OPERATIONS OF SECURITIES MARKET

By,Meera N

Pre 1992-restrictions on foreign investment,poor governance,securities contract act,floor based trading,no investor protection

Post 1992-sebi formed, IT as a tool,free pricing of securities,BOLT and NEAT,rolling settlement(T+2),

Depositories act, NSDL, access to international capital market,trading in equity derivatives,grading of ipos, clearing house mechanism,

Indian Security market- Overview

What is a Securities market?

Securities markets are markets in financial assets or instruments and these are represented as I.O.Us in financial form

Broadly classified into primary and secondary markets

Major characteristics of securities are their marketability and transferability

Equity market

Corporate debt market

Securities market

Primary market

Money market

Options market

Derivatives market

Secondary market

Futures market

Govt debt market

Capital market

Long term debt market

Functions performed by Securities market

Allocation function Liquidity function Indicative function Savings and investment function Merger functions

Relevant acts to understand the security market operations

The Securities and Exchange Board of India Act 1992

The Securities Contracts (Regulation) Act,1956

Companies Act 1956

Powers and functions of SEBI

Regulating the business in stock exchanges and any other securities markets

Registering and regulating the working of venture capital funds and collective investment schemes including mutual funds

Prohibiting fraudulent and unfair trade practices relating to securities markets

Prohibiting insider trading in securities Regulating substantial acquisition of shares and

take-over of companies Calling for information from, undertaking

inspection, conducting inquiries and audits of the stock exchanges, mutual funds, other persons associated with the securities market

Money market operations

As per RBI definitions “A market for short terms financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market”.

The money market is a mechanism that deals with the lending and borrowing of short term funds (less than one year).

A segment of the financial market in which Financial instruments with high liquidity and very short maturities are traded

Why do we need money markets? Distinct cost advantage over banks in

providing short term funds As the money market instruments are

highly liquid, holding funds in the money market enables the investor to act quickly the moment they identify the investment opportunity

To keep a balance between cash inflows and outflows, govts and corporations invest in money markets. Eg: to synchronize govt tax revenues and expenses

Players in the money market RBI, schedule commercial banks, DFHI,

businesses, investment companies, brokerage firms, financial institutions, insurance companies, pension funds, general public

Money market instruments- Call or notice money-Treasury Bills-Certificate of deposits-Commercial paper-Repurchase agreements-Banker’s acceptance-Eurodollars-Money market MFs

T-Bills Issued with 3 standard maturities- 91

days, 182 days, 364 days. The first two are auctioned weekly

whereas as the last one is auctioned monthly

Do not carry any interest rate Have a highly active secondary market Terms of t- bills are not specified on any

paper but simply recorded on the computer

Commercial paper Corporate equivalent of a t-bill Can issue either directly to the investor( direct

paper) or through dealers/banks( dealer paper) Maturity period is 90 to 180 days

Certificate of deposits Term savings deposit Interest bearing securities Maturity period is 3 months to 1 year NCDs can be sold in the open market before

maturity Deposit is maintained in the bank until maturity Higher rate of interest than t-bills

Eurodollar Bank deposits denominated in US dollars but

issued and held outside US branches of foreign banks

2 forms- Eurodollar CDs and deposits Eurodollar CDs are negotiable whereas deposits

are notREPO Involves purchase and repurchase of given

security by 2 parties at prices determined when the agreement is made.

Maturity is generally 14 days to 1 month Repo rate depends on the nature of security

traded and credit worthiness of the seller If underlying security depreciates seller is

required to repay a portion of funds or additional securities

Banker’s acceptances Used to finance international trade Bank agrees to pay a particular amount

at a specified future date, in exchange bank is given the temporary title to the goods and a commission

Maturity ranges from 30 days to 180 daysMMMFs 2 types- taxable( CPs, NCDs, T-bills) and

tax free( short term municipal debts) Only individuals can subscribe

As per Mckinsey study, increasing the market participation, expanding issuers, streamlining processes and deepening product markets are the key elements that will lead to a three-fold growth in India’s capital markets by 2020

Thankyou!