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8/9/2019 31726071 Indian Money Market and Capital Market
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Indian MoneyIndian Money
andand
capital marketcapital market
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Money MarketMoney Market
The money market is the market in whichshort – term funds are borrowed and lent According to RBI
“ Money market is centre for dealings, mainly
of a short-term character, in monetary assets,it meets the short – term requirements of theborrowers and provides liquidity or cash tolenders. It is the place where short termsurplus investible funds at the disposal of thefinancial and other institutions and individualsare bid by borrowers, again comprisinginstitutions and individuals and also by thegovt.”
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Functions of Money MarketFunctions of Money Market
by providing various kinds of credit instruments,money market augments the supply of funds. The efficient working of the money market helps
minimize the gluts and stringencies in the moneymarket due to the seasonal variations in the flow of
and demand for funds. A money market helps in avoiding seasonal
fluctuations in interest rates. It enhances the amount of liquidity available to the
economy. By augmenting the supply of funds, a money market
helps in making funds available at cheaper rates.
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Functions of Money MarketFunctions of Money Market
Through the quick transfer of funds from oneplace to another, helps in avoiding regionalgluts and stringencies of funds.
By providing profitable investment
opportunities for short-term funds, helps inincreasing the profit of the financial institutions.
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Money market Constituents and InstrumentsMoney market Constituents and Instruments
Money market can be classified into two types- Inner spheres
Outer spheres
Inner spheres includes banks, negotiable securities,
finance companies. Outer spheres include solicitors, brokers of
securities and entire system of trade and credit.
The central bank, commercial bank, co-operative
banks, discount houses, are the main constituentsof well developed money market.
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Money market Constituents and InstrumentsMoney market Constituents and Instruments
In developing countries like India, the moneymarket is broadly divided into organized andunorganized sectors.
Chambers of commerce, trade associations, etc
help the smooth and efficient functioning of themoney market by helping the collection anddistribution of information to industry, trade andcommerce.
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Instruments of Money MarketInstruments of Money Market
Call/Notice money All categories of banks and financial institutions
are allowed to participate in call/notice money.
The funds are lent for one day or from Saturday
to Monday or for a period of 14 days.Commercial Bills Used to facilitate credit sales.
Can be discounted with banks, when people arein need of funds.
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Instruments of Money MarketInstruments of Money Market
Treasury Bills Promissory notes issued by the Central govt. toraise short term funds to bridge short termmismatch between receipts and expenditure.
Commercial Paper Unsecured promissory notes of short-term
maturity of highly rated companies, issued tommeet working capital requirements.
Certificate of Deposits Introduced by RBI in 1989 Issued by banks at a discount and face value is
payable at maturity..
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Instruments of Money MarketInstruments of Money Market
Issued by banks during periods of tight liquidity. The CD’s are short-term deposit instruments for
a period ranging from three months to oneyear.
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Indian Money MarketIndian Money Market
Indian money market id broadly divided in to two parts –
Unorganized sectors
Organized sector
unorganized sector of money comprises of unregulatednon-bank financial intermediaries, indigenous banks,
money lenders etc. The organized sector of the Indian money market
comprises the RBI, commercial banks, foreign banks, co-operative banks, finance corporations, mutual funds,discount and finance house of India limited
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Capital MarketCapital Market
Market for long – term funds. Market for long – term loanable funds as distinct
from money market which deals in short-termfunds.
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Nature and ConstituentsNature and Constituents
Consists of a number of individuals andInstitutions.
Stock exchanges, commercial banks, financialinstitutions, co-operative banks, insurance
companies etc. are important constituents of the capital market.
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Indian Capital MarketIndian Capital Market
Consists of 1. Organized Sectors
2. Unorganized sectors
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Indian CapitalMarket Structure
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Capital MarketCapital Market
Marketable SecuritiesMarketable Securities Non-Marketing Securities Non-Marketing Securities
Govt.Govt.SecuritiesSecurities
CorporateCorporatesecuritiessecurities
MutualMutualFundsFundsBondsBonds BanksBanks
depositsdepositsDepositsDeposits
withwithcompaniescompanies
Loans &Loans &advances of advances of bank &FI bank &FI
Post officePost officeDeposits &Deposits &certificatescertificates
New Issue Market New Issue Market
- Original- Original
Stock Stock
MarketMarket
New Issue Market New Issue Market
- Players- Issues- Players- Issues
•PromotersPromoters
•AssociatesAssociates
•EmployeesEmployees
•PublicPublic
•BrokersBrokers
•JobbersJobbers
•DealersDealers
•Badla FinanciersBadla Financiers
•Merchant bankersMerchant bankers
• underwritersunderwriters
•Ad. AgenciesAd. Agencies
Indian Capital Market StructureIndian Capital Market Structure
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Development of the capital marketDevelopment of the capital market
The Indian capital market has undergone remarkablechanges in the post independence period.
The important facts that have contributed to thedevelopment of the capital market in India are-
Legislative measures.
Establishment of development banks.
Growth of underwriting business.
Public confidence.
Increasing awareness of investment opportunities.Capital Market reform.
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Stock ExchangeStock Exchange
“ Stock exchange is a market in which securitiesare brought and sold”
“ Stock exchange means any body of individualswhether incorporated or not, constituted for the
purpose of assisting, regulating or controllingthe business of buying, selling or dealing insecurities.”
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Functions of Stock ExchangeFunctions of Stock Exchange
Provides a ready market for buying and sellingof securities.
Directs flow of capital in the most profitablechannels.
Facilitates speculation. Promotes industrial growth and economic
development.
Promotes habit of savings and investment.
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How Business is Transacted in a stock ExchangeHow Business is Transacted in a stock Exchange
A typical investment transaction will consist of four stages-
Placing an order with a broker.
Execution of Order
Reporting deal to the client Settlement of transactions.
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Regulation of
Stock Exchange
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Securities Contracts (regulation) Act 1956Securities Contracts (regulation) Act 1956
SCRA enacted in 1956, came into force onFebruary 20, 1957.
Objectives To prevent undesirable transaction in securities
To regulate dealings in securities Regulation of stock exchanges.
Regulation of buying and selling of securitiesout side the limits of stock exchange.
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ProvisionsProvisions
2. Submission of Returns Section 6 of the Act lays down that every stock
exchange shall furnish to the central govt. suchperiodical returns as may be prescribed relating
to its affairs. The periodical returns shall be filled by the
recognized stock exchanges before 31st Januaryeach year.
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ProvisionsProvisions
3. Power to Direct Rules to be Made or to Make Rules Section 8 of the Act empowers the central govt.
to direct the stock exchange to frame rules orto amend rules already made in respect of the
following- Management of stock exchange
Duties and powers of office – Bearers
The procedure for registration
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ProvisionsProvisions
4. Power to Make or Amend Bye Laws Section 9 of the Act empowers the recognized
stock exchange to make bye-laws for theregulation and control of contracts with the
approval of the central govt. Section 10 of the act empowers the central
govt. to amend the bye-laws as framed undersection 9
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ProvisionsProvisions
5. Power to Supersede Governing Body and SuspendBusiness. Section 11 and 15 of the act, empower the
central govt. to supersede the governing body
of a stock exchange and to suspend thebusiness of a recognized stock exchange.
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ProvisionsProvisions
6. Power to Make Listing of securities Compulsory Section 21 of the Act empowers the central
govt. to make listing of securities by publiccompanies compulsory.
7. Power to Impose Penalties Section 23 of the act lays down penalties for
offence committed by individuals.
Section 24 of the act provides for the same but
for offence committed by companies. The penalty may include imprisonment for a
period of one year or fine or both.
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Promoting and regulating the self-regulatoryorganizations.
Prohibiting fraudulent and unfair trade practices
relating to securities market. Regulating substantial acquisition of shares and
take over of the companies.
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Functions of the SEBIFunctions of the SEBI
Regulating the business in stock exchanges and any othersecurities market.
Registering and regulating the working of collectiveinvestment schemes.
Promoting and regulating self-regulatory organizations. Registering and regulating the working of stock brokers,
sub brokers, share transfer agents, merchant bankers,underwriters, portfolio managers, investment advisors, andsuch other intermediaries who are associated with
securities in any manner.
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Functions of the SEBIFunctions of the SEBI
Promoting of investors education and training of intermediaries in securities market.
Prohibiting insider trading in securities.
Regulating substantial acquisition of shares and takeover of companies.
Calling information, undertaking inspection, conductingenquiries and audits of the stock exchanges,intermediaries and self-regulatory organizations.
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Functions of the SEBIFunctions of the SEBI
Performing such functions and exercising suchpowers under the provisions of the CapitalIssues ACT 1947, Securities Contracts
(Regulation) Act 1956, as may be delegated bythe central Govt.
Performing such other functions as may beprescribed by the govt.
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Trends in Stock ExchangeTrends in Stock Exchange
1. Online Purchasing
Many of the stock exchanges in India automated theiractivities.
Introduction of ELOB( Open Electronic Limit Order BookMarket Scheme) made customers to purchase shares
through online.2. Nationwide Integrated Markets
Nationwide integration has been made possible thoughsatellite communications.
Nationwide integrated markets help the trader any where in
India to have equal access to the markets.
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Trends in Stock ExchangeTrends in Stock Exchange
3. Clearing House that Guarantees the Trade National Securities Clearing Corporation (NSCC) was
set up on NSE to guarantee, the all trade on NSE
Every trade that takes place is free from risk
4. Information Dissemination System Well integrated information dissemination system
established in each stock exchange to give all stockrelated information to customers.
It stops the exploitation of clients by brokers.
S
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Trends in Stock ExchangeTrends in Stock Exchange
5. Inflow of foreign Portfolio Investment
From 1993 onwards, nearly $40,000 core worh of securitieshave been picked up by foreign institutional investors.
6. Broad base of Investing Public It is a popular belief that investors include only rich income
class group. Farmers, peons, drivers etc. constitute a major chunk of
investors.
It is said that in every eight shareholder in our countrytoday, one is farmer
T d i S k E h
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Trends in Stock ExchangeTrends in Stock Exchange
7. Increase in No. of Brokers In India there are about 3000 brokers
There are about 30,000 sub-brokers andconsultants spread all over country.
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SEBI and Capital Market ReformsSEBI and Capital Market Reforms
SEBI in consultation with the govt. has taken a number of steps to
introduce improved practices and greater transparency in thecapital markets and the healthy development of the capital markets.
Primary Market Reforms
Companies issuing capital in the primary market are now requiredto disclose all material facts and specific risk factors with their
projects. They should also give information regarding the basis of calculation
of premium.
SEBI introduced a code of advertisement for public issues forensuring fair and truthful disclosures
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In order to encourage IPO, SEBI has permitted companies to
determine par value of shares by them.
SEB has allowed issues of IPO’s to go for ‘Book Building’
To reduce the cost of issue, SEBI has made underwriting of issue optional.
SEBI has introduced regulations governing substantialacquisition of shares and takeovers.
Merchant baking has been statutorily brought under theregulatory framework of SEBI.
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SEBI has advised stock exchanges to amend the listing
agreement to ensure that a listed company furnishes annualstatement to the stock exchanges showing the variationsbetween financial projections and utilization of funds in the offerdocuments.
Through SEBI, govt. has now permitted the setting up of private
mutual funds. The govt. of India has liberalized investment norms for NRI’s so
that NRI’s and overseas corporate bodies can buy shares anddebentures without prior permission of RBI.
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Secondary market reforms
SEBI has started the process of registration of intermediaries, suchas stock brokers and sub-brokers under the provisions of theSecurities and Stcck Exchange Board Act 1992.
SEBI made rules for making client/broker relationships moretransparent, in particularly segregating client and broker accounts.
SEBI has notified regulations on insider trading under the provisionsof SEBI Act.
Since 1992, SEBI has constantly reviewed the traditional tradingsystems in Indian Stock Exchanges.
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To make the governing bodies of stock exchanges, the governing
body of stock exchanges should have 5 elected members, notmore than 4 members nominated by the govt. or SEBI and 3 orfewer embers nominated as public representatives.
The govt. has allowed foreign institutional investors (FII’s) such aspension funds, mutual funds, investment trusts, portfolio
management companies etc. to invest in the Indian capitalmarket provided they are registered with SEBI.
To prevent excessive speculation in the stock market, SEBI hasintroduced rolling settlements form July 2, 2001.