When prospective investor applies for shares a company may ask the investor to pay
some part, say 50%, upfront, and the remaining in suitable installments. When the
company calls for payment within the stipulated date, it must be complied with
immediately. Otherwise it will amount to a bad delivery.
Kerb
Unofficial transactions that take place outside or inside the stock exchange, and are not
reported to stock exchange are called Kerb Trading. The prices quoted in such Kerb
trading are called Kerb price.
Activisation through settlement trading.
In 'settlement trading’ one has to pay only towards Forwardation or backwardation
charges. Therefore credit transactions in securities can be increased in ‘settlement
trading’ by removing the problems of cash constraint. This means ‘Settlement Trading’
increases transactions in securities, which will lead to healthy competition and better
price. This will activise the Secondary Capital Market, which in turn will facilitate better
transactions in Primary Capital Market.
Speculation
The demand and supply theory of economics will work on the movement of the price of
the security in the market. The problem of speculation sets in where there are large scale
transactions or volatile fluctuations in purchases and sales with reference to a particular
security. Especially, ‘take over bid’ i.e., one who wants to purchase large quantities of a
particular share, will cause a steep rise in share price, because the increase in the value of
the share will cause others to enter the fray and purchase the same share. Sometimes the
staff of a company, based on some inside information may resort to heavy buying of
shares with a view to manipulating the stock market.
The major stock portion of shares is generally in the hands of financial institutions and
the other controlling groups. In some cases this may as high as 80%. The remaining
portion of shares may be in the hands of the public. If such financial institutions
purchase or sell the shares in large quantities, it will add to fluctuations in the share price
and the general public will have no control over it.
Other factors, including the legal compulsion of multiple listing i.e., listing of shares in
more than one Stock Exchange, and the sudden flow of excessive money in the share
market like mutual funds, NRI funds etc., will also cause a steep rise in share prices.
Curbing of speculation
Default risk is a factor associated with excessive speculation. Stock Exchange authorities
may adopt the following measures to reduce the default risk.