteria for listing at the time of making the application for
listing and the application will be initially scrutinized by the Central Listing
Authority. SCHEDULE I
[See Guideline 7.2]
CONTENTS OF THE PUBLIC ANNOUNCEMENT
1.  The floor price and how it was reached
2.  The dates of opening and closing of the bidding
3.  The name of the exchange or exchanges from which the securities are sought to
be delisted.
4.  The names and addresses of the trading members as well as the bidding terminals
and centres through which bids can be placed.
5.  Description of the methodology to be adopted for determination of acceptable
price
6.  Period for which the offer shall be valid
7.  The necessity and the object of the delisting
8.  A full and complete disclosure of all material facts.
9.  The proposed time table from opening of the offer till the settlement of the
transfers.
10.  Details of the escrow account and the amount deposited therein.
11.  Listing details and stock market data:
(a)  high, low and average market prices of the securities of the company during the
preceding three years;
(b)  monthly high and low prices for the six months preceding the date of the public
announcement; and,
(c)  the volume of securities traded in each month during the six months preceding the
date of public announcement.
12.  Present capital structure and shareholding pattern.
13.  The likely post-delisting capital structure.
14.  The aggregate shareholding of the promoter group and of the directors of the
promoters, where the promoter is a company and of persons who are in control of
the company.
15.  Name of compliance officer of the company.
16.  It should be signed and dated by the promoter. SCHEDULE II
[See Guideline 8.1]
THE BOOK BUILDING PROCESS
1. The book building process shall be made through an electronically linked transparent
facility.
2. The number of bidding centres shall not be less than thirty, including all stock
exchange centres and there shall be at  least one electronically linked computer
terminal at all bidding centres.
3. The promoter shall deposit in an escrow account, 100 per cent of the estimated
amount of consideration calculated on the basis of the floor price indicated and the
number of securities required to be acquired. The provisions of clause 10 of the
Securities and Exchange Board of India  (Buyback of Securities) Regulations,1998
shall be applicable mutatis mutandis to such escrow account.
4. The offer to buy shall remain open to the security holders for a minimum period of
three days. The security holders shall have a right to revise their bids before the
closing of the bidding.
5. The promoter or acquirer shall appoint ‘trading members’ for placing bids on the online electronic system.
6. Investors may approach trading members for placing offers on the on-line electronic
system. The format of the offer form and  the details that it must contain shall be
specified.
7. The security holders desirous of availing the exit opportunity shall deposit the shares
offered with the trading members prior to placement of orders. Alternately they may
mark a pledge for the same to the trading member. The trading members in turn may
place these securities as margin with the exchanges/clearing corporations.
8. The offers placed in the system shall have an audit trail in the form of confirmations
which gives broker ID details with time stamp and unique order number
9. The final offer price shall be determined as the price at which the maximum number
of shares has been offered. The acquirer shall have the choice to accept the price. If
the price is accepted then the acquirer shall be required to accept all offers upto and
including the final price but may not have to accept higher priced offers, subject to
clause 15. An illustration is given below:
Offer Quantity Offer Price Remarks
50 120 Floor price
82 125
108 130 Final price (as qty offered is max)
27 135
5 140
10 If final price is accepted the acquirer shall have to accept offers up to and including
the final price i.e. 240 shares at the final price of Rs. 130/-.
11 At the end of the book build period the merchant banker to the book building exercise
shall announce in the press and to the concerned exchanges the final price and the
acceptance (or not) of the price by the acquirer. 12 The acquirer shall make the  requisite funds available with the exchange/clearing
corporation on the final settlement day (which shall be three days from the end of the
book build period). The trading members shall correspondingly make the shares
available. On the settlement day the funds and securities shall be paid out in a process
akin to secondary market settlements.
13 The entire exercise shall only be available for demat shares. For holders of physical
certificates the acquirer shall keep the offer open for a period of 15 days from the
final settlement day for the shareholders to lodge the certificates with custodian(s)
specified by the merchant banker. SCHEDULE III
(GUIDELINE 17.1]
NORMS AND PROCEDURE FOR DELISTING OF SECURITIES
BY THE STOCK EXCHANGES
A NORMS
1. The percentage of equity capital (floating stock) in the hands of public investors.
This may be seen with reference to ---
• Existing paid-up equity capital
• Market lot
• Share price – very high, medium, low  
• Market Capitalisation  
• SEBIs Takeover Regulations-Regulation 21(3)  
• Clause 40A of the Listing Agreement  
2. The minimum trading level of shares of a company on the exchanges. There should
be some liquidity in every trading cycle. There should be some volume of trading for
price discovery on the market. The Company should appoint market makers. Criteria
of no-trading may be considered.
3. Financial aspect/Business aspects
a) The company should generate reasonable revenue/income/profits. It should be
operational/working. It must demonstrate earning power through its financial
results, profits, reserves, dividend payout for last 2/3 years.
b) If there is hardly any public interest in the securities the company then it is for
consideration whether its “listed company” label needs to be retained any
more.
c) The company should have some tangible asset. It is for consideration as to
what value of assets the company should own in order to be listed
continuously listed.
4. Track records of compliance of the Listing Agreement requirements for the past three
years.
ƒ Submission of audited/unaudited results, annual report, other
documents required to be furnished to the Exchange,
ƒ Book closure Record date with due notice
ƒ Payment of listing fee
ƒ Service to investors especially with regard to timely return of
shares duly transferred, timely payment of dividend,
communication of price sensitive information, etc.
ƒ Failure to observe good accounting practises in reporting earnings
and financial position
ƒ Publishing half yearly unaudited/audited results
ƒ Frequent changes in – Accounting year, Share transfer agent,  
Registered office, Name.
5. Promoters’ Directors’ track record especially with regard to insider trading,
manipulation of share prices, unfair market practises (e.g. returning of share transfer documents under objection on frivolous grounds with a view to creating scarcity of
floating stock, in the market causing unjust aberrations in the share prices, auctions,
close-out, etc. (Depending upon the trading position of directors or the firms).
6. If whereabouts of the company, its promoters directors are not available and even the
letters sent by the Exchange return undelivered and the company fails top remain in
touch with the Exchange.
7. The company has become sick and unable to meet current debt  obligations or to
adequately finance operations, or has not paid interest on debentures for the last 2- 3
years, or has become defunct,or there are no employees, or liquidator appointed, etc.
8. On the basis of the above norms and other  relevant information available about the
company, its promoters/directors, project, litigations, etc., a profile of the company
should be prepared and then a decision on delisting should be taken by an Exchange.
B PROCEDURE
1. The decision on delisting should be taken by a panel to be constituted by the
Exchange comprising the following :
a. Two directors/officers of the Exchange (one director to be a public
representative)
b. One representative of the investors
c. One representative from the Central Government (Department of
Company Affairs)/ Regional Director / Registrar of Companies
d. Executive Director / Secretary of the Exchange
2. Due notice of delisting and intimation to the company as well as other Stock
Exchanges where the company’s securities are listed to be given.
3. Notice of termination of the Listing Agreement to be given.
4. An appeal against the order of compulsory delisting may be made to the SEBI.
Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
15
FINANCIAL MARKETS INTEGRATION IN INDIA
Surbhi Jain and N.R. Bhanumurthy*
In the present study, we examine the issue of integration of financial
markets  in  India.    Given  the growing movement  of  capi tal   f lows,
particularly short-term capital, into the domestic financial markets, it is
necessary to examine this issue so as to reap the positive benefits with
having stable markets.  For this purpose, the present study examines
this issue in the post-1991 period by using monthly data on call money
rates, 91 day Treasury Bill rates, Indian Rupee/US dollar exchange rates,
and the London Inter Bank Offered Rate (LIBOR).  By using a multiple
c o - i n t e g r a t i o n   a p p r o a c h ,   t h e   s t u d y   f o u n d   t h a t   t h e r e   i s   a   s t r o n g
integration of the domestic call money market with the LIBOR.  Though,
the study  found  that   there  is a  long- term co-movement  between
domestic foreign exchange market and LIBOR, it is not robust.  This
may be due to frequent intervention by the Central Bank in the foreign
exchange market.  As the Government securities market in India is still
in the developing stage, it was not found to be integrated with the
international market.  Policy measures (or reforms) are necessary to
increase integration of financial markets.  This would help in reducing
the arbitrage advantage in some specific segment of the financial
markets.
The degree of integration of financial markets around the world increased
significantly during the late 1980s and 1990s.  A key factor underlying this process
has been the increased globalization of investment seeking higher rates of return
and the opportunity to diversify risk internationally.  At the same time, many countries
have encouraged inflows of capital by dismantling restrictions, deregulating domestic
financial markets, and improving their economic environment and prospects through
the introduction of market-oriented reforms.  This increase in the degree of
* The authors are Assistant Director, Office of the Economic Advisor, DIPP, Ministry of Commerce
and Industry, Government of India and Faculty Member, Institute of Economic Growth, Delhi, India,
respectively.  The views expressed in the paper are the authors’ alone and not the organizations to
which they belong.  E-mail for correspondence:  nrbmurthy@yahoo.comAsia-Pacific Development Journal Vol. 12, No. 2, December 2005
16
integration of world capital markets has been accompanied by a significant increase
in private capital flows to developing countries.
Financial openness is often regarded as providing important potential
benefits.  Access to world capital markets expands investors’ opportunities for
portfolio diversification and provides a potential for achieving higher risk-adjusted
rates of return.  It also allows countries to borrow to smooth consumption in the
face of adverse shocks, the potential growth and welfare gains resulting from such
international risk sharing can be large (Obstfeld, 1994).  It has also been argued
that by increasing the rewards of good policies and the penalties for bad policies,
free flow of capital across borders may induce countries to follow more disciplined
macroeconomic policies that translate into greater macroeconomic stability.  An
increasingly common argument in favour of financial openness is that it may increase
the depth and breadth of domestic financial markets and lead to an increase in
financial intermediation process by lowering costs and “excessive” profits associated
with monopolistic or cartelized markets, thereby lowering the cost of investment
and improving resource allocation.
Increasing integration of financial markets also brings in certain risks.  It
has been recognized that the risk of volatility and abrupt reversals in capital flows
in the context of highly open capital accounts may represent a significant cost.
Concerns associated with such reversals were heightened by a series of recent
financial crises – including the Mexican peso crisis of December 1994, the Asian
crisis triggered by the collapse of the Thai Baht in July 1997, the Russia crisis of
August 1998, and the collapse of the Brazilian Real in January 1999.  Although
misaligned fundamentals of some sort played a role in all of the above crises, they
have called attention to the inherent instability of financial markets and the risks
that cross-border financial transactions can pose for countries with relatively fragile
f inancial  systems and not  so st rong  regulatory and supervision st ructures.
Pro-cyclicality of capital flows may also increase macroeconomic instability, like
favourable shocks may attract large amounts of capital inflows and encourage
consumption and spending at levels that are unsustainable in the longer-term,
forcing countries to over-adjust to adverse shocks as a result of abrupt capital
reversals.  The large capital inflows induced by financial openness can have
undesirable macroeconomic effects, including rapid monetary expansion (due to
the difficulty in managing and cost of pursuing aggressive sterilization policies),
inflationary pressures (resulting from the effect of capital inflows on domestic
spending), real exchange rate appreciation, and widening current account deficits.
From this perspective, a key issue has been to identify the policy pre-requisites
that may allow countries to exploit the gains, while minimizing the risks, associated
with financial openness in an attempt to integrate with the world capital markets.Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
17
India, too, has taken a large number of measures in the process of financial
liberalization during the 1990s.  The overall package of structural reform in India
has been designed to enhance the productivity and efficiency of the economy as
a whole and thereby make the economy internationally competitive.  These reforms
include, inter alia, partial deregulation of interest rates; reduction of pre-emption of
resources from banks through cash reserve ratio (CRR) and statutory liquidity ratio
(SLR); issue of government securities at market related rates; increasing reliance
on the indirect method of monetary control; participation of the same set of players
in the alternative markets; move towards universal banking; development of
secondary markets for several investments; repeal of foreign exchange regulation
act   (FERA) ;   ful l  conver t ibi l i ty of   rupee on  the cur rent  account ;  cross-border
movement of capital and adoption of liberal exchange rate polices that assure
flexible exchange rates; and investors’ protection and curbing of speculative
activities through wide ranging reforms in the capital market.  An important objective
of reform has been to develop the various segments of the financial markets into
an integrated one, so that their inter-linkages can reduce arbitrage opportunities,
help achieve a higher level of efficiency in market operation and increase the
effectiveness of monetary policy in the economy.
After more than a decade of attempting to foster financial openness an
important question remains:  how much have these initiatives resulted in narrowing
the inter-market divergences and achieved a reasonable degree of market integration
both within domestic financial markets and between domestic and overseas
markets?  The present study tries to address this issue through an empirical
exercise.  Bhoi and Dhal (1998) tried to study this issue in the Indian context.  With
the help of monthly data upto 1997 the study found that though the domestic
financial markets are integrated among themselves, they are not integrated with
the world markets.  Since 1997, particularly after the Asian crisis, the Indian financial
markets have seen a huge inflow of foreign capital, which could change the
open-economy macroeconomic situation in the country.  At this juncture, it is
necessary to re-examine this issue by using recent data on the returns in different
financial markets.
The paper is structured as follows:  Section I deals with certain conceptual
issues relating to international financial integration.  Section II gives a brief survey
of the literature on international financial integration.  Section III enunciates the
econometric methodology used in this study.  Section IV examines the results
obtained from the empirical study done and Section V concludes with the policy
implications.Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
18
I.  CONCEPTUAL ISSUES
In this section we discuss some of the conceptual issues relating to the
financial markets, and their integration.  The section also discusses the issues
relating to the measurement of the extent of integration.
A well-developed financial sector performs the following functions:
• It promotes overall savings of the economy by providing alternative
instruments;
• It allocates resources efficiently among the sectors; and
• It provides an effective channel for the transmission of policy
impulses provided the financial markets are  competitive, efficient
& integrated.
A typical competitive financial market has the following characteristics:
• There should be large numbers of buyers and sellers of the financial
product;
• The price of the product is determined by the market forces of
demand and supply;
• There should be a secondary market for the instrument;
• Turnover of instruments in both primary and secondary markets
should be fairly large; and
• Agencies involved in the process of intermediation between buyers
and sellers should provide intermediation services at a minimum
spread.
A market is said to be  efficient if the rate prevailing at any point of time
contains all existing information in the market.  If the realized rate contains all
information, then the future rate cannot be appropriately predicted.  In fact, the
future rate reacts differently depending on the information that would be available
at that point of time.  In other words the future rates can adopt a path of random
walk.Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
19
Apart from efficiency of individual markets, effective integration of financial
markets depends on a few characteristics such as:
(a) Financials markets are efficient and rates are market determined;
(b) Across the board differences in returns on financial products are
based on the risk and maturity profile of the instruments;
(c) The rates of returns are related to a benchmark or a reference
rate;
(d) There is flow of resources from one segment of the market to the
other and thereby the arbitrage opportunity is wiped out; and
(e) The rates of various segments of the financial markets move in
tandem.
In general terms, integration is the process by which segmented markets
become open and unified so that participants enjoy the same unimpeded access.
It can occur through the removal of domestic and international controls on trade in
the asset, commodity or service under consideration, for example by implementing
policies to deregulate markets, or it can occur simply by a reduction in the
effectiveness of controls in markets, for example, by avoidance or non enforcement.
In either case the key driving force for integration is the amalgamation of the
private interests.  The enduring popular representation of financial market integration
is the equalization of the rates of return on similar financial assets.  This has
considerable intuitive appeal:  as markets become more open and unified differences
in rates of return should reflect only fundamental factors such as differences in
asset quality, associated risk, liquidity and such factors.
The integration of financial markets thus implies an increase in capital
flows and a tendency for the prices and returns on traded financial assets in
different countries to equalize on a common-country basis.  The convergence of
returns is typically measured by interest parity conditions over a set of traded
assets.  Direct testing to determine the degree of international market integration
can be carried out by examining the validity of various international parity conditions:
purchasing power parity (PPP), covered interest parity (CIP), uncovered interest
parity (UIP) and real interest parity (RIP).  While the PPP condition is based on
a comparison of the returns on identical goods, the other conditions are concerned
with the returns on perfectly substitutable financial assets across countries.Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
20
The extent of market integration can also be tested indirectly by examining
the degree of correlation between national savings and investments.  The indirect
test of international market integration is found in the work of Feldstein and Horioka
(1980) and Feldstein (1983) who argue that in an internationally integrated financial
market, potentially infinite capital flows eliminate differentials among nominal and
real rates of return on identical assets, implying that a shortfall of saving in one
country is unlikely to restrict its volume of investment therein.  This is because
perfect mobility of capital breaks the link between national saving and national
investment and, therefore, a fall in private saving or a deficit in the current account
in a country is unlikely to crowd out investment by raising the real cost of borrowing:
rather, the country can borrow sufficient funds at the going world interest rate to
cover the gap.
However, Frankel (1992) argues that there are several problems with the
saving-investment criterion:
• The presence of cyclical movements may result in strong correlation
between national saving and investment;
• National saving may become endogenous if governments respond
to incipient current account imbalances with policies to change
public (or private) saving in such a way as to reduce the imbalances;
• The correlation between saving and investment is reduced when
large countries are excluded from the sample, implying that the
world real interest rate will not be exogenous if the domestic country
is large enough in world financial markets.
Gi v e n   t h e   a b o v e   c o n c e p t u a l   d e s c r i p t i o n   re g a rd i n g   f i n a n c i a l  ma r k e t
i n t e g r a t i o n ,   i t   c a n   b e   c o n c l u d e d   t h a t   i n c re a s i n g   i n t e g r a t i o n  wo u l d   l e a d   t o
convergence in the returns in financial markets in the long-run.  Further, the markets
are expected to be more efficient with more integration.  With this background, in
this study we examine the issue of financial market integration in India.  Before
going onto the design of the empirical analysis, a brief review of the literature on
international financial integration is done in Section II.
II.  SURVEY OF LITERATURE
There are several reasons why policymakers and economists focus on
financial integration.  In the first place it is axiomatic that the macroeconomic
policy mix depends crucially on the openness of the financial system (Fleming,
1962; Mundell, 1963).  The more mobile capital is, the more the portfolio shifts andAsia-Pacific Development Journal Vol. 12, No. 2, December 2005
21
the less flexible the exchange rate is, the more difficult it is for a country to set its
interest rates independently of interest rates in the rest of the world.  The degree
of financial openness is an empirical question which needs to be resolved if
policymakers are to know the structure of their economies and implement policies
that will be effective in achieving their aims.
One implication of integration is that the market determines the price of
the good or the asset in an efficient and equitable manner.  The degree of integration
would also indicate whether there are efficiency gains in the liberalization process.
Financial integration also induces changes in the basic economic structure and in
the operating environment for policy, business and households.  This change can
also often make it confusing and difficult to determine the behaviour of an economy
in transition, which is very much necessary when it is considering liberalization of
the capital account.  Liberalization of the capital account has been impeded in
most of the countries due to concerns that international financial integration will
stimulate capital inflows, induce appreciation in the real exchange rate and thereby
reduce international competitiveness (Dornbusch and Park, 1994).
Another policy aspect that arises from the analysis of financial markets is
the increasing importance of foreign interest rates in the formation of domestic
rates and foreign influence on the local economy in general.  This in turn may
change the synchronization of economic cycles between countries.  Financial asset
prices play a key role in the economy, since they affect marginal valuations and
decisions and since they contain future expectations.  As financial asset prices
across countries converge, some shocks that were previously idiosyncratic should
become common and the impulses they generate should be common to the local
and foreign economies.  The economy may respond to the same impulses but the
generating mechanism of the impulses would change with internationalization.
Financial integration, therefore, may imply greater integration of real economies.
(Brouwer, 1999)
The extent of international market integration greatly affects the behaviour
of exchange and interest rates across countries, which in turn have crucial
implications for the degree to which the domestic monetary authorities can pursue
independent monetary policies (Agenor, 2001).  There is little dispute over the
proposition that the more integrated the international markets for goods, capital
and foreign exchange, the more limited is the scope for pursuing independent
domestic monetary policies.  For example, if goods and capital move around to
eliminate the differential between prices and interest rates across countries, then
the domestic monetary authorities will have no control over their real exchange
and interest rates relative to those of other countries, limiting the impact of theirAsia-Pacific Development Journal Vol. 12, No. 2, December 2005
22
stabilization policies.  Therefore, it is necessary to take full account of the possible
repercussions of international market integration.
It is important to determine whether there has been a genuine increase in
financial market integration.  It has to be borne in mind that the same technological
innovations that have paved the way for cross-border financial transactions have
also increased the worldwide diffusion of information in real time.  Accordingly, it
could be the case that the main driving force behind the apparent increase in
financial market linkages is the globalization of the news that affects financial
prices instead of a higher degree of market integration.  It is worth noting that the
assessment of a hypothetical increase in financial market linkages will depend on
the causes of the increase.  In terms of welfare, for example, it should be clear
that whereas a removal of barriers implies an increase in diversification opportunities
-thus reducing the levels of risk that agents have to accept to obtain a given
return- a greater globalization of the relevant information set would mean exactly
the opposite.  Ayuso and Blanco (1999) studied the stock market returns for the
United States, Germany and Spain in the nineties and found that there has been
an increase in the degree of financial integration among the markets considered.
This has meant higher financial market efficiency and an improvement in the riskand-return combinations available to investors.
Most of the empirical work done in this field has focused on OECD countries
and East Asia.  Kaminsky and Schmukler (2002) studied the dynamic aspects of
international financial integration and suggested that equity prices tend to be more
internationally connected than interest rates.  Moosa and Bhatti (1997) provide
conclusive empirical evidence on the high level of integration between goods and
financial markets of Japan and six Asian countries by testing uncovered interest
parity (UIP) and ex ante purchasing power parity (PPP).
The macroeconomic impact of international financial integration depends
on the extent of domestic financial integration, that is to say the integration of
domestic institutional interest rates such as deposit and loan interest rates with
domest ic money market   rates which  themselves  tur n on  the  regulatory and
competitive structure of domestic financial markets.  Bhoi and Dhal (1998) have
attempted to empirically evaluate the extent of integration of India’s financial markets
in the post-liberalization period.  According to them, there exists a fair degree of
convergence of interest rates among the short-term markets-money, credit and gilt
markets – but the capital market exhibits fairly isolated behaviour.  Furthermore,
they find that the integration of domestic and overseas financial markets is not
robust.Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
23
According to Makin (1994), there is a consensus that UIP fails to provide
any information about the degree of financial integration.  This is based on concerns
regarding time varying currency risk premia or irrational expectations about exchange
movements.  But UIP can be restated with the focus on the relationship between
domestic and foreign interest rates, given expectations about movements in the
exchange rate.  In particular, if interest rates and exchange rates are non-stationary
processes, then it could be interesting to see whether domestic and foreign interest
rates have long-run co-movements.  This would prove that both variables are
co-integrated.  In the next section we discuss the methodology that has been
employed and the database used in this current study.
III.  METHODOLOGY AND DATABASE
In the literature, one of the most extensively used methods used to examine
the long-run relationship between two variables, is the co-integration approach.
This issue of testing long-run relationships was addressed first by Engle and Granger
(1987).  But the most popular test for co-integration was developed by Johansen
and Juselius (1990) that tests for the presence of multiple long-run relationships.
In this study we use this co-integration approach to examine the integration of
returns in both domestic and foreign markets.  One of the pre-requisites for
undertaking the co-integration framework is that the variables that are expected to
have long-run relationship should be non-stationary at their levels and should be
stationary at the same order (or difference).
The long-run relationship that we are examining here can be expressed as
below
i
t,k
= α + β i*
t,k
Where ‘I’ and ‘i*’ are the return (interest rates) in domestic and foreign markets
respectively and the constant term is a wedge parameter between interest rates
possibly caused by a risk premium or other asset differences.  As specified earlier,
first we check the stationarity properties of both the variables (in other words
whether the returns are non-stationary at levels and stationary of same order) and
then test whether they are co-integrated by the maximum likelihood technique
outlined by Johansen and Juselius (1990).
Tests for non-stationarity
The first econometric step is to test if the series are non-stationary.  The
classical regression model requires that the dependent and independent variables
in a regression be stationary and the errors have a zero mean and finite variance.Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
24
In the presence of non-stationary variables there might be what is called spurious
regression.  Hence, before fitting any reasonable model, one needs to examine the
time series properties of the variables that are used in the model.  This can be
examined by using the augmented Dickey – Fuller (1979) (ADF) test.  (The technical
details for this method can be seen in any of the standard text books on time
series econometrics).
There are some inherent problems with the ADF test, to overcome these
we follow the sequential ADF test procedure, due to Dolado, Jenkinson and
Sosvilla-Rivero (1990), is used to test for the presence of a unit root when the form
of the data-generating process is unknown.  Such a procedure is necessary as
when we include the intercept and trend term in the ADF test, it reduces the
degrees of freedom and the power of the test implying that we may conclude that
a unit root is present when, in fact, this is not true.  Further, additional regressors
increase the absolute value of the critical value making it harder in decision making.
On the other hand, inappropriately omitting the deterministic terms can cause the
power of the test to go to zero.  In the ADF test the null hypothesis would be the
presence of unit root (in other words the variable is non-stationary at levels).
If the variables are non-stationary, we test for the possibility of a cointegrating relationship using the Johansen and Juselius (1990) methodology.  Given
a group of non-stationary series, we may be interested in determining whether the
series are co-integrated, and if they are, in identifying the co-integrating (long-run
equilibrium) relationships.
The results of the Johansen’s co-integration test are sensitive to the lag
length.  The lag length is selected using the multivariate generalizations of the
Akaike’s Information Criterion (AIC) or Schwarz Bayesian Criterion (SBC).  Johansen
and Juselius (1990) provide the critical values based on two tests, namely maximum
likelihood test and the trace test.  Once we establish the presence of co-integration
between two variables, we estimate the co-integrating relation.  While the estimates
of the co-integrating relation indicate the direction of attractions that maintain
long-run stationarity in each system, however they offer no information about the
adjustment speeds of the variables to deviations from their common stochastic
t re n d   i n   t h e   s h o r t - r u n .     To   c a p t u re   t h e   s p e e d   o f   a d j u s tme n t   b e twe e n   two
non-stationary variables, we estimate the error correction mechanism (ECM).  The
ECM restricts the long-run behaviour of the endogenous variables to converge to
their co-integrating relationships while allowing for a wide range of short-run
dynamics.  The co-integration term is known as the error correction term since the
deviation from long-run equilibrium is corrected gradually through a series of partial
short-run adjustments.Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
25
In this paper we deal with the integration of domestic financial markets
with international markets as the issue of financial markets integration domestically
was studied by Bhoi and Dhal (1998), where the study found that there is an
increasing integration between the domestic financial markets.  This paper uses
91-day Treasury bill rates (TB-91), call money rates (CMR) and Indian Rupee/US
dollar exchange rate (ER) as a measure of returns in the domestic financial markets
and attempts to find whether they are co-integrated with the London Inter-bank
Offer Rate – LIBOR (used as the measure for the foreign interest rate).  The study
uses monthly data from January 1993 to December 2002.  The main source of the
data is the  Handbook of Statistics on Indian Economy, 2001 published by the
Reserve Bank of India.  In the next section we discuss the empirical results based
on the multiple co-integration method.
IV.  EMPIRICAL RESULTS
Before discussing the empirical results it may be interesting to note the
relationships between domestic and foreign returns that are presented in the
charts 1 and 2.  It may be noted that though there is no visible relationship between
TB-91 and CMR with LIBOR in the initial period, there seems to be some relationship
from beginning of January 1999.  This seems to specify that there are growing
inter-linkages between domestic and foreign financial markets return particularly in
the post-1999 period.  The stationarity results, based on ADF test, are presented
in tables 1 and 2.  It may be noted that all the four variables, i.e., CMR, TB-91, ER
and LIBOR were found to be non-stationary in their levels while found to be
stationary in their first differences, thus satisfying the necessary condition for using
multiple co-integration approach.  The results based on multiple co-integration are
presented in table 3.
Figure 1.  Trends in TB-91 and LIBOR
16
14
12
10
8
6
4
2
0
Jan 1996
July 1996
Jan 1997
July 1997
Jan 1998
July 1998
Jan 1999
July 1999
Jan 2000
July 2000
Jan 2001
July 2001
Jan 2002
July 2002
16
14
12
10
8
6
4
2
0Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
26
Figure 2.  Trends in CMR and LIBOR
Jan 1993
Oct 1993
July 1994
Apr 1995
Jan 1996
Oct 1996
July 1997
Apr 1998
Jan 1999
Oct 1999
July 2000
Apr 2001
Jan 2002
Oct 2002
40
30
35
25
20
15
10
5
0
Table 1.  Sequential ADF unit root tests at levels
Model LIBOR CMR TB-91 ER
With trend & intercept -1.39 -2.87 -2.994 -2.87
With intercept and no trend -1.21 -2.79 -2.69 -0.272
With no intercept & no trend -0.73 -1.27 -1.30 -1.52
RESULTS Has a unit Has a unit Has a unit Has a unit
root root root root
Table 2.  Sequential ADF unit root test on first differences
Model ∆LIBOR ∆CMR ∆TB-91 ∆ER
With trend and intercept -3.85 -5.81 -6.91 -3.96
RESULTS Does not have Does not have Does not have Does not have
a unit root a unit root a unit root a unit root
Critical values at 95 per cent level as follows.
With trend and intercept = - 3.4494
With intercept and no trend = -2.8868
With no trend and no intercept= -1.9428
Table 3.  Cointegration between CMR and LIBOR
With no intercepts or trends
Maximum likelihood test
Null hypothesis
Alternative
Test statistic
95 per cent 90 per cent
hypothesis critical value critical value
r = 0 r = 1 23.11 11.03 9.28
r <= 1 r = 2 0.34 4.16 3.04Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
27
Trace test
Null hypothesis
Alternative
Test statistic
95 per cent 90 per cent
hypothesis critical value critical value
r = 0 r >= 1 23.45 12.36 10.25
r <= 1 r = 2 .335 4.16 3.04
Both the tests show that there is one co-integrating vector.
The normalized co-integrating equation is -1.0 CMR + 1.7683 LIBOR = ε
t
ECM = –.022548 CMR + .039782 LIBOR
For CMR
REGRESSOR COEFF P-VALUE
∆CMR (-1) -.10643 .244
∆LIBOR (-1) -1.6402 .247
ECM (-1) 19.2762 .000
For LIBOR
REGRESSOR COEFF P-VALUE
∆CMR (-1) -.00134 .826
∆LIBOR (-1) .15184 .110
ECM (-1) .11163 .667
Co-integration test with an intercept and no trend
Maximum likelihood test
Null hypothesis
Alternative
Test statistic
95 per cent 90 per cent
hypothesis critical value critical value
r = 0 r = 1 23.86 14.88 12.98
r <= 1 r = 2 .0223 8.07 6.5
Trace test
Null hypothesis
Alternative
Test statistic
95 per cent 90 per cent
hypothesis critical value critical value
r = 0 r >= 1 23.88 17.86 15.75
r <= 1 r = 2 .0223 8.07 6.5
Both the tests show that one co-integrating vector exists.
The normalized co-integrating equation is -1.0 CMR + 1.271 LIBOR = ε
t
ECM = .023436 CMR -.029779 LIBORAsia-Pacific Development Journal Vol. 12, No. 2, December 2005
28
For CMR
REGRESSOR COEFF P-VALUE
Intercept 1.21 .007
∆CMR (-1) -.093 .317
∆LIBOR (-1) -1.47 .299
ECM (-1) -19.56 .000
For LIBOR
REGRESSOR COEFF P-VALUE
Intercept -.0068 .819
∆CMR (-1) -.0014 .822
∆LIBOR (-1) .151 .113
ECM (-1) -.105 .687
Co-integration between TB-91 and LIBOR
With no intercepts or trends
Maximum likelihood test
Null hypothesis
Alternative
Test statistic
95 per cent 90 per cent
hypothesis critical value critical value
r = 0 r = 1 6.18 11.03 9.28
r <= 1 r = 2 .499 4.16 3.04
Trace test
Null hypothesis
Alternative
Test statistic
95 per cent 90 per cent
hypothesis critical value critical value
r = 0 r >= 1 6.68 12.36 10.25
r <= 1 r = 2 .499 4.16 3.04
Both the tests show that no co-integrating vector exists.
With an intercept and no trend
Maximum likelihood test
Null hypothesis
Alternative
Test statistic
95 per cent 90 per cent
hypothesis critical value critical value
r = 0 r = 1 11.62 14.88 12.98
r <= 1 r = 2 .535 8.07 6.5Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
29
Trace test
Null hypothesis
Alternative
Test statistic
95 per cent 90 per cent
hypothesis critical value critical value
r = 0 r >= 1 10.97 17.86 15.75
r <= 1 r = 2 .54 8.07 6.5
Co-integration between ER and LIBOR
With no intercepts or trends
Maximum likelihood test
Null hypothesis
Alternative
Test statistic
95 per cent 90 per cent
hypothesis critical value critical value
r = 0 r = 1 10.65 11.03 9.28
r <= 1 r = 2 2.16 4.16 3.04
Trace test
Null hypothesis
Alternative
Test statistic
95 per cent 90 per cent
hypothesis critical value critical value
r = 0 r >= 1 12.81 12.36 10.25
r <= 1 r = 2 2.16 4.16 3.04
Both the tests show that there is one co-integrating vector.
The normalized co-integrating equation is -1.0 ER + 16.056 LIBOR = ε
t
ECM = -.0021 ER + .0342 LIBOR
For ER
REGRESSOR COEFF P-VALUE
∆ER (-1) .083 .350
∆LIBOR (-1) -.01 .952
ECM (-1) 1.51 .001
For LIBOR
REGRESSOR COEFF P-VALUE
∆ER (-1) -.225 .653
∆LIBOR (-1) .152 .109
ECM (-1) -.0013 .996Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
30
It may be noted that there is presence of long-run relationship only between
CMR and LIBOR.  But we found that the relationship between ER and LIBOR
seems to be weak (at 10 per cent level of significance).  There is no long-run
re l a t i o n s h i p   b e twe e n   T B - 9 1   a n d   L I BOR .     T h e s e   t e s t s   a re   s e n s i t i v e   t o   t h e
lag-length chosen.  Using AIC/SBC criteria we have chosen the number of lags as
two.  The results indicate that while the short-term money market is more integrated
with the international financial market, there is no so robust integration between
the domestic foreign exchange market and the foreign market.  This may be due to
the financial market reforms that are initiated in the money market.  Also, the
For ER
REGRESSOR COEFF P-VALUE
Intercept -.347 .327
∆ER (-1) .093 .305
∆LIBOR (-1) .114 .510
ECM (-1) .62 .001
For LIBOR
REGRESSOR COEFF P-VALUE
Intercept .554 .004
∆ER (-1) .0024 .961
∆LIBOR (-1) .093 .319
ECM (-1) -.75 .521
With an intercept and no trend
Maximum likelihood test
Null hypothesis
Alternative
Test statistic
95 per cent 90 per cent
hypothesis critical value critical value
r = 0 r = 1 13.29 14.88 12.98
r <= 1 r = 2 4.58 8.07 6.5
Trace test
Null hypothesis
Alternative
Test statistic
95 per cent 90 per cent
hypothesis critical value critical value
r = 0 r >= 1 15.84 17.86 15.75
r <= 1 r = 2 4.58 8.07 6.5
Both the tests show that one co-integrating vector exists.
The normalized co-integrating equation is -1.0 ER + 2.063 LIBOR = ε
t
ECM = .0154 ER + .0318 LIBORAsia-Pacific Development Journal Vol. 12, No. 2, December 2005
31
foreign exchange market in India is still a managed market with regular (both direct
and indirect) intervention by the Reserve Bank of India in its day to day business.
In the case of the Treasury bill market, it is still in the developing stage.
In table 3 we have also presented the co-integrating relations and the
error correcting terms.  It may be noted that for any changes in the LIBOR market,
the speed of adjustment in the CMR is much higher than in ER.  It only indicates
that the Indian short-term money market, compared with any other segment of
domestic financial markets, is more integrated and adjusts comparatively fast to
the changes in the international financial markets.
These empirical results must be interpreted with caution, bearing in mind
problems associated with the testing techniques and the sample size.  A small
sample bias arises because the test statistics have asymptotic properties.  With
respect to this study, the possibility of structural breaks could arise because of the
measures of financial deregulation implemented at different points in time, which
this study could not consider and also it may be difficult to pinpoint.
V.  CONCLUSIONS
As, in the Indian context, the call money rate and the exchange rate are
found to be co-integrated with the LIBOR, there is some evidence that there exists
a common stochastic trend between the domestic and foreign market returns.
And the degree of integration seems to be growing over the period.  It is desirable
to strengthen the integration of financial markets to reap the positive benefits of it.
But, since the degree of integration is dependent on policy and institutional
infrastructure, the ongoing financial reform programme needs to be accelerated to
further deepen the degree of convergence between the overseas and domestic
markets.  But even as efforts are intensified for deepening and broadening financial
market segments and for developing a seamless and vibrant market continuum,
a policy response to the transition should rely on multiple interventions.  For this
purpose a constant surveillance mechanism is needed to distinguish between the
market reactions to fundamentals vis-à-vis transitory forces to ensure financial
stability while reaping the positive benefits of free capital inflows.Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
32
REFERENCES
Agenor, P.R., 2001.  “Benefits and costs of international financial integration:  theory and facts”,
World Bank Working Paper.
Ayuso, J. and R. Blanco, 1999.  “Has financial market integration increased during the nineties?”
Research Department, Banco de Espana.
Bhoi, B.K. and S.C. Dhall, 1998. “Integration of financial markets in India:  an empirical
evaluation”, RBI Occasional Papers, vol. 19, No. 4, pp. 345-380.
Brouwer, G., 1999.  Financial integration in East Asia (Cambridge, Cambridge University Press).
Dickey, D.A. and W.A. Fuller, 1979.  “Distribution of the estimators for autoregressive time
s e r i e s  wi t h   a   u n i t   ro o t” , J o u r n a l   o f   t h e   Ame r i c a n   S t a t i s t i c a l   A s s o c i a t i o n,   7 4 ,
pp. 427-437.
Dolado, J, T. Jenkinson and S. Sosvilla-Rivero, 1990.  “Cointegration and unit roots”, Journal of
Economic Surveys, 4, pp. 249-273.
Dornbusch, R. and T.C. Park, 1994.  “Financial integration in a Second Best World:  Are we still
sure about our classical prejudices?” Policy issue series, 94-1, February (Korea Institute
of Finance).
Engle, Robert F. and C.W.J. Granger,1987.  “Co-integration and error correction:  representation,
estimation, and testing”, Econometrica, 55, pp. 251-276.
Feldstein, M. and Horoika, C., 1980.  “Domestic saving and international capital flows”, Economic
Journal, pp. 314-329.
Feldstein, M., 1983. “Domestic savings and international capital movements in the long-run
and the short-run”, European Economic Review, pp. 139-151.
Fleming, J.M., 1962. “Domestic financial policies under fixed and floating exchange rates”, IMF
staff papers, vol. 9, No. 3, pp. 369-379.
Johansen,  S.  and K.  Jusel ius,  1990.  “Maximum  l ikel ihood est imat ion and  inference on
cointegration with applications to the demand for money”, Oxford Bulletin of Economics
and Statistics, 52, pp. 169-209.
Kaminsky, G. and S. Schmukler, 2002.  “Short and long-run integration:  Do capital controls
matter”, World Bank discussion paper.
Makin, A.J., 1994. International capital mobility and external account determination (New York,
St. Martin’s Press).
Moosa, I and R. Bhatti, 1997. “Are Asian markets integrated?  evidence for six countries
vis-à-vis Japan”, International Economic Journal, vol. 11, No. 1, pp. 51-67.
Mundell, R.A., 1963. “Capital Mobility and Stabilization Policy under Fixed and Flexible Exchange
Rates”, Canadian Journal of Economics 29:  475-485.
Obstfeld, M., 1994. “Risk-taking, global diversification and growth”, American Economic
Review, 84, pp. 1310-1329.
Reserve Bank of India, Handbook of Statistics on Indian Economy, 2001 (Mumbai).
Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
15
FINANCIAL MARKETS INTEGRATION IN INDIA
Surbhi Jain and N.R. Bhanumurthy*
In the present study, we examine the issue of integration of financial
markets  in  India.    Given  the growing movement  of  capi tal   f lows,
particularly short-term capital, into the domestic financial markets, it is
necessary to examine this issue so as to reap the positive benefits with
having stable markets.  For this purpose, the present study examines
this issue in the post-1991 period by using monthly data on call money
rates, 91 day Treasury Bill rates, Indian Rupee/US dollar exchange rates,
and the London Inter Bank Offered Rate (LIBOR).  By using a multiple
c o - i n t e g r a t i o n   a p p r o a c h ,   t h e   s t u d y   f o u n d   t h a t   t h e r e   i s   a   s t r o n g
integration of the domestic call money market with the LIBOR.  Though,
the study  found  that   there  is a  long- term co-movement  between
domestic foreign exchange market and LIBOR, it is not robust.  This
may be due to frequent intervention by the Central Bank in the foreign
exchange market.  As the Government securities market in India is still
in the developing stage, it was not found to be integrated with the
international market.  Policy measures (or reforms) are necessary to
increase integration of financial markets.  This would help in reducing
the arbitrage advantage in some specific segment of the financial
markets.
The degree of integration of financial markets around the world increased
significantly during the late 1980s and 1990s.  A key factor underlying this process
has been the increased globalization of investment seeking higher rates of return
and the opportunity to diversify risk internationally.  At the same time, many countries
have encouraged inflows of capital by dismantling restrictions, deregulating domestic
financial markets, and improving their economic environment and prospects through
the introduction of market-oriented reforms.  This increase in the degree of
* The authors are Assistant Director, Office of the Economic Advisor, DIPP, Ministry of Commerce
and Industry, Government of India and Faculty Member, Institute of Economic Growth, Delhi, India,
respectively.  The views expressed in the paper are the authors’ alone and not the organizations to
which they belong.  E-mail for correspondence:  nrbmurthy@yahoo.comAsia-Pacific Development Journal Vol. 12, No. 2, December 2005
16
integration of world capital markets has been accompanied by a significant increase
in private capital flows to developing countries.
Financial openness is often regarded as providing important potential
benefits.  Access to world capital markets expands investors’ opportunities for
portfolio diversification and provides a potential for achieving higher risk-adjusted
rates of return.  It also allows countries to borrow to smooth consumption in the
face of adverse shocks, the potential growth and welfare gains resulting from such
international risk sharing can be large (Obstfeld, 1994).  It has also been argued
that by increasing the rewards of good policies and the penalties for bad policies,
free flow of capital across borders may induce countries to follow more disciplined
macroeconomic policies that translate into greater macroeconomic stability.  An
increasingly common argument in favour of financial openness is that it may increase
the depth and breadth of domestic financial markets and lead to an increase in
financial intermediation process by lowering costs and “excessive” profits associated
with monopolistic or cartelized markets, thereby lowering the cost of investment
and improving resource allocation.
Increasing integration of financial markets also brings in certain risks.  It
has been recognized that the risk of volatility and abrupt reversals in capital flows
in the context of highly open capital accounts may represent a significant cost.
Concerns associated with such reversals were heightened by a series of recent
financial crises – including the Mexican peso crisis of December 1994, the Asian
crisis triggered by the collapse of the Thai Baht in July 1997, the Russia crisis of
August 1998, and the collapse of the Brazilian Real in January 1999.  Although
misaligned fundamentals of some sort played a role in all of the above crises, they
have called attention to the inherent instability of financial markets and the risks
that cross-border financial transactions can pose for countries with relatively fragile
f inancial  systems and not  so st rong  regulatory and supervision st ructures.
Pro-cyclicality of capital flows may also increase macroeconomic instability, like
favourable shocks may attract large amounts of capital inflows and encourage
consumption and spending at levels that are unsustainable in the longer-term,
forcing countries to over-adjust to adverse shocks as a result of abrupt capital
reversals.  The large capital inflows induced by financial openness can have
undesirable macroeconomic effects, including rapid monetary expansion (due to
the difficulty in managing and cost of pursuing aggressive sterilization policies),
inflationary pressures (resulting from the effect of capital inflows on domestic
spending), real exchange rate appreciation, and widening current account deficits.
From this perspective, a key issue has been to identify the policy pre-requisites
that may allow countries to exploit the gains, while minimizing the risks, associated
with financial openness in an attempt to integrate with the world capital markets.Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
17
India, too, has taken a large number of measures in the process of financial
liberalization during the 1990s.  The overall package of structural reform in India
has been designed to enhance the productivity and efficiency of the economy as
a whole and thereby make the economy internationally competitive.  These reforms
include, inter alia, partial deregulation of interest rates; reduction of pre-emption of
resources from banks through cash reserve ratio (CRR) and statutory liquidity ratio
(SLR); issue of government securities at market related rates; increasing reliance
on the indirect method of monetary control; participation of the same set of players
in the alternative markets; move towards universal banking; development of
secondary markets for several investments; repeal of foreign exchange regulation
act   (FERA) ;   ful l  conver t ibi l i ty of   rupee on  the cur rent  account ;  cross-border
movement of capital and adoption of liberal exchange rate polices that assure
flexible exchange rates; and investors’ protection and curbing of speculative
activities through wide ranging reforms in the capital market.  An important objective
of reform has been to develop the various segments of the financial markets into
an integrated one, so that their inter-linkages can reduce arbitrage opportunities,
help achieve a higher level of efficiency in market operation and increase the
effectiveness of monetary policy in the economy.
After more than a decade of attempting to foster financial openness an
important question remains:  how much have these initiatives resulted in narrowing
the inter-market divergences and achieved a reasonable degree of market integration
both within domestic financial markets and between domestic and overseas
markets?  The present study tries to address this issue through an empirical
exercise.  Bhoi and Dhal (1998) tried to study this issue in the Indian context.  With
the help of monthly data upto 1997 the study found that though the domestic
financial markets are integrated among themselves, they are not integrated with
the world markets.  Since 1997, particularly after the Asian crisis, the Indian financial
markets have seen a huge inflow of foreign capital, which could change the
open-economy macroeconomic situation in the country.  At this juncture, it is
necessary to re-examine this issue by using recent data on the returns in different
financial markets.
The paper is structured as follows:  Section I deals with certain conceptual
issues relating to international financial integration.  Section II gives a brief survey
of the literature on international financial integration.  Section III enunciates the
econometric methodology used in this study.  Section IV examines the results
obtained from the empirical study done and Section V concludes with the policy
implications.Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
18
I.  CONCEPTUAL ISSUES
In this section we discuss some of the conceptual issues relating to the
financial markets, and their integration.  The section also discusses the issues
relating to the measurement of the extent of integration.
A well-developed financial sector performs the following functions:
• It promotes overall savings of the economy by providing alternative
instruments;
• It allocates resources efficiently among the sectors; and
• It provides an effective channel for the transmission of policy
impulses provided the financial markets are  competitive, efficient
& integrated.
A typical competitive financial market has the following characteristics:
• There should be large numbers of buyers and sellers of the financial
product;
• The price of the product is determined by the market forces of
demand and supply;
• There should be a secondary market for the instrument;
• Turnover of instruments in both primary and secondary markets
should be fairly large; and
• Agencies involved in the process of intermediation between buyers
and sellers should provide intermediation services at a minimum
spread.
A market is said to be  efficient if the rate prevailing at any point of time
contains all existing information in the market.  If the realized rate contains all
information, then the future rate cannot be appropriately predicted.  In fact, the
future rate reacts differently depending on the information that would be available
at that point of time.  In other words the future rates can adopt a path of random
walk.Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
19
Apart from efficiency of individual markets, effective integration of financial
markets depends on a few characteristics such as:
(a) Financials markets are efficient and rates are market determined;
(b) Across the board differences in returns on financial products are
based on the risk and maturity profile of the instruments;
(c) The rates of returns are related to a benchmark or a reference
rate;
(d) There is flow of resources from one segment of the market to the
other and thereby the arbitrage opportunity is wiped out; and
(e) The rates of various segments of the financial markets move in
tandem.
In general terms, integration is the process by which segmented markets
become open and unified so that participants enjoy the same unimpeded access.
It can occur through the removal of domestic and international controls on trade in
the asset, commodity or service under consideration, for example by implementing
policies to deregulate markets, or it can occur simply by a reduction in the
effectiveness of controls in markets, for example, by avoidance or non enforcement.
In either case the key driving force for integration is the amalgamation of the
private interests.  The enduring popular representation of financial market integration
is the equalization of the rates of return on similar financial assets.  This has
considerable intuitive appeal:  as markets become more open and unified differences
in rates of return should reflect only fundamental factors such as differences in
asset quality, associated risk, liquidity and such factors.
The integration of financial markets thus implies an increase in capital
flows and a tendency for the prices and returns on traded financial assets in
different countries to equalize on a common-country basis.  The convergence of
returns is typically measured by interest parity conditions over a set of traded
assets.  Direct testing to determine the degree of international market integration
can be carried out by examining the validity of various international parity conditions:
purchasing power parity (PPP), covered interest parity (CIP), uncovered interest
parity (UIP) and real interest parity (RIP).  While the PPP condition is based on
a comparison of the returns on identical goods, the other conditions are concerned
with the returns on perfectly substitutable financial assets across countries.Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
20
The extent of market integration can also be tested indirectly by examining
the degree of correlation between national savings and investments.  The indirect
test of international market integration is found in the work of Feldstein and Horioka
(1980) and Feldstein (1983) who argue that in an internationally integrated financial
market, potentially infinite capital flows eliminate differentials among nominal and
real rates of return on identical assets, implying that a shortfall of saving in one
country is unlikely to restrict its volume of investment therein.  This is because
perfect mobility of capital breaks the link between national saving and national
investment and, therefore, a fall in private saving or a deficit in the current account
in a country is unlikely to crowd out investment by raising the real cost of borrowing:
rather, the country can borrow sufficient funds at the going world interest rate to
cover the gap.
However, Frankel (1992) argues that there are several problems with the
saving-investment criterion:
• The presence of cyclical movements may result in strong correlation
between national saving and investment;
• National saving may become endogenous if governments respond
to incipient current account imbalances with policies to change
public (or private) saving in such a way as to reduce the imbalances;
• The correlation between saving and investment is reduced when
large countries are excluded from the sample, implying that the
world real interest rate will not be exogenous if the domestic country
is large enough in world financial markets.
Gi v e n   t h e   a b o v e   c o n c e p t u a l   d e s c r i p t i o n   re g a rd i n g   f i n a n c i a l  ma r k e t
i n t e g r a t i o n ,   i t   c a n   b e   c o n c l u d e d   t h a t   i n c re a s i n g   i n t e g r a t i o n  wo u l d   l e a d   t o
convergence in the returns in financial markets in the long-run.  Further, the markets
are expected to be more efficient with more integration.  With this background, in
this study we examine the issue of financial market integration in India.  Before
going onto the design of the empirical analysis, a brief review of the literature on
international financial integration is done in Section II.
II.  SURVEY OF LITERATURE
There are several reasons why policymakers and economists focus on
financial integration.  In the first place it is axiomatic that the macroeconomic
policy mix depends crucially on the openness of the financial system (Fleming,
1962; Mundell, 1963).  The more mobile capital is, the more the portfolio shifts andAsia-Pacific Development Journal Vol. 12, No. 2, December 2005
21
the less flexible the exchange rate is, the more difficult it is for a country to set its
interest rates independently of interest rates in the rest of the world.  The degree
of financial openness is an empirical question which needs to be resolved if
policymakers are to know the structure of their economies and implement policies
that will be effective in achieving their aims.
One implication of integration is that the market determines the price of
the good or the asset in an efficient and equitable manner.  The degree of integration
would also indicate whether there are efficiency gains in the liberalization process.
Financial integration also induces changes in the basic economic structure and in
the operating environment for policy, business and households.  This change can
also often make it confusing and difficult to determine the behaviour of an economy
in transition, which is very much necessary when it is considering liberalization of
the capital account.  Liberalization of the capital account has been impeded in
most of the countries due to concerns that international financial integration will
stimulate capital inflows, induce appreciation in the real exchange rate and thereby
reduce international competitiveness (Dornbusch and Park, 1994).
Another policy aspect that arises from the analysis of financial markets is
the increasing importance of foreign interest rates in the formation of domestic
rates and foreign influence on the local economy in general.  This in turn may
change the synchronization of economic cycles between countries.  Financial asset
prices play a key role in the economy, since they affect marginal valuations and
decisions and since they contain future expectations.  As financial asset prices
across countries converge, some shocks that were previously idiosyncratic should
become common and the impulses they generate should be common to the local
and foreign economies.  The economy may respond to the same impulses but the
generating mechanism of the impulses would change with internationalization.
Financial integration, therefore, may imply greater integration of real economies.
(Brouwer, 1999)
The extent of international market integration greatly affects the behaviour
of exchange and interest rates across countries, which in turn have crucial
implications for the degree to which the domestic monetary authorities can pursue
independent monetary policies (Agenor, 2001).  There is little dispute over the
proposition that the more integrated the international markets for goods, capital
and foreign exchange, the more limited is the scope for pursuing independent
domestic monetary policies.  For example, if goods and capital move around to
eliminate the differential between prices and interest rates across countries, then
the domestic monetary authorities will have no control over their real exchange
and interest rates relative to those of other countries, limiting the impact of theirAsia-Pacific Development Journal Vol. 12, No. 2, December 2005
22
stabilization policies.  Therefore, it is necessary to take full account of the possible
repercussions of international market integration.
It is important to determine whether there has been a genuine increase in
financial market integration.  It has to be borne in mind that the same technological
innovations that have paved the way for cross-border financial transactions have
also increased the worldwide diffusion of information in real time.  Accordingly, it
could be the case that the main driving force behind the apparent increase in
financial market linkages is the globalization of the news that affects financial
prices instead of a higher degree of market integration.  It is worth noting that the
assessment of a hypothetical increase in financial market linkages will depend on
the causes of the increase.  In terms of welfare, for example, it should be clear
that whereas a removal of barriers implies an increase in diversification opportunities
-thus reducing the levels of risk that agents have to accept to obtain a given
return- a greater globalization of the relevant information set would mean exactly
the opposite.  Ayuso and Blanco (1999) studied the stock market returns for the
United States, Germany and Spain in the nineties and found that there has been
an increase in the degree of financial integration among the markets considered.
This has meant higher financial market efficiency and an improvement in the riskand-return combinations available to investors.
Most of the empirical work done in this field has focused on OECD countries
and East Asia.  Kaminsky and Schmukler (2002) studied the dynamic aspects of
international financial integration and suggested that equity prices tend to be more
internationally connected than interest rates.  Moosa and Bhatti (1997) provide
conclusive empirical evidence on the high level of integration between goods and
financial markets of Japan and six Asian countries by testing uncovered interest
parity (UIP) and ex ante purchasing power parity (PPP).
The macroeconomic impact of international financial integration depends
on the extent of domestic financial integration, that is to say the integration of
domestic institutional interest rates such as deposit and loan interest rates with
domest ic money market   rates which  themselves  tur n on  the  regulatory and
competitive structure of domestic financial markets.  Bhoi and Dhal (1998) have
attempted to empirically evaluate the extent of integration of India’s financial markets
in the post-liberalization period.  According to them, there exists a fair degree of
convergence of interest rates among the short-term markets-money, credit and gilt
markets – but the capital market exhibits fairly isolated behaviour.  Furthermore,
they find that the integration of domestic and overseas financial markets is not
robust.Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
23
According to Makin (1994), there is a consensus that UIP fails to provide
any information about the degree of financial integration.  This is based on concerns
regarding time varying currency risk premia or irrational expectations about exchange
movements.  But UIP can be restated with the focus on the relationship between
domestic and foreign interest rates, given expectations about movements in the
exchange rate.  In particular, if interest rates and exchange rates are non-stationary
processes, then it could be interesting to see whether domestic and foreign interest
rates have long-run co-movements.  This would prove that both variables are
co-integrated.  In the next section we discuss the methodology that has been
employed and the database used in this current study.
III.  METHODOLOGY AND DATABASE
In the literature, one of the most extensively used methods used to examine
the long-run relationship between two variables, is the co-integration approach.
This issue of testing long-run relationships was addressed first by Engle and Granger
(1987).  But the most popular test for co-integration was developed by Johansen
and Juselius (1990) that tests for the presence of multiple long-run relationships.
In this study we use this co-integration approach to examine the integration of
returns in both domestic and foreign markets.  One of the pre-requisites for
undertaking the co-integration framework is that the variables that are expected to
have long-run relationship should be non-stationary at their levels and should be
stationary at the same order (or difference).
The long-run relationship that we are examining here can be expressed as
below
i
t,k
= α + β i*
t,k
Where ‘I’ and ‘i*’ are the return (interest rates) in domestic and foreign markets
respectively and the constant term is a wedge parameter between interest rates
possibly caused by a risk premium or other asset differences.  As specified earlier,
first we check the stationarity properties of both the variables (in other words
whether the returns are non-stationary at levels and stationary of same order) and
then test whether they are co-integrated by the maximum likelihood technique
outlined by Johansen and Juselius (1990).
Tests for non-stationarity
The first econometric step is to test if the series are non-stationary.  The
classical regression model requires that the dependent and independent variables
in a regression be stationary and the errors have a zero mean and finite variance.Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
24
In the presence of non-stationary variables there might be what is called spurious
regression.  Hence, before fitting any reasonable model, one needs to examine the
time series properties of the variables that are used in the model.  This can be
examined by using the augmented Dickey – Fuller (1979) (ADF) test.  (The technical
details for this method can be seen in any of the standard text books on time
series econometrics).
There are some inherent problems with the ADF test, to overcome these
we follow the sequential ADF test procedure, due to Dolado, Jenkinson and
Sosvilla-Rivero (1990), is used to test for the presence of a unit root when the form
of the data-generating process is unknown.  Such a procedure is necessary as
when we include the intercept and trend term in the ADF test, it reduces the
degrees of freedom and the power of the test implying that we may conclude that
a unit root is present when, in fact, this is not true.  Further, additional regressors
increase the absolute value of the critical value making it harder in decision making.
On the other hand, inappropriately omitting the deterministic terms can cause the
power of the test to go to zero.  In the ADF test the null hypothesis would be the
presence of unit root (in other words the variable is non-stationary at levels).
If the variables are non-stationary, we test for the possibility of a cointegrating relationship using the Johansen and Juselius (1990) methodology.  Given
a group of non-stationary series, we may be interested in determining whether the
series are co-integrated, and if they are, in identifying the co-integrating (long-run
equilibrium) relationships.
The results of the Johansen’s co-integration test are sensitive to the lag
length.  The lag length is selected using the multivariate generalizations of the
Akaike’s Information Criterion (AIC) or Schwarz Bayesian Criterion (SBC).  Johansen
and Juselius (1990) provide the critical values based on two tests, namely maximum
likelihood test and the trace test.  Once we establish the presence of co-integration
between two variables, we estimate the co-integrating relation.  While the estimates
of the co-integrating relation indicate the direction of attractions that maintain
long-run stationarity in each system, however they offer no information about the
adjustment speeds of the variables to deviations from their common stochastic
t re n d   i n   t h e   s h o r t - r u n .     To   c a p t u re   t h e   s p e e d   o f   a d j u s tme n t   b e twe e n   two
non-stationary variables, we estimate the error correction mechanism (ECM).  The
ECM restricts the long-run behaviour of the endogenous variables to converge to
their co-integrating relationships while allowing for a wide range of short-run
dynamics.  The co-integration term is known as the error correction term since the
deviation from long-run equilibrium is corrected gradually through a series of partial
short-run adjustments.Asia-Pacific Development Journal Vol. 12, No. 2, December 2005
25
In this paper we deal with the integration of domestic financial markets
with international markets as the issue of financial markets integration domestically
was studied by Bhoi and Dhal (1998), where the study found that there is an
increasing integration between the domestic financial markets.  This paper uses
91-day Treasury bill rates (TB-91), call money rates (CMR) and Indian Rupee/US
dollar exchange rate (ER) as a measure of returns in the domestic financial markets
and attempts to find whether they are co-integrated with the London Inter-bank
Offer Rate – LIBOR (used as the measure for the foreign interest rate).  The study
uses monthly data from January 1993 to December 2002.  The main source of the
data is the  Handbook of Statistics on Indian Economy, 2001 published by the
Reserve Bank of India.  In the next section we discuss the empirical results based
on the multiple co-integration method.
IV.  EMPIRICAL RESULTS
Before discussing the empirical results it may be interesting to note the
relationships between domestic and foreign returns that are presented in the
charts 1 and 2.  It may be noted that though there is no visible relationship between
TB-91 and CMR with LIBOR in the initial period, there seems to be some relationship
from beginning of January 1999.  This seems to specify that there are growing
inter-linkages between domestic and foreign financial markets return particularly in
the post-1999 period.  The stationarity results, based on ADF test, are presented
in tables 1 and 2.  It may be noted that all the four variables, i.e., CMR, TB-91, ER
and LIBOR were found to be non-stationary in their levels while found to be
stationary in their first differences, thus satisfying the necessary condition for using
multiple co-integration approach.  The results based on multiple co-integration are
presented in table 3.
Figure 1.  Trends in TB-91 and LIBOR

Roop Kumar Rathod

 profile of singer Roop Kumar Rathod.

Roop Kumar Rathod.

Profession: Playback Singer, Bollywood.
Family: Wife , Sonali

He wanted to be different! He wanted to carry on his father's legacy! He wanted to make a difference! He has done all that and more. That's Roop Kumar Rathod for you, who has carved his own special niche in the world of music, be itghazals or playback singing.His is a voice that stands out amongst the rest, a voice that stirs your heart. The unforgettable award winning song 'Sandese aate hain' from the film 'Border', is just an example.

Roopkumar is the son of the late Pandit Chaturbhuj Rathod, the classical luminary who in his time also groomed Kalyanji – Anandji and singer Manhar.Roop Kumar choose to continue his father's legacy and learnt the tabla and began to play with Pankaj Udhas and Anup Jalota unlike elder brother Shravan Rathod (of the Nadeem-Shravan duo) who took up music composing or younger brother Vinod Rathod who took to playback singing. He played the tabla for Shyam Benegal's 'Discovery of India', for ghazals, Qawaalis, Bhajans sung by Lata Mangeshkar, performed on stage.

He was even called for select songs like those of Laxmikant – Pyarelal’s Sur Sangam.His first love still remains playing the tabla, a passion he gave up in 1984 to start a new career in the field of singing.

Before long he realized that this was not his goal, so he entered the world ofghazals. Soon after carving his niche in ghazals, he established himself as a good playback singer to reckon with, while experimenting with fusion music and giving music concerts with Gurtu and others. Constantly donning different roles, he believes that learning is a never-ending process, which is why he still learns the nuances of ghazal singing from his guru Ustad Niyaz Ahmed Khan.

Roopkumar Rathod was introduced as a playback singer by Laxmikant – Pyarelal in Angaar (1992), though his brother (Nadeem -) Shravan was already an established music director. Filmmaker Shashilal Nair, who had heard Roop at a concert, told Laxmikant that he would like him to sing. They were sufficiently impressed by the youngster to make him the prime singer later in films like Bhairavi (‘Om Namah Shivaye’ and ‘Moh Maaya Ko’), Gumraah (‘Duniya Kismat Aur Khuda’ and ‘Main Tera Aashiq Hoon’), Mohabbat Ki Arzoo (‘Raha Jo Dil Mein’) and Tejaswini. Anu Malik used his voice in ‘Barsaat Ke Mausam Mein’ (Naajayaz) while Nadeem – Shravan gave him a few lines in Raja and an insignificant song in Andolan and some other forgettable films.

But Roopkumar was finally established with his 1997 hit Border (Anu Malik) in which he sang ‘To Chalun’ and the chartbuster – 6c4 cum – award winner‘Sandesein Aate Hain’. He has subsequently sung under various top composers in films as varied as Anu Malik’s Hero ,Hindustani and Kareeb(‘Tum Juda Hokar Hamein’), Anand – Milind’s Dahek and Hogi Pyar Ki Jeet, Vishal’s Hu Tu Tu (all songs for Nana Patekar) and Godmother, Raamlaxman’s Hum Saath Saath Hain.Roopkumar Rathod has sung in Champion (Anu Malik), Censor (a qawwali) for Jatin – Lalit and Sanjeev Darshan in Aashiq.

His best songs include ‘Kho Diye Jitne Lamhe’ (Vinashak), Jatin – Lalit’s ‘Zindagi Maut Na Ban Jaye’ (Sarfarosh) and ‘Yeh Zameen Hai Rehguzar’ (Dillagi) and ‘Khamosh Raat’ under A. R. Rahman for Thakshak. His Aashirwaad title song ‘Nanhi Si Muskaan’ and those of other television series like Discovery of India, Badaltey Rishtey and Rishtey are among his other accomplishments.

Roop is happliy married to Sonali. She hails from a business family and is the daughter Leena Jhaveri, a classical dancer. A dedicated student of Indian classical music, her basic grounding came from Purshottam Upadhyay and Hridaynath Mangeshkar, under whom she still trains. In 1978, she lost her singing voice, and the condition remained for 6 years, defying medical treatment. Wanting to remain in music, even if not vocal, she began to learn the sitar. And her voice slowly ‘came back’ and she honed it with her riyaaz. Ustad Niyaz Ahmed Khan also groomed her.

Sonalee came out with an album Aaghaaz (she won the Best ghazal singer award the same year) in 1986. Her other albums include Bhajan Kalash, Bhajan Yatra and Khazana (all live), Mogra Nu Phool in Gujrati, Shabnam and Dilkash.

While Roop continues to be a leading composer – singer outside films and is open for films after the success of Mohabbat Ho Gayee. Sonali continues in her traditional vein with increasing popularity.

Best Of Roop Kumar Rathod:
Song	Movie

Chhota Sa Mann Hai	Bas Itna sa Khwab hai

Le Chalen Doliyon Mein	Filhaal
Rehna toh hai	Tum
To Chalun	Border
Watan Waalon	Indian

Phool Khila De - Roop Kumar Rathod

Album:

Life Express

Singers:

Roop Kumar Rathod
Starring:

Kiran Janjani, Rituparna Sengupta, Divya Dutta, Alok Nath, Yashpal Sharma,Nandita Puri
Music:

Roop Kumar Rathod
Director:

Anup Das
Lyricist:

Shakeel Azmi
Year:

2010
Language:

Hindi
Category:

Latest
Play All
man
#

Le Chalen Doliyon Mein-roop Kumar-chitra

Album:

Filhaal

Singers:

Chithra, Roop Kumar Rathod
Starring:

Palash Sen, Sanjay Suri, Sushmita Sen,Tabu
Music:

Anu Malik
Director:

Meghna Gulzar
Lyricist:

Gulzar
Year:

2002
Language:

Hindi
Category:

Latest
Play All
man
#

Tu Hi Tu - Roop Kumar And Javed Ali

Album:

Haasil

Singers:

Roop Kumar, Javed Ali
Starring:

Hrishitaa Bhatt, Jimmy Shergill
Music:

Jatin-lalit
Director:

Tigmanshu Dhulia
Lyricist:

Israr Ansari
Year:

2003
Language:

Hindi
Category:

Latest
Play All
man
#

Raga Gandhi Malhar Tum Main Sab Roop KumarGandharva

Album:

Swaranjali Pt Kuamr Gandharva

Singers:

Pt Kumar Gandgarva
Music:

Pt Kumar Gandharva
Year:

1992
Language:

Hindustani
Category:

Album
Play All
man
#

Mela Dilon Ka - Roop Kumar Sonu Alka

Album:

Mela

Singers:

Alka Yagnik, Udit Narayan, Sadhana Sargam, Abhijee
Starring:

Aamir Khan, Twinkle Khanna
Music:

Anu Malik, Leslie Lewis, Rajesh Roshan
Director:

Dharmesh Darshan
Lyricist:

Dev Kohli, Dharmesh Darshan, Sameer
Year:

2000
Language:

Hindi
Category:

Latest
Play All
man
#

Aisa Koi Zindagi Se

Album:

Vaada - Roop Kumar Rathod

Singers:

Roopkumar Rathod
Starring:

Roop Kumar Rathod
Music:

Ustad Amjad Ali Khan
Lyricist:

Roop Kumar Rathod
Year:

2000
Language:

Hindi
Category:

Ghazals
Play All
man
#

Roz - E - Awwal

Album:

Vaada - Roop Kumar Rathod

Singers:

Roopkumar Rathod
Starring:

Roop Kumar Rathod
Music:

Ustad Amjad Ali Khan
Lyricist:

Roop Kumar Rathod
Year:

2000
Language:

Hindi
Category:

Ghazals
Play All
man
#

Ye Subah Saans Legi

Album:

Vaada - Roop Kumar Rathod

Singers:

Roopkumar Rathod
Starring:

Roop Kumar Rathod
Music:

Ustad Amjad Ali Khan
Lyricist:

Roop Kumar Rathod
Year:

2000
Language:

Hindi
Category:

Ghazals
Play All
man
#

Doob Rahe Ho

Album:

Vaada - Roop Kumar Rathod

Singers:

Roopkumar Rathod
Starring:

Roop Kumar Rathod
Music:

Ustad Amjad Ali Khan
Lyricist:

Roop Kumar Rathod
Year:

2000
Language:

Hindi
Category:

Ghazals
Play All
man
#

Chori Chori

Album:

Vaada - Roop Kumar Rathod

Singers:

Roopkumar Rathod
Starring:

Roop Kumar Rathod
Music:

Ustad Amjad Ali Khan
Lyricist:

Roop Kumar Rathod
Year:

2000
Language:

Hindi
Category:

Ghazals
Play All
man
#

links to download

Mann Pasand – Roop Kumar Rathod
>> >>
Kya Mere Pyaar Mein

Media Player-128 Kbps

Peetey Peetey

Media Player-128 Kbps

Zehar Ya Nasha

Media Player-128 Kbps

Mila Bhi Nahin

Media Player-128 Kbps

Karlo Pyaar Karlo

Media Player-128 Kbps

Kaghaz Ki Naav

Media Player-128 Kbps

Tera Faisla

Media Player-128 Kbps


 

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Silk Smitha

Silk Smitha (2 December 1960 – 23 September 1996) was an Indian film actress much known for her slutty apperances in b grade bollywood movies during the early 80s . Starting a make-up girl in 1970s, she rose to fame after her appearances in a series of south Indian movies. The sobriquet “Silk” came in 1979, with her first Tamil film Vandi Chakkaram (The Wheel), in which she played a bar girl named Silk, clad in skimpy outfits and seductive looks . In a career spanning 17 years, she did over 450 films in Tamil, Telugu, Malayalam, Hindi languages.

Born Vijayalakshmi in poor family in Eluru, Andhra Pradesh, financial constraints forced her to leave school.  her family married her off at a very young age. But when she started getting ill-treated in her marriage, she ran away to Madras (Chennai) and started living with an aunt.

She started her career as as a touch-up artiste for a B-grade actor, and soon got a break in small character roles.Later she was discovered by Indian director Vinu Chakravarthy at a flour mill. He renamed her Smitha and his wife taught her English, while she learned dancing from another teacher.Smitha made her debut in the Malayalam film Inaye Thedi in 1979.though soon due to her overt sex appeal, she switched to roles of cabaret dancers and vamp roles and thus got type casted.After garnering much notice and acclaim with her first major role in the Tamil film Vandi Chakkaram, in 1979, Smitha assumed the screen name “Silk”, after her character’s name in the movie.However after it became a big hit, she could not escape typecasting, severely limiting her range throughout her career.

Silk Smitha went on to star in Telugu, Tamil, Malayalam, Kannada and a few Hindi films. Her dance numbers, semi-nude scenes and bold performances in films like Moondru Mugam made her the ultimate symbol of sensuality in Telugu, Kannada, Tamil, Malayalam cinema. Her item numbers in films like Amaran were also celebrated at the box office. Some film critics, historians and journalists have referred to her as a “soft porn” actress.[8] A vast majority of her movies are softcore and a common theme is her playing a freakishly strong agent in skimpy bikinisbeating up huge thugs. Even in the rare non-sexual roles, she impressed critics and audiences, such as her role of a wife hurt by her husband’s infidelity in Alaigal Oivathillai (1981). [2] One of her films, Layanam (1989), has earned a cult status in the Indian adult film industry, and was dubbed in numerous languages including, Hindi as Reshma Ki Jawani (2002), which too acquired cult status.[2][9] Her most respected film is Moondram Pirai by Balu Mahendra, who he remade it in Hindi as Sadma, with much of the cast, including Sridevi, Kamla Hassan, and Silk Smitha reprising their roles.[10]

At the peak of her career, according to Tamil film historian, Randor Guy, “Films that had lain in cans for years were sold by the simple addition of a Silk Smitha song.”.

In 1996, Smitha was found dead in her Chennai apartment. The previous year she had tried to become a film producer. Financial problems, disillusionment in love and an alcohol dependency apparently led to depression.[3] It is suspected that Smitha committed suicide.[11], but the circumstances of her death remain a mystery.

When Silk Smitha was found dead in her Kodampakkam home in Chennai in September 1996, I was working for an upcoming TV channel in Thiruvananthapuram. I prompted my colleague Suresh Pattali, a film-buff and libertarian if ever there was one – who is no more – to put together a tribute to Smitha.

I wrote the voice-over and he produced it. It was just a piece of quick assemblage, but we were proud to have done it. Not because other channels or newspapers hadn’t paid her a tribute. But because Smitha was, even to two media-hardened creatures like us, a rebel and a fighter and we wished to express our solidarity in the hour of her death. A violent death.

Even as the male in us was excited by the raw sensuality Smitha so forcefully projected, we could sense the revolt of the female body she was unleashing in a society that was – and still is – in the grip of a moral double-bind: its inbuilt orthodoxy despising a woman like her; but its suppressed and voluminous lust greedily devouring her.

She showed them her body and dared them to see and face it. It was not as if she had scripted the challenge. It was not as if the celluloid had designed a confrontation. It was the way she made her body available to the celluloid that made up the challenge.

Her body was her message. With cold dispassion she placed her body on show knowing fully well the passions it fired in millions of men. She was meeting their secret and shameful need to fantasise in a way that mocked and challenged the hypocrisy that produced it. She displayed with a somnolent arrogance the female body south Indian men had kept buried under the debris of their fantasies and women had secreted away in soulless bedrooms.

Her sex-symbol status was both populist and pedestrian, having been manufactured by commercial needs that sought to gratify the widest common denominators. But it harboured a special energy sparked by the erotic force of her body which was not in the handlers’ control and which was her magic. It is doubtful if they understood that, or that their camera-creature had a sociological dimension beyond the body they asked her to reveal.

They could have done with any woman with the right body and the right camera appeal. But in the manner Smitha put her body on camera there was an inherent challenge to the sexual taboos that ruled the world she lived in. She was not squeamish about her woman’s body and let it come alive on screen in various connotations of nudity just as any male actor would do.

That made the difference. Her approach to her body could not have been the bidding of her handlers. Perhaps they would have preferred a bashful vamp to fit the south Indian male’s reactionary ego. The choice to be a bold, inviting, female body came from the person she was and the actor she became.

In 2011, a biopic on Silk Smitha’s life, titled The Dirty Picture, is being produced in Hindi by Ekta Kapoor, directed by Milan Luthria [12] starringVidya Balan as Smitha which is slated to release on Smitha’s birthday on December 2, 2011.

When Silk Smitha was found dead in her Kodampakkam home in Chennai in September 1996, I was working for an upcoming TV channel in Thiruvananthapuram. I prompted my colleague Suresh Pattali, a film-buff and libertarian if ever there was one – who is no more – to put together a tribute to Smitha.

I wrote the voice-over and he produced it. It was just a piece of quick assemblage, but we were proud to have done it. Not because other channels or newspapers hadn’t paid her a tribute. But because Smitha was, even to two media-hardened creatures like us, a rebel and a fighter and we wished to express our solidarity in the hour of her death. A violent death.

Even as the male in us was excited by the raw sensuality Smitha so forcefully projected, we could sense the revolt of the female body she was unleashing in a society that was – and still is – in the grip of a moral double-bind: its inbuilt orthodoxy despising a woman like her; but its suppressed and voluminous lust greedily devouring her.

She showed them her body and dared them to see and face it. It was not as if she had scripted the challenge. It was not as if the celluloid had designed a confrontation. It was the way she made her body available to the celluloid that made up the challenge.

Her body was her message. With cold dispassion she placed her body on show knowing fully well the passions it fired in millions of men. She was meeting their secret and shameful need to fantasise in a way that mocked and challenged the hypocrisy that produced it. She displayed with a somnolent arrogance the female body south Indian men had kept buried under the debris of their fantasies and women had secreted away in soulless bedrooms.

Her sex-symbol status was both populist and pedestrian, having been manufactured by commercial needs that sought to gratify the widest common denominators. But it harboured a special energy sparked by the erotic force of her body which was not in the handlers’ control and which was her magic. It is doubtful if they understood that, or that their camera-creature had a sociological dimension beyond the body they asked her to reveal.

They could have done with any woman with the right body and the right camera appeal. But in the manner Smitha put her body on camera there was an inherent challenge to the sexual taboos that ruled the world she lived in. She was not squeamish about her woman’s body and let it come alive on screen in various connotations of nudity just as any male actor would do.

About brutal economics and sexual politics, Silk Smitha That made the difference. Her approach to her body could not have been the bidding of her handlers. Perhaps they would have preferred a bashful vamp to fit the south Indian male’s reactionary ego. The choice to be a bold, inviting, female body came from the person she was and the actor she became.

Silk Smitha dealth may be really a out of date report but at the moment it came to limelight after 12 years, Bollywood goddess Vidya Balan have been assigned to take up the role of sexy symbol actress Silk Smitha in a film named the dirty picture. This film is structured on the real life of Silk Smitha produced by Ekta Kapoor, in which Vidya Balan will be representing her real life which was not so sexy as recognized by general viewer and it will cover the other side of Silk Smitha life and Silk Smitha Death which was lonely and tragic.
The script is actually written by Rajat Arora and it took him practically a couple of years to come out covering real life aspect of sensational lady from South India “Silk Amitha”. Silk smitha death is still a doubts to be resolved and Ekta kapoor and Rajat Arora is going to take us through the Women’s empowerment & the picture lurking behind the reel life which was almost nothing but tragic and being alone.
The film has been named “The Dirty Picture” and will be directed by Milan Luthria.
A Brief on Silk Smitha:
SILK SMITHA BIOGRAPHY
DOB : December 2,1960
SILK SMITHA DEATH ON: 23 Sep 1996
Hometown: Eluru, Andhra Pradesh
Born Vijayalakshimi (her actual name) in to a poor family in Eluru (in Andhra Pradesh), she left school soon after the fourth standard, driven to turn into a movie star. Going in with her aunt in Madras (Now Chennai), she soon found a sponsor who re-named her Smitha. After garnering much notice and acclaim with her first major role, in the Tamil movie Vandi Chakkaram (The Wheel), in 1979, Smitha assumed the name “Silk,” after her character’s name in the movie.
Silk smitha has shown up in quite a few soft porn films and the most popular one is layanam( malayalam 1989) directed by thulasidas. layanam became so famous that it was remade in hindi Reshma ki jawani.
Silk Smitha Death
In 1996, Smitha was found dead in her Chennai apartment. In the past year she had tried out to move career in order to become a film producer. Financial problems, a disillusionment in love and an alcohol dependency apparently led to depression. It is thought that Smitha committed suicide

The Telugu girl who debuted in a miniscule role in the Sivakumar-starrer ‘Vandichakkaram’ in the late seventies went on to rule the roost in Tamil films for the next15 years as the unquestionable ‘item girl’, almost equivalent of what Zeenat Amanachieved in Bollywood.  Yes, we are talkingabout the one and only ‘Silk’ Smitha, who died a mysterious and sudden death in 1996.

Till the mid-nineties, ‘Silk’ Smitha had an iron-like grip over the Tamil and Telugu films, acting almost against all the top stars in both the languages.  Throughout the eighties, films without a dance number by Smitha or without featuring her were simply unthinkable.  Though she played heroine only in a handful of films, her magical screen presence as the ‘quintessential item girl’ made many mediocre films successful ones.

Though she had a glittering career as a filmstar, her personal life was far from satisfying.  This was clearly evident when there was not a single soul at hand to collect her dead body, at the very next day after her suicide at her Chennai house, from the mortuary of the Govt. Royapettah General Hospital in Chennai.  Smitha’s funeral only had a handful of participants in Vijaykanth (the then president of Nadigar Sangam), actresses Manorama and Vadivukkarasi and lyricist-cum-music director Gangai Amaren.

The story of Smitha, who had a great film career but a tragic personal life, is brought to celluloid by Bollywood film producer Ektaa Kapoor.  Reports say that the film would be a bilingual affair in Hindi and Tamil.  Talks are on with the talented Vidya Balan, who stunned many with her portrayal of the mother’s role in ‘Paa’, to play the sexy siren’s role.

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