Financial Service Unit 434535345

8/3/2019 Financial Service Unit 434535345

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UNIT IV


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WORKING OF SECURITY

MARKET

ExchangeNSE/BSEBroker Broker

BuyerBuyer

SellerSeller

Regulated by SEBI

1st

place 2nd

place


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Definition

An exchange is defined as any body of individuals, whether incorporated or not,

constituted for the purpose of assisting, regulating or controlling the business of

buying, selling or dealing in securities

The stock exchange provide an organized market place for the investors to buy and

sell securities freely.

In the stock exchange, there is active bidding and a two way auction trading takes

place

The effective functioning of the stock exchange creates a climate conductive for a

growing primary market for new issues

An active secondary market leads in existing securities leads to a better psychology of

expectations


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Primary Market

The primary market is that part of the capital market that deals with the

issuance of new securities.

Companies, governments or public sector institutions can obtain funding through

the sale of a new stock or bond issue. This is typically done through a syndicate

of securities dealers.

The process of selling new issues to investors is called underwriting. In the case

of a new stock issue, this sale is an initial public issue (IPO). Dealers earn a

commission that is built into the price of the security offering.

Primary markets creates long term instruments through which corporate entities

borrow from capital market.


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Secondary Market

Capital market apart from the primary market also include markets were securities

which have been issued in the past are traded. These secondary market are called

stock market or stock exchange.

A market where investors purchase securities or assets from other investors, rather

than from issuing companies themselves is called secondary market

In any secondary market trade, the cash proceeds go to an investor rather than to

the underlying company/entity directly

Functions of Secondary MarketPrice discovery process which results from the interactions of buyers and sellers in

the market when they trade assets

Provision of liquidity by providing a mechanism for an investor to sell financial

assets

Low cost of transactions and information


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Stock market trading

Wholesale debt market

segment (WDM)

Capital Market

segment

Trading in central

central government

securities segment

Wholesale debt market segment (WDM): the WDM provides the facility for

institutions to enter into high value transactions in instruments such as government

securities, T-bills, public sector undertaking bonds, units of Mutual fund so on. The

players are

1. Trading members: recognized members of exchange2. participants: organization directly responsible for the settlement of trade

3. Trading system

4. Market type: trading in debt or other instruments

5. Clearing and settlement


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Capital Market segment: this segment provides an efficient and transparent

platform for trading of equity and preference shares, debentures, warrants,

coupons and exchange traded funds.

1. Trading mechanism: the trading system NEAT( national exchange for

automated trading system is used as an online software2. Online IPOs

3. Transaction charges

4. Clearing and settlement

5. Trading recording

6. Pay-in and pay-out of funds and securities

Trading in central central government securities segment: to encourage wider

participation of all class of investors, trading in Government Securities has been

introduce a nation wide ,order driven, screen based trading system of stock

exchange

1. Eligible stock exchanges: presently RBI permitted transaction through NSE,BSE and OTCEI

2. Eligible securities:

3. Members eligible to trade in government securities

4. Clearing and settlement systems

5. Settlement of funds and securities


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NATIONAL

STOCK

EXCHANGE

(NSE)


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NATIONAL STOCK EXCHANGE (NSE) was promoted by leading Financial

Institutions at the behest of the Government of India and was incorporated in

November 1992 with an equity capital of Rs 25 cr, as a tax-paying company unlikeother stock exchanges in the country.

The promoters for NSE were financial institutions, insurance companies, banks

and SBI capital market ltd, infrastructure leasing and financial services

Ltd(IL&FS) &stock holding corporation

The National Stock Exchange (NSE) is India's leading stock exchange covering

various cities and towns across the country. fully automated screen-based trading

system with national reach

NSE is a national market for shares, PSU bonds, debentures and government

securities since infrastructure and trading facilities are provided


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OBJECTIVE OF NSE

Establishing nationwide trading facilities for all types of securities .

Ensuring equal access to investors all over the country through an appropriate

telecommunication network.

Providing fair , efficient & transparent securities market using

Electronic trading system.

Meeting international benchmark and standards

ORDER DRIVEN MARKET

NSE has an order driven system and allows members to undertake jobbing in securities of

there choice. Several members undertake jobbing because of ease of entry and exit andnarrow margin resulting in improvement of liquidity and reduction of transaction cost


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MARK TO MARKET

NSE is the first exchange in the country to introduce mark to market system of margin

which reduces the risk of default by members. NSE calculates the mark to market margin as

the cumulative loss in excess of 50% of the initial security deposit kept with the exchangeby way of cash deposit, bank guarantee or approved securities

PRICE BANDS

The price bands are based on the liquidity of companys shares and not on volatility alone as

the potential for price manipulations is more in the case of illiquid securities. The criteria

for determining the measure of liquidity of a security are: frequency of trading, averagedaily volume of trading, average daily value of trading and average daily number of trades

MIMINUM PAID UP CAPITAL

With regard to companies whose shares are already listed on another exchanget here will

now be a requirement of a minimum market capitalization of Rs 20 cr for companies with a

paid up capital of at least Rs 10 cr

TRADING :

1. Whole sale Market

2. Capital Market


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ELECTRONIC TRADE MONITORING SYSTEM

The stock- watch system is a computer system designed and programmed to monitor

market activity and identify aberrations from historical patterns

SETTLEMENTThe settlement cycle is completed within eight days of the last day of the trading cycle

COUNTER GUARANTEES

NSEs clearing corporation stands guarantee to all trades done in the cash market on the

exchange. The counter guarantee of the clearing corporation ensures that no default, either

of payment or delivery takes place for trades done on NSE


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OVER THE COUNTER

EXCHANGE OF INDIA

(OTCEI)


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The OTCE was incorporated under section 25 of the company Act. OTCE has been

set up to meet a long felt need for a second tier market where companies with small

paid paid-up capital and with less onerous condition could have the advantage of

listing

OTC exchange is promoted by all India financial institutions, merchant banks and

established as recognized stock exchange. Companies listed on OTC Exchange

enjoys the same status as companies listed on any other stock exchange in the country

OTC Market in USA: OTCEI with ASTOCS is modelled on National Association ofSecurities Dealers Automated Quotation System (NASDAQ) in the United States of

America

Objective of OTCEI:

OTCEI has been set- up to help small investors who face the problem of access,liquidity, delays in payment and delivery and uncertainty about prices at which shares

are bought and sold; and companies who face the problem of issue cost and restricted

access to the market


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Members: They are financial institutions, banks, mutual funds, venture capital

funds and large financial companies having a minimum net worth of Rs 2.5 cr

The functions of the members are

1. Appraise and evaluate proposals

2. Value the script3. Sponsor the script to other market participants

4. Hold the script till project completion

5. Arrange for an additional market

Dealers:

it would be a corporate body, partnership firms and individual having a networth of Rs 5 lakhs and 2 independent references from the bank regarding

financial standard

dealers are expected to have adequate financial strength to be able to carry on

the trading and market making function

Dealer should possess adequate organizational infrastructure to carry on the

functions of investment, trading and market making

Dealer should have adequate knowledge of trading, stock valuation, share

transfer rules and laws


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Members n being appointed by the company act as sponsors to listing of new script

which include the following function:

1. Appraise the project of a company2. Value the script to be listed on OTC Exchange

3. Sponsor the scrip to other members and licensed dealers and place the entire

script with them

4. Make market for three years from the date script are offered for public trading

5. Arrange for one more member, licensed dealer to make market for the scrip forat least one year


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Listing on the OTC Exchange: Listing on OTCEI may be done by companies with

equity capital of less than Rs 10 cr

Listing requirements of OTCEI

1. The minimum issued share capital of more than Rs 30 lakhs2. For companies with an issued shares capital of more than Rs 30 lakhs but less than Rs

300 lakhs, the minimum public offer should be 25% of the issue capital or Rs 20 lakhs

of worth of shares whichever is higher

3. Companies with an issued equity capital of more than Rs300 lakhs seeking listing on

the OTC will have to comply with the listing requirements and guidelines as are

applicable


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Documents

Financial Service Unit 434535345