Securities Market - 3rd July

8/8/2019 Securities Market - 3rd July

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By Ms Sneha Vaidya

Securities Market It is a market for securities (debt or equity),

where business enterprises (companies)

and governments can raise long-termfunds.

Includes the stock market (equitysecurities) and the bond market (debt).

Classified into Primary market andSecondary market.


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Need for securities market The process of industrial growth ,requires the

development of the capital market, Which

provides ,long-term finance to entrepreneurs. To finance business operations either in the

private sector or in the public sector.

A link between savings surplus sector(Household) and saving deficit sector (Industry).


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By Ms Sneha Vaidya

Primary Market Deals with the issue of new securities - Companies,

governments or public sector institutions The process of selling new issues to investors is called

underwriting.

In the case of a new stock issue, this sale is an initial publicoffering (IPO). Four elements of primary market: Investors, Issuers,

Intermediaries, Regulators Who can raise finance in this market? Public ltd Companies

and Government Who can invest in this market? Individuals, financial

institutions, mutual funds, insurance companies Major players: Underwriters, merchant banks, and agencies Functions: To facilitate transfer resources from savers to the

users

Mobilizing funds from savers to borrowers


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By Ms Sneha Vaidya

Underwriter An underwriter gives an undertaking, to the issuing company

to take the unsubscribed shares. In India under writing agencies can be classified into following

categories: 'sole underwriting', 'syndicate underwriting', a 'sub-underwriting under sole underwriting'. An underwriter enters into an agreement for underwriting with

the issuing company all alone. Syndicate underwriting is used when the investment

bankers form a syndicate to purchase the securities of

company because money needed for such venture may belarger than any one banker may like to invest. The third underwriting method i.e., sub-underwriting,

involves appointment of a sub underwriter to quicken the saleof securities and diversify the risk involved.


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By Ms Sneha Vaidya

Features This is the market for new long term equity capital. The primarymarket is the market where the securities are sold for the first time.Therefore it is also called the new issue market (NIM).

In a primary issue, the securities are issued by the company directlyto investors.

The company receives the money and issues new securitycertificates to the investors. Primary issues are used by companies for the purpose of setting up

new business or for expanding or modernizing the existing business. The primary market performs the crucial function of facilitating

capital formation in the economy.

The new issue market does not include certain other sources of newlong term external finance, such as loans from financial institutions.Borrowers in the new issue market may be raising capital forconverting private capital into public capital; this is known as "goingpublic."

The financial assets sold can only be redeemed by the originalholder.


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Primary Market Issues Issues made by an Indian company can be classified as Public, Rights,

Bonus and Private Placement.


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Public Issue (a) Public issue: When an issue / offer of securities is made to

new investors for becoming part of shareholders family of theissuer3 it is called a public issue. Public issue can be furtherclassified into Initial public offer (IPO) and Further public offer(FPO).

(i) Initial public offer (IPO): When an unlisted company makeseither a fresh issue of securities or offers its existing securitiesfor sale or both for the first time to the public, it is called anIPO. This paves way for listing and trading of the issuerssecurities in the Stock Exchanges.

(ii) Further public offer (FPO) or Follow on offer: When analready listed company makes either a fresh issue ofsecurities to the public or an offer for sale to the public, it iscalled a FPO.


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By Ms Sneha Vaidya

Public Issue Offer ofsale

1. It consists in outright sale of securities through theintermediary of issue houses or share brokers.

2. It consists of two stages: the first stage is a direct sale by theissuing company to the issue house and brokers at an agreed

price.3. In the second stage, the intermediaries resell the above

securities to the ultimate investors. The issue housespurchase the securities at a negotiated price and resell at ahigher price. The difference in the purchase and sale price iscalled turn or spread.

(b) Right Issue1. When a listed company proposes to issue securities to its

existing shareholders, whose names appear in the registerof members on record date, in the proportion to their existingholding, through an offer document, such issues are calledRight Issue.


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Public Issue (c) Private placement

1. It involves sale of securities to a limited number ofsophisticated investors such as financial institutions, mutual

funds, venture capital funds, banks, and so on.2. It refers to sale of equity or equity related instruments of an

unlisted company or sale of debentures of a listed or unlistedcompany.

Preferential Issue

1. An issue of equity by a listed company to selected investors

at a price which may or may not be related to the prevailingmarket price is referred to as preferential allotment in theIndian capital market.

2. In India preferential allotment is given mainly to promoters orfriendly investors to ward off the threat of takeover.


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By Ms Sneha Vaidya

Secondary Market Stock markets - Centers for trading of securities.

Origin - Screen based trading system in 1994-95

Total turnover of Rs.51,30,816 crore during2007-08

Big exchanges - NSE and BSE

The 19 small exchanges put together reportedless than 0.02% of total turnover during 2007-08, while 2 big exchanges accounted for over99.98 % of turnover.


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By Ms Sneha Vaidya

Overview of changes that have

taken place in Indian securitiesmarket in last ten years

Three most noticeable changes which have taken placeare 1) Dematerialization , 2) Introduction of screen basedtrading and 3) Shortening of trading and settlementcycles.

The trading and settlement cycle in Indian securitiesmarket which got reduced from as long as 22 days to 2days currently.

Presently in India, stock exchanges follow T+2 dayssettlement cycle.

trading happens on every business day, excludingSaturday, Sunday and exchange notified holidays. Thetrading schedule is between 10:00 a.m. in the morning to

3:30 p.m. in the evening.


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Continued. The SEBI has made it mandatory that only brokers and sub-brokers

registered with it can buy and sell shares in the stock exchange. Aperson desirous of buying or selling shares on the stock marketneeds to get himself registered with one of these brokers / sub-brokers.

Brokers/sub brokers ask their clients to deposit money with them

known as margin based on which brokers provide exposure to theclients in the stock market. However signing of client-broker agreement is not sufficient. It is

also essential for a person to open a demat account through whichsecurities are delivered and received.

This demat account can be opened with a depository participantwhich again is a SEBI registered intermediary. Some of the leadingdepository in the country are Stock Holding Corporation of India Ltd.,ICICI Bank, HDFC Bank etc

If an individual buys shares ,it is in the demat account that credit ofshares are received. Similarly when a person sells shares, he has totransfer shares to the brokers account through his demat account.

All the brokers/sub-brokers also essentially have a demat account.


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By Ms Sneha Vaidya

Secondary market operations Trading: Buying and selling of securities on stock

exchange 2 major players: investor and broker Investor: Buys at lower price and sells at higher

price Broker: acts as an agent on behalf of client Broker negotiates with clients and deals in

securities


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By Ms Sneha Vaidya

Two Basic Methods - On the

exchange floor and Electronically Exchange floor

You tell your broker to buy 100 shares of Acme Kumquats at market.

Your brokers order department sends the order to their floor clerk on theexchange. The floor clerk alerts one of the firms floor traders who finds another floor

trader willing to sell 100 shares of Acme Kumquats. This is easier than issounds, because the floor trader knows which floor traders make markets inparticular stocks.

The two agree on a price and complete the deal. The notification process

goes back up the line and your broker calls you back with the final price.The process may take a few minutes or longer depending on the stock andthe market. A few days later, you will receive the confirmation notice in themail.


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The process goes like this Order placing: Investor places the order to either buy or sell the security at a

certain price.

Shares can be bought and sold through a broker ontelephone. Brokers identify their clients by a unique codeassigned to a client.

When price placed by the client: Limit order When broker executes the deal at best price: Best rate order When no price limit or time limit placed by the client: open

order After the transaction is done by a client broker issues him

contract note which provides details of transaction. Apart fromthe purchase price of security, a client is also supposed to paybrokerage, stamp duty and securities transaction tax.


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The process goes like this OrderExecution: Broker negotiates with other parties to execute the order

Contract note: Broker prepares a contract note stating price, quantity of securities, date of

transaction, names of parties etc.

Delivery and clearing: Transfer deed containing the details of the buyer and the broker is signed

by the seller. Delivery and clearing is done by the clearing house after14days

Settlement: Cheques and securities are actually exchanged. The clearing house makes

payment and delivers the securities on that date. Trading of securities happen on the first day while settlement of the same

happens two days after. This means that a security bought on Monday willbe received by the client earliest on Wednesday which is called pay out dayby the exchange.

There is provision which allows a broker to transfer securities till 24 hoursafter pay out receipt.


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Settlement takes place Settlement of securities is done by the clearing

corporation of the exchange.

Settlement of funds is done by a panel of banksregistered with the exchange.

Clearing corporation identifies payable/ receivableposition of brokers based on which obligation report forbrokers are created. On T+2 days all the brokers whohas transacted two days before receive shares or giveshares to the clearing corporation of exchange. This allis done through automated set up Depository whichinvolves NSDL and CDSL.


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By Ms Sneha Vaidya

Types of contracts Spot contract: Payment and delivery of

securities on the same day/next day

Ready delivery contract: Payment anddelivery of securities within 7 days fromthe contract day

Forward delivery contract: Payment anddelivery of securities at the end of everyfortnight through clearing house


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By Ms Sneha Vaidya

Speculative transactions Options Dealings: A financial derivative that

represents a contract sold by one party (option writer) toanother party (option holder). The contract offers the

buyer the right, but not the obligation, to buy (call) or sell(put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period oftime or on a specific date (exercise date).

Call options give the option to buy at certain price, so the

buyer would want the stock to go up Put options give the option to sell at a certain price, so

the buyer would want the stock to go down.


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By Ms Sneha Vaidya

Options For example, that you discover a house that you'd love to

purchase. Unfortunately, you won't have the cash to buy it foranother three months. You talk to the owner and negotiate adeal that gives you an option to buy the house in threemonths for a price of $200,000. The owner agrees, but for thisoption, you pay a price of $3,000.

The market value of the house skyrockets to $1 million.Because the owner sold you the option, he is obligated to sellyou the house for $200,000. In the end, you stand to make aprofit of $797,000 ($1 million - $200,000 - $3,000).

Though you originally thought you had found the house ofyour dreams, you now consider it worthless. Because youbought an option, you are under no obligation to go throughwith the sale


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By Ms Sneha Vaidya

Hedging: Hedging means reducing or controlling risk. This is done by takinga position in the futures market that is opposite to the one in the physicalmarket with the objective of reducing or limiting risks associated with pricechanges.

An automobile manufacturer purchases huge quantities of steel as rawmaterial for automobile production. The automobile manufacturer enters intoa contractual agreement to export automobiles three months hence todealers in the East European market.

This presupposes that the contractual obligation has been fixed at the timeof signing the contractual agreement for exports. The automobilemanufacturer is now exposed to risk in the form of increasing steel prices. Inorder to hedge against price risk, the automobile manufacturer can buysteel futures contracts, which would mature three months hence. In case ofincreasing or decreasing steel prices, the automobile manufacturer isprotected. Let us analyze the different scenarios:

Speculative transactions


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Increasing steel prices

If steel prices increase, this would result in increase in the value of thefutures contracts, which the automobile manufacturer has bought. Hence,he makes profit in the futures transaction. But the automobile manufacturerneeds to buy steel in the physical market to meet his export obligation. Thismeans that he faces a corresponding loss in the physical market.

But this loss is offset by his gains in the futures market. Finally, at the timeof purchasing steel in the physical market, the automobile manufacturer cansquare off his position in the futures market by selling the steel futures

contract, for which he has an open position.

Decreasing steel prices

If steel prices decrease, this would result in a decrease in the value of thefutures contracts, which the automobile manufacturer has bought. Hence,he makes losses in the futures transaction. But the automobile

manufacturer needs to buy steel in the physical market to meet his exportobligation. This means that he faces a corresponding gain in the physical market. The

loss in the futures market is offset by his gains in the physical market.Finally, at the time of purchasing steel in the physical market, theautomobile manufacturer can square off his position in the futures market byselling the steel futures contract, for which he has an open position.


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By Ms Sneha Vaidya

Margin Trading: Margin trading is buying stocks without having the entiremoney to do it. The exchanges have an institutionalized method of buyingstocks without having the capital through the futures market. For example, ifyou were to buy 2000 shares of say Company A, which trades at Rs 300,you will need about Rs 6 lakh. But if you buy a future contract of thatcompany, which comprises 2000 shares, you only need to pay a margin of15 per cent. So by putting Rs 90,000, you can get an exposure of Rs 6 lakh.

The margin callOnce the trader buys a future or stocks in the margin account, the clientgets the profit/loss since his purchase in his account.

In both futures market and margin trading, if the value of the share fallsbelow the purchase price, the broker will make margin calls, asking theclient to deposit additional margin.

In a normal market, these margin calls are not a problem as clients candeposit the additional amount easily.

When clients are not able to meet the margin requirement, the broker sellsthe security so that he does not have to bear the risk in case the stock fallsfurther.

Speculative transactions


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Margin Trading To trade on margin, you need a margin account.

This is different from a regular cash account, inwhich you trade using the money in the account.

An initial investment of at least some amount isrequired for a margin account. This deposit isknown as the minimum margin. Once theaccount is opened and operational, you can

borrow up to5

0% of the purchase price of astock. This portion of the purchase price that youdeposit is known as the initial margin.


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By Ms Sneha Vaidya

Demat Trading Depository - An organization that facilitates holding of securities in the

electronic form and enables DPs to provide services to investors relating totransaction in securities. There are two depositories in India, namely NSDLand CDSL. As per a SEBI guideline, the minimum net worth stipulated for adepository is Rs.100 crore.

NSDL/CDSL - The securities are held in depository accounts, like the fundsare held in bank accounts. There are two depositories in India namelyNSDL and CDSL. NSDL (National Securities Depository limited) wasestablished in August 1996 and is the first depository in India. CDSL(Central Depository Securities Limited) is the other depository and wasestablished in 1999.

DP (Depository Participant) - A Depository Participant can be a financialorganization like banks, brokers, financial institutions, custodians, etc.,acting as an agent of the Depository to make its services available to theinvestors. There are a total of538 DPs registered with SEBI, as on March31, 2006 and each DP is assigned a unique identification number known asDP-ID.


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Demat form has the following benefits:

1. It eliminates risks associated with forgery, counterfeiting and lossdue to fire, theft or mutilation and reduces brokerage charges,

2. Settlement of Securities traded on the exchanges as well as offmarket transactions,

3. Reduces time taken to stock trading drastically avoidingproblems encountered in case of physical shares like signature

mismatch, postal delays and loss of certificates in transit, 4. Enables quick ownership of securities resulting in increased

liquidity, 5. Easy settlement of the ownership title of securities, and provides

easy receipt of public issue allotments 6. Auto Credit of Rights / Bonus / Public Issues / Dividend

7. No stamp duty on transfer of securities held in Demat form (asagainst 0.5 per cent payable on physical shares) 8. Increased liquidity, as securities can be sold at any time during

the trading hours (between 9:55 AM to 3:30 PM on all workingdays), and payment can be received in a very short period of time


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Demat trading process Instead of signing the transfer deed as seller and delivering share

certificates to a broker, you shall give your DP debit instruction when yousell your shares in the electronic form.

You can trade through any broker of your choice registered with the stock

exchanges connected with NSDL but will have to provide the details of youraccount with the DP The money would be received from the broker/ paid to the broker in the

same fashion as done in case of buying/ selling of physical shares The DP will provide you a statement updated every fortnight giving details of

your holdings. When any company announces right, bonus or dividend for a particular

security, the DP will give details of the clients having electronic holdings ofthat security as of record date/ book closure to the registrar. The registrar will then calculate the benefits due to all shareholders. The

disbursement of cash benefits like dividend or interest will be done by theregistrar whereas distribution of securities entitlements will be done by theDP based on information provided by the registrar.


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Demat settlement Rolling Settlement: Securities that are sold in the secondary market

typically settle three business days after the initial trade date. Within aportfolio, if some stocks are sold on Wednesday, they will settle thefollowing Monday. Stocks in that same portfolio that are sold onThursday will settle on the following Tuesday. Finally, if some of thestocks are sold on Friday, they will settle the following Wednesday. Whensecurities are sold and settled on successive business days, they are saidto be experiencing a rolling settlement.

T+5: The rolling settlement is always on a T + 5 basis. T represents thetrade day and T + 5 implies the settlement on the 5th trading day. Underthis pattern, the settlement cycle starts and ends on the same day, and thesettlement takes place on the 5th business day from the date of the

transaction, that is a transaction conducted on Monday will be settled on thefollowing Monday and a transaction of Tuesday will be settled on thefollowing Tuesday and so on.


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BSE (1

875

) The Exchange reaches

physically to 417 cities andtowns in the country

It provides an efficient market

for the trading in equity, debtinstruments and derivatives.

Its online trading system ispopularly known as BOLT

'BSEOn-Line TradingSystem (BOLT) has been

awarded the globallyrecognized the InformationSecurity ManagementSystem standard BS7799-2:2002.


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BSE Milestones

Developed the BSE Sensex in 1986

Sensex futures contracts in 2000

Sensex options in 2001

Equity derivatives in 2002

Switched to an electronic trading system in 1995

1978-79 Base year of Sensex, defined to be 100


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This automated, screen-based trading platform called BSE On-linetrading (BOLT) currently has a capacity of 80 lakh orders per day.

Bombay Stock Exchange sold a 5 percent stake to Singapore StockExchange for1.89 billion India rupees, or $42.7 million, planning to

capitalize on Singapore's position as a regional hub for derivativesand international listing

The Bombay Stock Exchange has successfully deployed Oraclesoftware, giving the exchange a single integrated system that shouldhelp streamline its financial accounting and human resourcemanagement processes.

On Feb, 2010, the equity market capitalization of the companieslisted on the BSE was US$1.28 trillion, making it the largest stockexchange in South Asia and the 12th largest in the world

Nearly 4900 Indian companies listed & over 7700 scrips on the stockexchange in 2010

BSE (1875) TODAY SCENARIO:


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SENSEX

BSE Sensex or Bombay Stock Exchange Sensitivity Index is avalue-weighted index composed of 30 stocks that started January 1,1986

Consists of the 30 largest and most actively traded stocks

representative of various sectors Index is calculated based on a free-float capitalization method It uses its float, or shares that are readily available for trading The Market Capitalization of a company is determined by multiplying

the price of its stock by the number of shares issued by thecompany

This Market capitalization is multiplied by a free float factor todetermine the free float market capitalization

Free float factor represent the percentage of shares that are readilyavailable for trading


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NSE It is recognized under Securities Contracts (Regulation) Act, 1956 in

1993 as a stock exchange. The Capital Market (Equities) segment commenced operations in

1994 and the Derivatives segment in June 2000. Membership : Any person can become a member by complying with

the prescribed eligibility criteria and exit by surrendering tradingmembership without any hidden/overt cost. There are no entry/exitbarriers to trading membership.

Screen Based Trading

Screen based trading uses modern telecommunications andcomputer technology to combine information transmission withtrading in financial assets. Trading members are connected to theExchange from their workstations to the central computer located atthe Exchange via satellite using VSATs (Very Small ApertureTerminals). Buy and sell orders from the brokers reach the centralcomputer located at NSE and are matched by the computer.


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NSE

Benefits to the trading membership of NSE include:

1. access to a nation-wide trading facility for equities, derivatives, debtand hybrid instruments/products,

2. ability to provide a fair, efficient and transparent securities market tothe investors,

3. use of state-of-the-art electronic trading systems and technology,4. dealing with an organization which follows strict standards for trading

& settlement at par with those available at the top internationalbourses,

5. a demutualised (Demutualization is the process through which amember-owned company becomes shareholder-owned company)Exchange which is managed by independent and experiencedprofessionals, and

6. dealing with an organization which is constantly striving to movetowards a global marketplace in the securities industry.


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Benefits to investors:

1. Best price

2. Exact separation of price and brokerage oncontract note

3. Date and time mentioned

4. Fair deal

5. Quick settlement6. Safety

NSE


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NIFTY NIFTY means National Index for Fifty accounting for

24 sectors of the economy S&P CNX Nifty is owned and managed by India

Index Services and Products Ltd. (IISL), which is a

joint venture between NSE and CRISIL. Nifty stocks represent about 62% of the Free Float

Market Capitalization as on Mar 31, 2010 It is a simplified tool that helps investors and

ordinary people alike, to understand what ishappening in the stock market and by extension, theeconomy. If the Nifty Index performs well, it is asignal that companies in India are performing welland consequently that the country is doing well


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Criteria to be in NIFTY50:

Average market capitalization of Rs.5,000 million

or more during the last six months. Liquidity: Cost of transaction (impact cost) of

less than 0.75% for more than 90% of trades,over six months.

At least 12% floating stock (not held bypromoters of the company or their associates .

NIFTY


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SEBI Its role in the Secondary

Market : The SEBI is the regulatory authority established under

Section 3 of SEBI Act 1992 to protect the interests of theinvestors in securities and to promote the developmentof, and to regulate, the securities market and for mattersconnected therewith and incidental thereto.

SEBI has to be responsive to the needs of three groups,which constitute the market:

the issuers of securities the investors

the market intermediaries


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Two broad approaches of SEBI is tointegrate the securities market at the

national level, and also to diversify thetrading products, so that there is anincrease in number of traders includingbanks, financial institutions, insurance

companies, mutual funds, primary dealersetc. to transact through the Exchanges.

SEBI Its role in the Secondary

Market :


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Objectives

to protect the interests of investors insecurities;

to promote the development of SecuritiesMarket;

to regulate the securities market and

for matters connected therewith orincidental thereto


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Functions

1. Regulates Capital Market

2. Checks Trading of securities.

3. Checks the malpractices in securities market.

4. It enhances investor's knowledge on market byproviding education.

5. It regulates the stockbrokers and sub-brokers.6. To promote Research and Investigation


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Powers and Functions

Regulating the business in stock exchanges and any othersecurities markets

Registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trusteesof trust deeds, registrars to an issue, merchant bankers,underwriters, portfolio managers, investment advisers andsuch other intermediaries who may be associated withsecurities markets in any manner

Registering and regulating the working of the depositories,[participants,] custodians of securities, foreign institutionalinvestors, credit rating agencies and such other intermediaries

Registering and regulating the working of [venture capitalfunds and collective investment schemes], including mutualfunds


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Promoting and regulating self-regulatory organizations Prohibiting fraudulent and unfair trade practices relating to

securities markets

Promoting investors' education and training of intermediariesof 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 securitiesmarket] intermediaries and self- regulatory organizations inthe securities market



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Calling for information and record from any bankor any other authority or board or corporationestablished or constituted by or under any

Central, State or Provincial Act in respect of anytransaction in securities which is underinvestigation or inquiry by the Board

Performing such functions and exercising suchpowers as may be delegated to it by the CentralGovernment

Conducting research for the above purposes



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Regulations and Initiatives for

Indian Capital Market Sole Control on Brokers:

Under this rule every brokers and sub brokers have to getregistration with SEBI and any stock exchange in India.

For Underwriters:

For working as an underwriter an asset limit of 20 lakhs hasbeen fixed

For Mutual Funds:

SEBI's introduction of SEBI (Mutual Funds) Regulation in1993 is to have direct control on all mutual funds of bothpublic and private sector.


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Achievements: Issuing companies:1. Disclosure of information Intent to avoid misleading information

to investors2. Underwriting is optional Intent to reduce the cost of issue3. Consent of SEBI before launching new issue in market

Regulating portfolio management services:1. A portfolio manager is a body corporate who, pursuant to a

contract or arrangement with a client, advises or directs orundertakes on behalf of the client (whether as a discretionaryportfolio manager or otherwise), the management oradministration of a portfolio of securities or the funds of the client.

2. The services of a Portfolio Manager are governed by theagreement between the portfolio manager and the investor. Theagreement should cover the minimum details as specified in theSEBI Portfolio Manager Regulations


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Regulation of Mutual fund:1. Are not allowed option trading, short selling, carry forward of

transactions

2. Can invest only in transferable securities3. Only efficient mutual funds will be given future registration

Action taken against companies delayingtransfer of shares and refund of public issue

money Regulating intermediaries, takeovers and

mergers, FIIs and merchant banking

Achievements:


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Investors protection SEBI had issued guidelines for the protection of the investors through

the Securities and Exchange Board of India (Disclosure and InvestorProtection) Guidelines, 2000.

1. Eligibility Norms ForCompanies Issuing Securities:-

No company shall make any issue of a public issue of securities, unlessa draft prospectus has been filed with the Board, through an eligibleMerchant Banker, at least 21 days prior to the filing of Prospectus withthe Registrar of Companies (ROCs). Provided that if, within 21 daysfrom the date of submission of draft Prospectus, the Board specifieschanges, if any, in the draft Prospectus (without being under anyobligation to do so), the issuer or the Lead Merchant banker shall carryout such changes in the draft prospectus before filing the prospectus

with ROCs. No listed company shall make any issue of security through a rights

issue where the aggregate value of securities, including premium, ifany, exceeds Rs.50 lacs, unless the letter of offer is filed with theBoard, through an eligible Merchant Banker, at least 21 days prior tothe filing of the Letter of Offer with RSE


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2. Pricing By Companies Issuing Securities

A listed company whose equity shares are listed on a stockexchange, may freely price its equity shares and any securityconvertible into equity at a later date, offered through a public or

rights issue. An unlisted company eligible to make a public issueand desirous of getting its securities listed on a recognised stockexchange pursuant to a public issue, may freely price its equityshares or any securities convertible at a later date into equityshares

In case of initial public offer by an unlisted company, if the issueprice is Rs. 500/- or more, the issuer company shall have adiscretion to fix the face value below Rs. 10/- per share subject tothe condition that the face value shall in no case be less than Rs.1 per share; and, if issue price is less than Rs. 500 per share, theface value shall be Rs. 10/- per share

Investors protection


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3. Pre- Issue Obligations No company shall make an issue of security through a

public or rights issue unless a Memorandum of

Understanding has been entered into between a leadmerchant banker and the issuer company specifyingtheir mutual rights, liabilities and obligations relating tothe issue

4. ContentsOfOfferDocument

The prospectus should contain all material informationwhich shall be true and adequate so as to enable theinvestors to make informed decision on the investmentsin the issue

Investors protection


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A Government security is a tradable instrument issued by the CentralGovernment or the State Governments.

Such securities are short term (usually called treasury bills, with originalmaturities of less than one year) or long term (usually called Governmentbonds or dated securities with original maturity of one year or more).

In India, the Central Government issues both, treasury bills and bonds ordated securities while the State Governments issue only bonds or datedsecurities, which are called the State Development Loans (SDLs).

Government securities are issued through auctions conducted by the RBI.Auctions are conducted on the electronic platform called the NDS Auctionplatform. Commercial banks, scheduled urban co-operative banks, PrimaryDealers, insurance companies and provident funds, who maintain funds

account (current account) and securities accounts (SGL account) with RBI,are members of this electronic platform

Govt Securities Market


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Govt Securities Market

Investing in Government securities has thefollowing advantages:

1. Safety as they carry the Sovereigns commitment for

payment of interest and repayment of principal.2. They can be held in dematerialized form.3. Wide range of maturities from 91 days to as long as 30 years

to suit the duration of a bank's liabilities.4. Can be sold easily in the secondary market to meet cash

requirements.5. Can also be used as collateral to borrow funds in the repo

market.


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Concepts

Regulators: The key agencies that have a significantregulatory influence , direct or indirect, over the securitiesmarket such as SEBI, RBI, CLB, DEA and MCA etc.

Stock Exchanges: A stock exchange is an institution wheresecurities that have already been issued are bought and sold.Presently there are 23 stock exchanges in India, the mostimportant ones being BSE and NSE.

Listed Securities: Securities that are listed on various stockexchanges and hence eligible for being traded there arecalled listed securities.

Depositories: A depository is an institution whichdematerialize physical certificates and effects transfer ofownership by electronic book entries. Presently there are twodepositories in India, viz. NSDL and CSDL.


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Concepts

Brokers: Brokers are registered members of the stock exchangesthough whom investors transact.

Foreign Institutional Investors: Institutional investors from abroadwho are registered with SEBI to operate in the Indian Capital market

are called foreign institutional investors (FIIs). Merchant Bankers: Firms that specialize in managing the issue of

securities are called merchant bankers. They have to be registeredwith SEBI.

Primary Dealers: Appointed by the RBI, primary dealers serve asunderwriters in the primary market and as market makers in thesecondary market for governmental securities.

Mutual Funds: A mutual fund is a vehicle for collective investment. Itpools and manages the funds of investors.

Custodians: A custodian looks after the investment back office of amutual fund. It receives and delivers securities, collects income,distributes dividends, and segregates the assets between schemes.


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Concepts

Registrars: Also known as a transfer agent, a registrar is employed by acompany or a mutual fund to handle all investor-related services.

Underwriters: An underwriter agrees to subscribe to a given number ofshares (or any other security) in the event the public subscription isinadequate. The underwriter, in essence, stands guarantee for publicsubscription.

Bankers to an issue: The bankers to an issue collect money on behalf of thecompany from the applicants.

Debenture Trustees: When debentures are issued by a company, adebenture trustee has to be appointed to ensure that the borrowing firmfulfills its contractual obligations.

Venture Capital Funds: A venture capital fund is a pool of capital which isessentially invested in equity shares or equity-linked instruments of unlistedcompanies.

Credit Rating Agencies: A credit rating agency assigns ratings primarily todebt securities. In India there are two main credit rating agencies; CreditRating Investment Services of India Limited (CRISIL) and InvestmentInformation and Credit Rating Agency (ICRA).

Securities Market - 3rd July

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Transcript of Securities Market - 3rd July