Capital market basics

Introduction to capital markets

- For ISB&M

Emergence of capital markets

Funding

Income/Consumption

Savings

Institutional intermediation

Financial markets

Securities market Capital market Money market

Derivatives market FX market

Activities in financial markets

Capital markets

Debt LT & ST Private & Government

Equity Private & Public PSU & Private

Money markets

Not organized Highly institutionalized T-bills, CP/CD’s, call money, Repo’s

etc

Constituents of capital markets

Capital market segments

Capital markets service providers

Stock brokers & sub-brokers Depositories & Participants Custodial Services Share Transfer Agents Debenture Trustees Credit Rating Agencies Portfolio Managers

Depository system

Depository keeps electronic ledgers of all securities

DP maintains individual transaction ledger of each investor

Issuer/registrar gets into agreement with depository

Clearing member

Custodial Services

Maintaining accounts of securities Collecting the benefits of clients Keeping client informed of actions

involved in a security Maintaining and reconciling records

Primary markets

Primary equity market Public offer Private placement

Primary debt market Primary dealers Banks & FI’s

Structure of the primary market

Primary market issuers Companies incorporated under

Companies Act or under special statue of the Centre or State

It restricts private companies Restricts transfer of shares Limits members to 50 Prohibits any invitation to subscribe

shares/debentures Prohibits acceptance of deposit

Primary market investors

Institutional investors HNI Retail investors (discount may be

applicable)

Institutional Investors PFI’s – defined by RBI as non-banking SCB MF’s FII’s MBDFI – ADB, World Bank VC’s SIDC Insurance Companies PF’s & PF’s

Example

Primary market intermediaries

Issue managers, underwriters & brokers

Registrars to issues Bankers to issues Support service providers

ASBA

Policy changes Free pricing of equity Disclosure requirements for issuers Statutory recognition of merchant

bankers SEBI regulation on all activities DEMAT 21 days to listing Risk disclosure document