26th Oct. ‘09Duration: 1 hour 30 mins

Capital Marketing

IntroductionCapital market is the market for securities,

where corporates and government can raise long term funds

The major participants areo Government (Central and State)o Corporates (Reliance, Infosys)o Regulators (SEBI,RBI),o Institutions (LIC,FII)

Types of marketStock markets: Which provide financing through

issue of new shares and subsequent trading thereofBond markets: Which provides financing through

issue of bond and subsequent trading thereofCommodity market: Which facilitates trading in

commoditiesMoney market: Which provides short term financingDerivatives market: Which facilitates trading in

derivative securities

Stock marketsWhere new issued stock and existing stocks are

tradedPrimary market: where funds are mobilized by

issuing new shares. (IPO) Secondary markets: where existing listed

shares are tradedThe main stock exchanges in India are:o National stock exchange (NSE)o Bombay stock exchange (BSE)

Primary marketPrimary markets are the markets for long term capital.

Also called new issue markets. (NIM)Primary issues are used by companies for the purpose

of setting up new business or expanding or modernizing existing business

In primary markets securities are issued by companies directly to general public

Primary markets performs crucial function of facilitating capital formation in the economy

There are so many formalities to be performed before “going public” (MOA, AOA, registration of company etc)

Secondary marketSecondary market is the financial market of

trading the securities that have already been issued

In the secondary market securities are traded between investors

Indian stock markets are highly liquid, deep and well organized

Stock exchanges info.Major stock exchanges are NSE & BSENumber of companies listed at NSE are

1319 and BSE are 4000The major index are NIFTY and SENSEXBoth stock exchanges trade in following

segments:o Equityo Retail debt market and wholesale debt marketo Futures and options

Innovations at NSELargest in terms of daily turnover and number of tradesFirst national electronic limit order book (LOB) exchange

in IndiaSetting up first clearing corporation National securities

Clearing Corporation Ltd. (NSCCL)Co-promoting and setting up of National Securities

Depository Limited. (NSDL)Setting up S &P CNX Nifty, commencement of internet

trading in Feb. 2000.First exchange to start Exchange traded derivatives

(1996) and equity derivatives (2000)First exchange to start Gold ETF. (Exchange Trade Funds)

Bond marketNational stock exchange also has bond market where

bonds are traded. It has two segments:Wholesale Debt market's segment provides trading

facilities for a variety of debt instruments including Government Securities, Treasury Bills and Bonds issued by Public Sector Undertakings/ Corporate/ Banks. Large investors and a high average trade value characterize this segment

Retail debt market: With a view to encourage wider participation of all classes of investors across the country (including retail investors) in government securities, the Government, RBI and SEBI have introduced trading in government securities for retail investors

Money marketMoney market is global short term borrowing and

lending market which provides short term liquid funding

The major players are Banks, financial institutions, mutual funds, central banks and corporates

The main instruments in the money market are:o Treasury billo Commercial papero Certificate of deposito Money market mutual funds

Commodities and DerivativesCommodities exchange is the exchange where

commodities are tradedThe exchange of commodities in India is MCDX

Derivatives are the instruments whose values are derived from any underlying like stock, index, commodities

Futures are the contract where two parties agree to do trade at a fixed price and fixed terms but in the future

Options: Option is the contract which gives its buyer a right but not the obligation to buy or sell certain instruments at predetermined price

Securities exchange board of IndiaSecurities exchange board of India (SEBI) is an

autonomous body created by the Govt. of India in 1992. It is the regulator of securities markets in India

The main functions of SEBI are:o Regulation of capital marketo Monitoring trading and clearingo Regulation the brokers and investorso Promoting research and investigationo Drafting regulation, investigation and enforcement of

laws

Responsibilities and requirements of SEBISEBI has responsibility towards three groups: Investors,

Issuers of securities and Market intermediariesFollowing are the major requirements laid down by SEBIAll the brokers and sub-brokers have to get register with

SEBIAll underwriters have to deposits Rs. 20 lacs with SEBIAll the mutual funds are covered under Mutual Fund

Regulation Act 1993All companies are free to decide their stock prices and

share premium amounts