SAIM UNIT-1

8/7/2019 SAIM UNIT-1

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UNIT-1

Overview of Capital Markets


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MARKET OF SECURITIES

Securities can be traded through :

1. Recognized stock exchange like BSE, NSE, New

York, etc

2. Over the counter Exchange : An stock exchange thatis comprised of unlisted small and medium sizedfirms. Trading is done by broker-dealers whonegotiate directly with one another over computer networks and by phone


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STOCK MARKET

A stock exchange or securities exchange is amutual organization which provides trading

facilities for stock brokers & traders to trade insecurities

Some of the major stock exchanges in theworld are: Bombay stock exchange, National stockexchange, New York stock exchange, Tokyo stockexchange, etc


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ROLE OF STOCK MARKET

Raising capital for businesses

Mobilizing savings for investment

Facilitating company growth

Profit sharing


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ROLE OF STOCK MARKET

C orporate governance

C reating investment opportunities for smallinvestors

Barometer of the economy

Government capital-raising for developmentprojects


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SEGMENTS OF CAPITAL

MARKETThe public securities markets or capital marketscan be divided into:

Primary Market/ New Issue Market

Secondary Market


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Primary Market/ New Issue

MarketThe primary market is that part of thesecurities market that deals with the issuanceof new securities.

C ompanies, governments or public sector institutions can obtain funding through thesale of a new securities.


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FEATURES OF PRIMARY

MARKETThe primary market is the market where thesecurities are sold for the first time

Securities are issued by the company directly toinvestors.

Help in setting up new business or for expanding or modernizing the existing business

Lead to capital formation in the economy


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ISSUE PRICE

Fixed Price Issue

Book Building


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PARTIES INVOVED IN PUBLIC

OFFER

Merchant Banker/ Lead Manager

Registrar to the issueUnderwriters (Assurance)Bankers to an issue

Advertising Agent


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FUNCTIONING OF PRIMARY

MARKETSMethods of issuing securities in the primary

market are:

Initial public offering:

1. Fresh issue of securities by the unlisted company2. A way for listing & trading of the issuers securities


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FUNCTIONING OF PRIMARY

MARKETSRights issue (for existing companies) :1. Issue of securities to the existing shareholders with the right

resting on the investor either to accept or reject the offer

2. Issued at pre-determined price usually at discount to the existingmarket price

Private Placement1. Issue of shares or convertible securities by listed companies to

selected group of persons2. Its a fast way to raise equity capital


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LIMITATIONS OF PRIMARY

MARKETSAgg ressive Pricin g : Higher issue price

Poor Liquidity : Unlisted firms after IPOProcess

Low Returns : Low market price & no dividenddue to delayed completion of projects

E conomic slow Down


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SECURITIES IN PRIMARY

MARKETShares

Debenture/ Bond Or Money Market Securities: T-Bills, C P , C D

Mutual Fund


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SECONDARY MARKET

Trading of already issued securities

Liquid & transparent market

Trading by individual , corporate


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TRADING OF SECURITIES

Buying or selling the securities, at a particular price and time & the rights of investors areprotected

C apital Market has three segments:1. Equity market Segment2. Whole Sale/Retail Debt market Segment3. Derivatives Segment


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ONLINE TRADING

Till 1994,trading on the stock market wasbased on the Open Outcry System

Establishment of NSE in 1994,led toScreen Based Trading

Within a short span of time, open outcrysystem was replaced by screen basedtrading system on all the stock exchangesin the country


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ONLINE TRADING

Enables a broker member totrade with the help of TWS(Trading Work Station) throughany part of the country

Physical presence is notrequired

Trading System :BSE-BOLT (BombayOnline TradingSystem)NSE-NEAT (NationalExchange AutomatedTrading System)


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ADVANTAGES

AccessLiquidity

Price DiscoveryRegulation & SupervisionTransparency

Straight through Processing


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GUIDELINES FOR INVESTOR

PROTECTIONThere are four main legislations governingsecurities market are:

1. The securities contracts (Regulation) Act, 1956

2. The C ompanies Act,1956

3. The SEBI Act, 1992

4. The Depositories Act,1996


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SECURITIES EXCHANGE

BOARD OF INDIA In 1988 the Securities and Exchange Board of India(SEBI) was established by the GOI through anexecutive resolution

Resolution was subsequently upgraded, as a fullyautonomous body (a statutory Board) in the year 1992 with the passing of the Securities and

Exchange Board of India Act (SEBI Act) on 30thJanuary 1992.


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The SEBI Act, 1992

SEBI Act 1992, was established to protectinvestors

This Act gave powers to SEBI for:

1. to protect the interests of investors in securities2. to promote the development of Securities Market3. to regulate the securities market


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FUNCTIONS OF SEBI

Regulates C apital Market

C hecks the malpractices in securities market

It enhances investor's knowledge on market by providingeducation

It regulates the stockbrokers and sub-brokers

It also look after development of capital Market


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LAWS FOR INVESTOR

PROTECTIONSEBI (Insider Trading) Regulations, 1992

SEBI (Prohibition of Fraudulent & unfair Trade Practices Relating to SecuritiesMarkets) Regulation,1995

The Disclosure and Investor Protection (DIP)Guidelines


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The Disclosure and Investor

Protection (DIP) GuidelinesThese guidelines prescribe requirements for issuer/intermediaries to ensure:

1. high standards of fair dealing

2. Diligence, care & disclosure of truth


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Protection (DIP) GuidelinesS ome Guidelines for primary market are stated asfollows:

Issuers are required to disclose all risk factors &

give justification for pricing in the prospectusThe debt instruments of maturities more than 18months require credit ratingThe lead merchant banker discharges most of thepre-issue & post issue obligationsAuction System was introduced for issue of T-bills


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Protection (DIP) GuidelinesS ome Guidelines for S econdary market are stated asfollows:

The stock exchanges were allowed to set up online

trading terminalsExchanges were made de-mutualised i.e.ownership, management & trading are in differenthandsC ode of conduct were specified for broker's & sub-brokersC ircuit Breakers were brought in for individualscrip's 20% either way


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Protection (DIP) GuidelinesS ome Guidelines for S econdary market are stated asfollows:

To protect investors regulator/exchange havedeveloped a comprehensive risk managementsystem

This system comprises of capital adequacy of members, margin requirements , limit on exposure,etc


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Investor Protection by stock Exchanges

Investor Awareness Program are run by thestock exchanges

There is proper mechanism for solving thegrievances of the investors


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THANKSTHANKS

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