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It is a market for short term funds which deals in monetary assets whose period of maturity is up to one year. In it short term debt instruments that are highly liquid are issued and traded actively everyday.Money market securities are usually sold in large denominations .They have low default riskThey mature in one year or less from their issue dateMeaningWe have different options to channelize our savings.

Banks

Financial MarketsBanks -

A bank is a financial institution and a financial intermediary that accepts deposits and channelize those deposits into lending activities either directly or through capital markets.

Financial Market - A financial market is a market where financial assets are bought or sold.

Financial Assets are Shares, Debentures and Bonds etc.SAVERSFINANCIAL MARKETSINVESTORSHouseholdBusiness FirmsCONCEPT OF FINANCIAL MARKETFunctions of Financial Markets

Mobilization of savings and channelizing them into most productive use.

Facilitates price discovery.

Provide liquidity to financial assets.

Reduce cost of transaction.Classification of Financial MarketsUnorganized MarketOrganized MarketMoney MarketCapital MarketSecondary MarketPrimary MarketGovt. SecuritiesLong-term LoansIndustrial SecuritiesCertificates of DepositsTreasury BillsCommercial BillsCall MoneyMoney Market Money Market is the market where transactions are made for Short term securities.

Features of money market Short term market High safety High liquidity Fewer investors

Reserve Bank of IndiaCommercial Banks Non-Banking Finance Companies State Governments Large Corporation Houses Mutual Funds.ParticipantsIt is an instrument of short-term borrowing by the Government of India maturing in not less than one year. They are issued by RBI on behalf of the Central Government to meet its short-term requirements. They are issued at a price which is lower than their face value and repaid at par. They are issued for a period of 14 to 364 days.

Treasury BillIt is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period i.e. 15 days to one year. It is an alternative to bank borrowing for large companies that are generally considered to be financially strong. It is sold at discount and redeemed at par.Commercial PaperIt is a short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions.Call money is a method by which banks borrow from each other to be able to maintain the cash reserve ratio. The interest rate paid On call money loans is known as the call rate.Ca l l MoneyA commercial bill is a bill of exchange used to finance the working capital requirements of business firm. It is a short- term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms. The seller (drawer) of the goods draws the bill and the buyer (drawee) accepts the bill. On being accepted, it becomes a marketable instrument and is called a trade bills. These bills can be discounted with a bank if the seller needs funds before the bill matures.Commercial PaperINSTRUMENTS OF MONEY MARKET

Call Money call money is short term finance used for inter bank Transactions with maturity period of one to fifteen days .

Commercial Bills The holder of a trade bill has the liberty to retain Till the date of maturity or they can discount these bills with bank, If they are in need of funds, before the maturity date of these bills. When Trade bills are accepted by the commercial banks ,they are known as Commercial bills.

Treasury bills-T-bills are instruments for short term borrowing issued by Govt. of India .Their maturity is less than one year. They are freely transferable. These are issued by RBI on behalf of central govt.

Certificate of deposit- It refers to short term instruments issued by Commercial to the individual ,corporation and companies.

Types of Capital Market

a)Primary Market-It is a new issue market .

b) Secondary Market It deals with the purchase and sale of existing securities.

Capital MarketLong Term FundsRaised byGovernment CorporatesTrading Instruments usedSharesDebtsDerivativesUnits of Mutual Funds

16Debt MarketDebt ContractOne Party lends to another PartyPredeterminedInterest Rates and TermParticipantsBanksFinancial InstitutionsMutual FundsInsurance Companies etc.InstrumentsGovernment Securities (G-Secs)Public Sector Units BondsCorporate Securities

17 Stock and SharesStock Capital raised by corporationsThrough issue and distribution of sharesShareSignifies ownership in the companyA company might have thousands of ShareholdersWhich company issued shares for the first time in the world???The Dutch East India Company in 1602

18Primary vs. Secondary MarketsPrimary MarketsNewly issued securities sold by the issuer (e.g., a company sells bonds to pay for a manufacturing plant)Usually no commission to buyer (seller pays full commission)Secondary MarketsIssuer not involved, all trades between investors

Primary MarketIt is a market for new securities issued. In the primary market the security is purchased directly from the issuer. Features of Primary Features Of Primary Market are:-1. This is the market for new long term capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called New Issue Market (NIM).2. In a primary issue, the securities are issued by the company directly to investors.3. The company receives the money and issue new security certificates to the investors.4. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.5. The primary market performs the crucial function of facilitating capital formation in the economy.6. The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as going public.

Methods of issuing securities in the Primary Market

1. Private Placement of Shares 2. Initial Public Offer; 3. Rights Issue; 4. Preferential Issue. 5. e.IpoPrivate Placement of SharesRaising of capital via private organizations rather than public placement. The result is the sale of securities to a relatively small number of investors. The examples of the private placement are: shares of Cyberspace Infosys are privately placed to the UTI, GIC and LIC.Initial Public OfferWhen a company issues common stock to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.In an IPO, the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market.IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.

Right Issue of SharesWhen a company gives the right to an existing share holder to buy a specified number of new shares from the firm at a specified price, within a specified time period. A right issue, is offered to all existing shareholders. Rights are often transferable, allowing the holder to sell them on the open market.Preferential IssuePreference shares, is typically a higher ranking stock than voting shares, and its terms are negotiated between the corporation and the investor.Preferred stock usually carry no voting rights but may carry superior priority over common stock in the payment of dividends and upon liquidation. Preferred stock may carry a dividend that is paid out prior to any dividends to common stock holders. Preferred stock may have a convertibility feature into common stock. Preferred stockholders will be paid out in assets before common stockholders and after debt holders in bankruptcy. Terms of the preferred stock are stated in a "Certificate of Designation".

E-IPOA company can also issue capital to public through the online system of the stock exchange. The appointment of various intermediaries by the issuer includes a prerequisite that such members/registrars have the required facilities to accommodate such an online issue process.

Stock ExchangePlace where the shares are tradedBSE NSEBSE Bombay Stock ExchangeOldest Stock Exchange in AsiaSensex Sensitive IndexIndex of 30 Actively traded CompaniesNSE National Stock ExchangeIncorporated in 1992Nifty Index of 50 Actively traded Companies

28Other exchangesRegional Stock ExchangesAhmedabad Stock ExchangeCalcutta Stock ExchangeOver the counter market (OTC)OTCEI

Structure of Indian Financial System:

GOIMinistry of FinanceRBISEBIDepositoriesCompaniesBrokerDealersClearingCorporationsStockExchangesMutualFundsBanksRegistrar of CompaniesMerchantBankersRegistrar &TransferAgentsPrimaryDealersGOIDept of Co. AffairsDepositoryParticipantsWHAT IS STOCK MARKETSTOCK MARKET IS A PLACE WHERE SECURITIES-SHARES,DEBENTURES,BONDS ARE TRADED

STOCK MARKET HAS TWO BASIC ELEMENTS 1.CORPORATE/ COMPANY NEED - FOR FUNDS 2.INVESTOR NEED - TO GAIN PROFITS

STOCK INVESTMENTS ARE MADE IN 1.COMPANY SHARES 2.OTHER SECURITIES 3.DERIVATIVESMECHANISM OF STOCK MARKETSTOCKS ARE LISTED & TRADED ON -- STOCK EXCHANGESSTOCK EXCHANGES ARE SPECIALIZED ENTITIES,WHICH TRANSPARENTLY BRINGS BUYERS & SELLERS TOGETHEREXAMPLES: 1.UNITED STATES OF AMERICA - NYSE,NASDAQ 2.EUROPE - LONDON STOCK EXCHANGE ETC. 3.INDIA - NSE,BSE AND REGIONAL EXCHANGESACTUAL TRADES ARE BASED ON ---- AUCTION MARKET PARADIGMTRADINGTRADING IS EXCHANGE OF SECURITIES BETWEEN BUYERS AND SELLERSBUYERS ---- BID X PRICESELLERS---- ASKS Y PRICEWHEN X=Y ---- SALE ON MATCHING PRICE ON FIRST COME FIRST SERVE BASISORDERS ARE EXECUTED THROUGH A PROFESSIONAL AT STOCK EXCHANGE __ (BROKER)BROKERS ARE REGISTERD TO OPERATE ON STOCK EXCHANGESREGISTRATION PROCESS INVOLVES VARIOUS CRITERIA LIKE FINANCIAL STRENGTH & TRACK RECORD ETC.BROKERS REFER THEIR REG. NO. ALONGWITH REGULATORY AUTH. NO. --LIKE S.E.B.I. NO.ETC. TO BUYERS. STOCK EXCHANGE

STOCK EXCHANGES The word stock means fraction of the capital of the company and the word exchange means a place for purchasing and selling something. That means stock exchange is a market where there is a trading in stock of different companies. The securities contracts act , 1956 has defined stock exchange as on association , organisation or body of individuals ,where incorporated or not , established for the purpose of assisting ,regulating and controlling business in buying , selling and dealing in securities. OBJECTIVES AND FUNCTIONS OF STOCK EXCHANGE

Ready Market :Stock exchange provides ready and continuous market where investors can convert their money into securities and securities into money easily and quickly.Evaluation of Securities : Stock exchange helps in determining the prices of various securities that reflect their real worth.

Protection of Investors :Stock exchange ensures fair dealings and safety of funds due to government control of the working of stock exchanges.Mobilisation of savings : Stock exchange helps in mobilizing surplus funds of individuals and institutions by investment in securities . Capital formation: Stock exchange not only mobilises the existing saving but also includes people to save and invest their money in industrial securities which yield higher return .

Economic barometer : Stock exchange is a very sensitive barometer of business conditions in the country . Price trends on the stock exchange reflect the economic climates in the country.Regulations of company management: Stock exchange through its rules and regulations exercises control on the functioning of the company .TRADING PROCEDURE ON STOCK EXCHANGE Till a few years ago trading on a stock exchange took place through a public outcry or auction system . This has been replaced by an online screen based electronic trading system as almost all exchange have become electronic. Trading has, therefore, shifted from the stock market floor to brokers office where trades are executed through a computer .Brokers are members of stock exchange through whom trading of securities is done. They are intermediaries between the buyers and sellers. A companys securities can be traded on a stock exchange only if they are listed or quoted on it . Companys have to fulfill a stringent set of requirements to get their securities listed on stock exchange. This ensures that the interest of the shareholders is adequately looked after . Transactions on a stock exchange may be carried out on either cash basis or a carry over basis. The carry over basis is also called badla and is a unique feature of Indian stock markets, particularly BSE.NATIONAL STOCK EXCHANGE (NSE)

NATIONAL STOCK EXCHANGE OF INDIA The National Stock Exchange is the latest , most modern technology driven exchange. It was incorporated in 1992 andwas recognized as a stock exchange in April 1993. It started operations in 1994 ,with trading as the whole sale debt market segment . Subsequently,it launched the capital market segment in November, 1994 as a trading platform for equities and the futures and options segment in June 2000 for various derivative instruments . NSE has set up on a nation -wide-fully automated screen based trading system.OBJECTIVES OF NSEEstablishing the nationwide trading facility for all types of securities.Ensuring equal access to investors all over the country through an appropriate communication network.Providing a fair ,efficient and transparent securities market using electronic trading system .Enabling shorter settlement cycles and book entry settlements.Meeting international benchmarks and standards.

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) The securities and exchange board of India was established by the government of India on 12 April 1988 as an interim administrative body to promote orderly and healthy growth of securities market and for investors protection . It was to function under the over all administrative control of the Ministry of Finance of the Government of India. The SEBI was given a statutory status on 30 January 1992 through an ordinance . The ordinance was later replaced by the Act of Parliament known as the Securities and Exchange board of India Act , 1992 . SENSEX

SENSEXSensex (Bombay Stock Exchange Sensitive Index) goes up and down all times and seems to be very important part of business and economic news.The SENSEX is the bench mark index of BSE. Since the BSE has been the leading exchange of the Indian Secondary Market, the Sensex has been an important indicator of the Indian Stock Market. It is most frequently used indicator while reporting on the state of the market.An index has just one job: to capture the price movement. The Stock Index reflects the price movement of the shares while a bond index captures the manner in which bond prices go up or down. If the Sensex rises it indicates the market is doing well. Since Stock are supposed to reflect what companies expect to earn in the future, a rising index indicates that the investors expect better earning from companies. It is also a measure of state of the Indian Economy. If the Indian companies are expected to do well, obviously the economy should do well too. The Sensex, launched in 1986 is made up of 30 of the most actively traded stock in the market. In fact, they account for half the BSEs market capitalization.

STOCK MARKET TERMINOLOGYBROKERAGE:COMMISSION OF BROKER FOR PURCHASE/SALE TRANSACTION(MAX.2.5% OF TRADE VALUE)DEMATERIALISATION:PROCESS OF CONVERSION OF PHYSICAL /PAPER SHARES TO ELECTRONIC SHARES.ELECTRONIC SHARE BALANCE(DEMAT ACCOUNT) IS MAINTAINED ON HIGHLY SECURE SYSTEMS AT DEPOSITORY ---e.g. NSDL/CSDL IN INDIAORDER DRIVEN TRADING:TRADING INITIATED BY BUY/SELL ORDERS FROM INVESTORS/BROKERSSCREEN BASED TRADING:BUYING/SELLING SECURITIES THROUGH COMPUTERS WHERE MATCHING OF TRADE IS MADE BY A STOCK EXCHANGE COMPUTER(ONLINE TRADING)SETTLEMENT:SCRIPWISE NETTING OF TRADES BY BROKER AFTER THE TRADING IS OVERCLEARING:PROCESS OF SETTLEMENT OF TRANSACTIONS OF MEMBERS THROUGH MULTILATERAL NETTINGSETTLEMENT GUARANTEE:GUARANTEE PROVIDED BY CLEARING CORPORATION FOR SETTLEMENT OF ALL TRADES EVEN IF A PARTY DEFAULTS TO DELIVER SECURITIES/PAY CASH

TERMINOLOGYTRADING FOR DELIVERY:TRADING WITH INTENTION TO DELIVER SHARES, PAYMENT FOR THE DEAL HAS TO BE MADE ON THE SAME /NEXT DAYSQUARE OFF DEALS: A POSITION WHICH IS SETTLED WITHIIN THE SAME TRADING DAY BY SQUARING OFF THE BUY/SELL ORDERPAY-IN: DESIGNATED DAY ON WHICH THE SECURITIES/FUNDS ARE PAID IN BY THE MEMBERS TO THE CLEARING HOUSE OF THE EXCHANGEPAY-OUT: DESIGNATED DAY ON WHICH SECURITIES/FUNDS ARE DELIVERED/PAID-OUT TO THE MEMBERS BY THE CLEARING HOUSE OF THE EXCHANGEPRICE BAND:THE DAILY/WEEKLY PRICE LIMITS WITHIN WHICH PRICE OF A SECURITY IS ALLOWED TO RISE/FALLCIRCUIT BREAKERS:MECHANISM BY WHICH EXCHANGES TEMPORARILY SUSPENDS THE TRADING IN A SECURITY WHEN ITS PRICES ARE VOLATILE AND TEND TO BREACH THE PRICE BANDFORWARD TRADING:TRADING WHERE CONTRACTS TRADED TODAY ARE SETTLED AT SOME FUTURE DATE AT PRICES DECIDED TODAYOVER THE COUNTER TRADING:TRADING IN THOSE STOCKS WHICH ARE NOT LISTED ON A STOCK EXCHANGE(THOUGH LISTED ON OTCEI)

TERMINOLOGY(CONT.)INSIDER TRADING:TRADING IN A COMPANYS SHARES BY A CONNECTED PERSON HAVING NON-PUBLIC,PRICE SENSITIVE INFORMATION e.g. EXPANSION PLANS,TAKEOVER BIDS ETC.PRICE RIGGING:WHEN A PERSON/GROUP OF PERSONS ACTS TO ARTIFICIALLY INCREASE/DECREASE THE PRICE OF A SECURITYJUMBO CERTIFICATE:A SINGLE COMPOSITE SHARE CERTIFICATE FORMED BY CONSOLIDATING/AGGREGATING A LARGE NO. OF MARKET LOTSMARKET LOTS: MINIMUM NUMBER OF SHARES OF A PARTICULAR SECURITY THAT MUST BE TRANSACTED ON A EXCHANGE.MULTIPLES OF THE MARKET LOT MAY ALSO BE TRANSACTED.IN DEMAT SCRIPS THE MARKET LOT IS 1SHARETRANSFER DEED:A FORM USED FOR EFFECTING TRANSFER OF SHARES/DEBENTURES DULY SIGNED/STAMPED BY TRANSFEROR&TRANSFEREE.(ELECTRONIC SHARES ARE AUTOMATICALLY TRANSFERRED BY DEPOSITORY DUE TO AUTHORISATION BY INVESTOR)REMATERIALISATION OF SHARES:A PROCESS FOR CONVERSION OF ELECTRONIC SHARES HELD IN A DEPOSITORY TO PHYSICAL FORM

Securities and Exchange Board of India SEBI was established to regulate the functions of securities market with the view to promoting the orderly and healthy development, to provide the adequate rotation to investors and to create and environment to facilitate mobilization of adequate protection through to the securities market. The regulatory body for the investment market in India. The purpose of this board is to maintain stable and efficient markets by creating and enforcing regulations in the market place. It was resoluted in the year 1988 but it made a statutory body in the year 1992.Functions of SEBIThe SEBI has three following functions:

Protective functions.Development functions.Regulatory functions. Protective Functions1. It checks price rigging by prohibiting unfair trade practices in the securities market. It keeps a watch on the operators so that they may not inflate the market price for the securities.It check fraudulent practices by the companies entering the market with fresh issues of securities, for instance, it takes stem action against the directors of a company of the prospectus contents misleading statements to induce the purchase of securities by the investors.The SEBI has taken several steps to educate the investors. In fact investors education is an important function of the SEBI.Development Functions1. It has made optional the underwriting of new issues.It has permitted interest trading through the registered stock brokers.It undertakes programs for the training of intermediaries in the securities market.Regulatory FunctionsIt regulates business in the securities market by enforcing its rules and regulations.It registers and regulates the working of the collective investment scheme including the mutual funds.It promotes and regulates self regulatory organizations.INVESTORS GUIDELINESINVESTOR RIGHTSRIGHT TO GET1.THE BEST PRICE2.PROOF OF PRICE/BROKERAGE CHARGED3.MONEY/SHARES ON TIME4.SHARES THROUGH AUCTION WHERE DELIVERY IS NOT RECEIVED5.SQUARE UP AMOUNT WHERE DELIVERY NOT RECEIVED IN AUCTIONRIGHT FOR REDRESSAL AGAINSTFRAUDULENT PRICEUNFAIR BROKERAGEDELAYS IN RECEIPTS OF MONEY/SHARESINVESTOR UN FRIENDLY COMPANIES

INVESTOR OBLIGATIONSTHE OBLIGATION TOSIGN A PROPER MEMBER-CONSTITUENT/SUB-BROKER-CLIENT AGREEMENTPOSSESS A VALID CONTRACT OR PURCHASE/SALE NOTEDELIVER SECURITIES WITH VALID DOCUMENTS AND PROPER SIGNATURESTHE OBLIGATION TO ENSURETO MAKE PAYMENT ON TIMETO DELIVER SHARES ON TIMETO SEND SECURITIES FOR TRANSFER TO THE COMPANY ON TIMETO DEAL ONLY WITH S.E.B.I. REGISTERED TRADING MEMBERS AND SUB-BROKERSREGULATORY BODIES OF INDIAMARKET REGULATORSSECURITIES AND EXCHANGE BOARD OF INDIA(S.E.B.I.)DEPTT.OF COMPANY AFFAIRS,GOVT.OF INDIARESERVE BANK OF INDIAGRIEVANCES REDRESSALSECURITIES AND EXCHANGE BOARD OF INDIA(S.E.B.I.)DEPTT.OF COMPANY AFFAIRS,GOVT.OF INDIASTOCK EXCHANGE REDRESSAL FORUMSCONSUMER DISPUTES REDRESSAL FORUMSCOURTS OF LAW

OFFICES OF S.E.B.I.OFFICESHEAD OFFICEMITTAL COURT,B WING,1ST. FLOOR,224,NARIMAN POINT,MUMBAI-400021

NORTHERN REGIONAL OFFICEBLOCK NO.1,RAJENDRA BHAWAN,RAJENDRA PLACE,DISTT. CENTRE,NEW DELHI-110008

EASTERN REGIONAL OFFICEFMC FORTUNA,5TH FLOOR,234/3A.AJC BOSE ROAD,KOLKATA-700020

SOUTHERN REGIONAL OFFICE3RD FLOOR,D,MONTE COLONY,TTK ROAD,ALWERPET,CHENNAI-600018

JURISDICTION

GUJARAT,MAHARASHTRA, MADHYA PRADESH,GOA,DAMAN-DIU,DADRA AND NAGAR HAVELI

HARYANA,HIMACHAL PRADESH,JAMMU&KASHMIR,PUNJAB, RAJASTHAN,UTTAR PRADESH,DELHI AND CHANDIGARH

ASSAM,BIHAR,MANIPUR,MEGHALAYA, NAGALAND,ORISSA, WEST BENGAL,SIKKIM,ARUNACHAL PRADESH,MIZORAM,TRIPURA, ANDMAN&NICOBAR

ANDHRA PRADESH,KARNATAKA,KERALA,TAMILNADU, PONDICHERRY,LAKSHDWEEP AND MINICOY ISLANDS