Download - Fm (Word Final)
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Financial
Markets
By:
Manish Malik (14086)
Neelesh Diwakar (14095)
Neelesh Kumar (14096)
Pranjal inha (14115)
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BBS 2C
Financial System
Financial system (FS) is a !ramew"rk !"r #es$ri%in& se'
"! markets organisations an# individuals 'ha'
en&a&e in 'he 'ransa$'i"n "! nan$ial ins'rumen's
(securities), as well as re&ula'"ry ins'i'u'i"ns*
+he %asi$ r"le "! , is essen'ially $hannellin& "! !un#s
wi'hin 'he #i-eren' uni's "! 'he e$"n"my . !r"m sur/lus
uni's '" #e$i' uni's !"r /r"#u$'ie /ur/"ses*
+his r"le is /er!"rme# %y fnancial markets*
,inan$ial Marke's
Financial markets /er!"rm 'he essen'ial unction o
channeling unds !r"m e$"n"mi$ /layers 'ha' hae
sae# sur/lus !un#s '" 'h"se 'ha' hae a sh"r'a&e "!
!un#s
' any /"in' in 'ime in an e$"n"my 'here are in#ii#uals
"r "r&ani2a'i"ns wi'h excess amounts o unds an#
"'hers wi'h a lack o unds 'hey nee# !"r e3am/le '"$"nsume "r '" ines'*
3$han&e %e'ween 'hese two grous o agents is
se''le# in fnancial markets
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+he rs' &r"u/ is $"mm"nly re!erre# '" as lenders 'he
se$"n# &r"u/ is $"mm"nly re!erre# '" as 'he !orrowers
"! !un#s*
+y/es "! ,inan$ial Marke's
+he nan$ial marke' $an %e #ii#e# in'":
• a/i'al marke's whi$h '" $"nsis' "!:
'"$k marke's whi$h /r"i#e nan$in& 'hr"u&h
'he issuan$e "! shares "r $"mm"n s'"$k an#
ena%le 'he su%seuen' 'ra#in& 'here"!*
B"n# marke's whi$h /r"i#e nan$in& 'hr"u&h
'he issuan$e "! %"n#s an# ena%le 'he
su%seuen' 'ra#in& 'here"!*
• "mm"#i'y marke's whi$h !a$ili'a'e 'he 'ra#in& "!$"mm"#i'ies*
• M"ney marke's whi$h /r"i#e sh"r' 'erm #e%'
nan$in& an# ines'men'*
• Deria'ies marke's whi$h /r"i#e ins'rumen's !"r
'he mana&emen' "! nan$ial risk*
• ,u'ures marke's whi$h /r"i#e s'an#ar#i2e# !"rwar#$"n'ra$'s !"r 'ra#in& /r"#u$'s a' s"me !u'ure #a'e7
see als" !"rwar# marke'*
• nsuran$e marke's whi$h !a$ili'a'e 'he re#is'ri%u'i"n
"! ari"us risks*
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• e$"n#ary Marke'
Primary Marke'
' is 'ha' marke' in whi$h shares #e%en'ures an# "'her
se$uri'ies are s"l# !"r 'he rs' 'ime !"r $"lle$'in& l"n&
'erm $a/i'al*
+his marke' is $"n$erne# wi'h new issues* +here!"re 'he/rimary marke' is als" $alle# N; M
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'he e3is'in& %usiness*
+he new issue marke' #"es n"' in$lu#e $er'ain "'her
s"ur$es "! new l"n& 'erm e3'ernal nan$e
B"rr"wers in 'he new issue marke' may %e raisin& $a/i'al
!"r $"ner'in& /ria'e $a/i'al in'" /u%li$ $a/i'al7 'his is
kn"wn as @&"in& /u%li$*@
+he 'erm $a/i'al Marke' re!ers '" !a$ili'ies an# ins'i'u'i"ns
arran&emen's 'hr"u&h whi$h l"n&'erm !un#s7 %"'h #e%'
an# eui'y are raise# an# ines'e#* +he a/i'al Marke'
$"nsis's "! #eel"/men' %anks $"mmer$ial Banks an#s'"$k e3$han&es* +he a/i'al marke' $an %e #ii#e# in'"
'w" /ar's (a) Primary Marke' (%) e$"n#ary Marke'
Me'h"#s "! ,l"a'in& New ssues in 'he Primary Marke'
Pu%li$ issue: ;hen a $"m/any raises !un#s %y sellin&
(issuin&) i's shares ("r #e%en'ure A %"n#s) '" 'he /u%li$
'hr"u&h issue "! "-er #"$umen' (/r"s/e$'us) i' is $alle#a /u%li$ issue* ni'ial Pu%li$ >-er (P>): ;hen a (unlis'e#)
$"m/any makes a /u%li$ issue !"r 'he rs' 'ime an# &e's
i's shares lis'e# "n s'"$k e3$han&e 'he /u%li$ issue is
$alle# as ini'ial /u%li$ "-er (P>)*,"ll"w"n /u%li$ "-er
(,P>): ;hen a lis'e# $"m/any makes an"'her /u%li$ issue
'" raise $a/i'al i' is $alle# !"ll"w"n "-er (,P>)*
>-er !"r sale: ns'i'u'i"nal ines'"rs like en'ure !un#s
/ria'e eui'y !un#s e'$* ines' in unlis'e# $"m/any
when i' is ery small "r a' an early s'a&e* u%seuen'ly
when 'he $"m/any %e$"mes lar&e 'hese ines'"rs sell
'heir shares '" 'he /u%li$ 'hr"u&h issue "! "-er
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#"$umen' an# 'he $"m/anys shares are lis'e# in s'"$k
e3$han&e* +his is $alle# as "-er !"r sale* +he /r"$ee#s "!
'his issue &" 'he e3is'in& ines'"rs an# n"' '" 'he
$"m/any*
Pria'e Pla$emen': +he sale "! se$uri'ies '" a rela'iely
small num%er "! sele$' ines'"rs !"r raisin& $a/i'al*
nes'"rs in"le# in /ria'e /la$emen's are usually lar&e
%anks mu'ual !un#s insuran$e $"m/anies an# /ensi"n
!un#s* Pria'e
/la$emen' is 'he "//"si'e "! a /u%li$ issue in whi$h
se$uri'ies are ma#e aaila%le !"r sale "n 'he "/enmarke'*
ssue "! n#ian De/"si'"ry
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/ur$hase "! i's shares "n a /rin'e# /res$ri%e# !"rm* a$h
a//li$a'i"n !"rm al"n& wi'h a//li$a'i"n m"ney mus' %e
#e/"si'e# %y 'he /u%li$ in a s$he#ule %ank an# &e' a
re$ei/' !"r 'he same* +he $"m/any $ann"' wi'h#raw 'his
m"ney !r"m 'he %ank 'ill 'he /r"$e#ure "! all"'men' has
%een $"m/le'e# (in $ase "! rs' all"'men' 'his am"un'
$ann"' %e wi'h#rawn un'il 'he $er'i$a'e '" $"mmen$e
%usiness is "%'aine# an# 'he am"un' "! minimum
su%s$ri/'i"n has %een re$eie#)* +he am"un' /aya%le "n
a//li$a'i"n !"r share shall n"' %e less 'han 5H "! 'he
n"minal am"un' "! share*
'e/
ll"'men's "! shares: ll"'men's "! shares means
a$$e/'an$e %y 'he $"m/any "! 'he "-er ma#e %y 'he
a//li$an's '" 'ake u/ 'he shares a//lie# !"r* +he
in!"rma'i"n "! all"'men' is &ien '" 'he shareh"l#ers %y a
le''er kn"wn as Fll"'men' Ce''er in!"rmin& 'he am"un''" %e $alle# a' 'he 'ime "! all"'men' an# 'he #a'e 3e#
!"r /aymen' "! su$h m"ney* ' is "n all"'men' 'ha' share
$"me in'" e3is'en$e* +hus 'he a//li$a'i"n m"ney "n 'he
share a!'er all"'men' %e$"mes a /ar' "! share $a/i'al*
De$isi"n '" all"' 'he share is 'aken %y 'he B"ar# "!
Dire$'"rs in $"nsul'a'i"n wi'h 'he s'"$k e3$han&e* !'er
'he $l"sure "! 'he su%s$ri/'i"n lis' 'he %ank sen#s all
a//li$a'i"ns '" 'he $"m/any* >n re$ei/' "! a//li$a'i"ns
ea$h a//li$a'i"n is $are!ully s$ru'inise# '" as$er'ain 'ha'
'he a//li$a'i"n !"rm is /r"/erly lle# u/ an# si&ne# an#
'he m"ney is #e/"si'e# wi'h 'he %ank*
'e/4
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+" make $alls "n shares: +he remainin& am"un' le!' a!'er
a//li$a'i"n an# all"'men' m"ney #ue !r"m shareh"l#ers
may %e #eman#e# in "ne "r m"re /ar's whi$h are 'erme#
as F,irs' all an# Fe$"n# all an# s" "n* w"r# F,inal
w"r# is a##e# '" 'he las' $all* +he am"un' "! $all mus' n"'
e3$ee# G5H "! 'he n"minal alue "! 'he shares an# a'
leas' 1 m"n'h hae ela/se# sin$e 'he #a'e whi$h was
3e# !"r 'he /aymen' "! 'he las' /re$e#in& $all !"r whi$h
a' leas' 14 #ays n"'i$e s/e$i!yin& 'he 'ime an# /la$e
mus' %e &ien*
M"#es "! issue "! shares
$"m/any $an issue shares in 'w" ways:
1* ,"r $ash*
G* ,"r $"nsi#era'i"n "'her 'han $ash*
ssue "! shares !"r $ash: ;hen 'he shares are issue# %y
'he $"m/any in $"nsi#era'i"n !"r $ash su$h issue "!
shares is kn"wn as issue "! share !"r $ash* n su$h a $aseshares $an %e issue# a' /ar "r a' a /remium "r a' a
#is$"un'* u$h issue /ri$e may %e /aya%le ei'her in lum/
sum al"n& wi'h a//li$a'i"n "r in ins'almen's a' #i-eren'
s'a&es (e*&* /ar'ly "n a//li$a'i"n /ar'ly "n all"'men'
/ar'ly "n $all)*
ssue "! shares a' /ar: hares are sai# '" %e issue# a' /ar
when 'hey are issue# a' a /ri$e eual '" 'he !a$e alue*
,"r e3am/le i! a share "!
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157 su$h a $"n#i'i"n "! issue is kn"wn as issue "! shares
a' /remium* +he #i-eren$e %e'ween 'he issue /ri$e an#
'he !a$e alue Ii*e*
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an# C"ss $$"un' as s""n as /"ssi%le an# 'he unwri''en
"- /ar' "! i' is sh"wn in 'he asse' si#e "! 'he Balan$e
hee' un#er 'he hea#in& "! FMis$ellane"us 3/en#i'ure
in a se/ara'e a$$"un' $alle# FDis$"un' "n issue "! hares
$$"un'*
"n#i'i"ns !"r issue "! shares a' #is$"un': ,"r issue "!
shares a #is$"un' 'he $"m/any has '" sa'is!y 'he
!"ll"win& $"n#i'i"ns &ien in se$'i"n 9 "! 'he "m/anies
$' 1956:
(i) ' leas' "ne year mus' hae ela/se# sin$e 'he
$"m/any %e$ame en'i'le# '" $"mmen$e %usiness* 'means 'ha' a new $"m/any $ann"' issue shares a' a
#is$"un' a' 'he ery %e&innin&*
(ii) +he $"m/any has alrea#y issue# su$h 'y/es "! shares*
(iii) n "r#inary res"lu'i"n '" issue 'he shares a' a
#is$"un' has %een /asse# %y 'he $"m/any in 'he Leneral
Mee'in& "! shareh"l#ers an# san$'i"n "! 'he "m/any
Caw +ri%unal has %een "%'aine#*(i) +he res"lu'i"n mus' s/e$i!y 'he ma3imum ra'e "!
#is$"un' a' whi$h 'he shares are '" %e issue# %u' 'he ra'e
"! #is$"un' mus' n"' e3$ee# 10H "! 'he !a$e alue "! 'he
shares* ,"r m"re 'han 'his limi' san$'i"n "! 'he "m/any
Caw +ri%unal is ne$essary*
() +he issue mus' %e ma#e wi'hin 'w" m"n'hs !r"m 'he
#a'e "! re$eiin& 'he san$'i"n "! 'he "m/any Caw
+ri%unal "r wi'hin su$h e3'en#e# 'ime as 'he "m/anyCaw +ri%unal may all"w*
,"r!ei'ure "! shares:
;hen any $"m/any all"'s share '" 'he a//li$an's i' is
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#"ne "n 'he %asis "! a le&al $"n'ra$' %e'ween 'he
$"m/any an# 'he a//li$an' whi$h makes i' %in#in& u/"n
'he shareh"l#ers '" /ay 'he am"un' "! all"'men' an# $alls
wheneer 'hey are #ue* N"w i! any shareh"l#er !ails '"
/ay 'he all"'men' an# "r $all m"ney #ue '" him 'he
shareh"l#er i"la'es 'he $"n'ra$' an# 'he $"m/any is
en'i'le# '" 'ake i's share %a$k whi$h is kn"wn as
!"r!ei'ure "! shares* +he $"m/any $an !"r!ei' su$h shares
i! au'h"rise# %y 'he r'i$les "! ss"$ia'i"n* ,"r!ei'ure "!
share $an %e #"ne a$$"r#in& '" 'he rules lai# s"wn in 'he
r'i$les an# i! n" rules are &ien in r'i$les 'he /r"isi"ns
"! +a%le re&ar#in& !"r!ei'ure will a//ly* ,"r!ei'ure "!shares means $an$ella'i"n "! all"'men' '" #e!aul'in&
shareh"l#ers an# '" 'rea' 'he am"un' alrea#y re$eie# "n
su$h shares is n"' re'urna%le '" him . i' is !"r!ei'e#*
Pr"$e#ure !"r !"r!ei'e# shares:
+he usual /r"$e#ure is 'ha' 'he #e!aul'in& shareh"l#ermus' %e &ien a minimum 14 #ays n"'i$e reuirin& him '"
/ay 'he am"un' #ue "n his shares al"n& wi'h in'eres' "n
i' s'a'in& 'ha' i! he !ails '" /ay 'he am"un' an# 'he
in'eres' "n i' 'he shares will %e !"r!ei'e#* ns/i'e "! 'his
n"'i$e 'he shareh"l#er #"es n"' /ay 'he un/ai# am"un'*
+he #ire$'"rs a!'er /assin& a res"lu'i"n will !"r!ei' 'he
shares an# in!"rma'i"n will %e &ien '" 'he #e!aul'in&
shareh"l#er a%"u' 'he !"r!ei'ure his shares*
-e$' "! !"r!ei'ure "! shares:
1* +ermina'i"n "! mem%ershi/: +he mem%ershi/ "! 'he
#e!aul'in& will %e 'ermina'e# an# 'hey l"se all 'he ri&h's
an# in'eres' "n 'h"se shares i*e* $eases '" %e 'he
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mem%er A shareh"l#er A "wner "! 'he $"m/any an# his
name will %e rem"e# !r"m 'he
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+hus surren#er "! shares is a' 'he ins'an$e "!
shareh"l#er whereas !"r!ei'ure "! shares a' 'he ins'an$e
"! $"m/any*
er su%s$ri/'i"n "! issue:
;hen 'he a//li$a'i"n re$eie# !r"m 'he /u%li$ are m"re
'han 'he shares issue# %y 'he $"m/any 'his si'ua'i"n is
$alle# as "er su%s$ri/'i"n "! issue* +he B"ar# "!
Dire$'"rs $ann"' all"' shares m"re 'han 'ha' "-ere# '"
'he /u%li$ in su$h a $"n#i'i"n 'he Dire$'"rs "! 'he
$"m/any make 'he all"'men' "! shares "n 'he %asis "!
reas"na%le $ri'eria* ny all"'men' '" %e ma#e %y 'he
$"m/any in $ase "! "er su%s$ri/'i"n sh"ul# %e a$$"r#in&
'" 'he s$heme whi$h is nali2e# wi'h 'he $"nsul'a'i"n "!
e$uri'y an# 3$han&e B"ar# "! n#ia (**B**) +he
j"urnal en'ry !"r a//li$a'i"n m"ney will %e /asse# !"r all
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'he shares a//lie# !"r %u' while 'rans!errin& 'he
a//li$a'i"n m"ney '" share $a/i'al a$$"un' "nly 'he
a//li$a'i"n m"ney "n shares issue# will %e $"nsi#ere#*
n#er su%s$ri/'i"n "! issue:
hares are sai# '" %e un#ersu%s$ri%e# when 'he num%er
"! shares a//lie# !"r is less 'han 'he num%er "! shares
"-ere# %u' a' leas' minimum su%s$ri/'i"n ($$"r#in& '"
'he &ui#elines issue# %y **B** minimum su%s$ri/'i"n
means F! 'he $"m/any #"es n"' re$eie a minimumsu%s$ri/'i"n "! 90H "! 'he issue# am"un' wi'hin 60
#ays !r"m 'he #a'e "! $l"sure "! 'he issue 'he $"m/any
shall !"r'hwi'h re!un# 'he en'ire su%s$ri/'i"n am"un') is
re$eie#* ,"r e3am/le in $ase has "-ere# 5000 shares
'" /u%li$ %u' 'he /u%li$ a//lie# !"r 4500 shares "nly i' is
$alle# a $ase "! un#ersu%s$ri/'i"n* O"urnal en'ries are
/asse# "n 'he %asis "! shares a//lie# !"r*
Pria'e /la$emen' "! shares:$$"r#in& '" e$'i"n 81 (1) "! 'he "m/anies $' 1956
/ria'e /la$emen' "! shares im/lies issue an# all"'men'
"! shares '" a sele$'e# &r"u/ "! /ers"ns su$h *+** C***
e'$* in "'her w"r#s7 an issue whi$h is n"' a /u%li$ issue
%u' "-ere# '" a sele$' &r"u/ "! /ers"ns is $alle# Pria'e
Pla$emen' "! shares*
Pre!eren'ial all"'men':
/re!eren'ial all"'men' is "ne 'ha' is ma#e a' a /re
#e'ermine# /ri$e '" 'he /rei#en'ie# /e"/le wh" wish '"
'ake a s'ra'e&i$ s'ake in 'he $"m/any su$h as /r"m"'ers
en'ure $a/i'alis's nan$ial ins'i'u'i"ns %uyers "!
$"m/anies /r"#u$'s "re i's su//liers* n "'her su$h a
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$ase 'he all"''ees will n"' sell 'heir se$uri'ies in 'he "/en
marke' !"r a minimum /eri"# "! 'hree years !r"m 'he #a'e
"! all"'men'* +his /eri"# is kn"wn as 'he l"$kin/eri"#*
+he /re!eren'ial all"'men' $an 'ake /la$e "nly i! 'hree
!"ur'hs "! 'he shareh"l#ers a&ree '" 'he issue "n
/re!eren'ial %asis* **B** has /res$ri%e# 'ha' 'he
minimum /ri$e "! su$h an issue has '" %e an aera&e "!
hi&hs an# l"ws "! 'he G6 week /re$e#in& 'he #a'e "n
whi$h 'he %"ar# res"les '" make 'he /re!eren'ial
all"'men'*
m/l"yee s'"$k "/'i"n /lan:
n "r#er '" re'ain hi&h $ali%er em/l"yees "r '" &ie 'hema sense "! %el"n&in& $"m/anies may "-er 'heir eui'y
shares '" %e /ur$hase# a' 'heir will* u$h s$heme is
$alle# m/l"yee s'"$k "/'i"n /lan (>P)* ,"ll"win& are
'he $hara$'eris'i$s "! 'his s$heme:
1) >P im/lies 'he ri&h' %u' n"' an "%li&a'i"n*
G) +he em/l"yee has a ri&h' '" e3er$ise 'he "/'i"n "!
/ur$hase "! shares wi'hin 'he es'in& /eri"# i*e* 'he
'ime /eri"# #urin& whi$h 'he s$heme remains in"/era'i"n*
) ny share issue# un#er 'he s$heme "! >P shall %e
l"$ke#in !"r a minimum /eri"# "! "ne year !r"m 'he #a'e
"! all"'men'*
Buy%a$k "! shares:
+he 'erm %uy%a$k "! share im/lies 'he a$' "! /ur$hasin&
i's "wn shares %y a $"m/any ei'her !r"m !ree reseresse$uri'ies /remium "r /r"$ee#s "! any shares "r
se$uri'ies* $$"r#in& '" e$'i"n "! 'he "m/anies $'
1956 a $"m/any $an %uy i's "wn shares ei'her !r"m 'he:
a) 3is'in& eui'y shareh"l#ers "n a /r"/"r'i"na'e %asis*
%) >/en marke'
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$) >## l"' shareh"l#ers
#) m/l"yees "! 'he $"m/any /ursuan' '" a s$heme "!
s'"$k "/'i"n "r swea' eui'y*
< P
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s'"$k %"n#s "/'i"ns an# !u'ures are %"u&h' an#
s"l#*
• se$"n#ary marke' is a marke' where ines'"rs
/ur$hase se$uri'ies "r asse's !r"m "'her ines'"rsra'her 'han !r"m issuin& $"m/anies 'hemseles* +he
na'i"nal e3$han&es su$h as 'he New ?"rk '"$k
3$han&e an# 'he ND are se$"n#ary marke's*
• e$"n#ary marke's e3is' !"r "'her se$uri'ies as well
su$h as when !un#s ines'men' %anks "r
en'i'ies /ur$hase m"r'&a&es !r"m issuin& len#ers* n
any se$"n#ary marke' 'ra#e 'he $ash /r"$ee#s &" '"an ines'"r ra'her 'han '" 'he un#erlyin&
$"m/anyAen'i'y #ire$'ly*
Di-eren$e %e'ween Primary an# e$"n#ary Marke'
+he #i-eren$e %e'ween 'he /rimary $a/i'al marke' an#'he se$"n#ary $a/i'al marke' is 'ha' in 'he /rimarymarke' ines'"rs %uy se$uri'ies #ire$'ly !r"m 'he$"m/any issuin& 'hem while in 'he se$"n#ary marke'ines'"rs 'ra#e se$uri'ies am"n& 'hemseles an# 'he$"m/any wi'h 'he se$uri'y %ein& 'ra#e# #"es n"'/ar'i$i/a'e in 'he 'ransa$'i"n*
;hen a $"m/any /u%li$ly sells new s'"$ks an# %"n#s !"r'he rs' 'ime i' #"es s" "n 'he /rimary $a/i'al marke'* nmany $ases 'his 'akes 'he !"rm "! an ini'ial /u%li$"-erin& "r P>* ;hen ines'"rs /ur$hase se$uri'ies "n'he /rimary $a/i'al marke' 'he $"m/any "-erin& 'hese$uri'ies has alrea#y hire# an un#erwri'in& rm '"
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reiew 'he "-erin& an# $rea'e# a /r"s/e$'us "u'linin& 'he/ri$e an# "'her #e'ails "! 'he se$uri'ies '" %e issue#*
"m/anies issuin& se$uri'ies ia 'he /rimary $a/i'al
marke' hire ines'men' %ankers '" "%'ain $"mmi'men's!r"m lar&e ins'i'u'i"nal ines'"rs '" /ur$hase 'hese$uri'ies when rs' "-ere#* mall ines'"rs are n"' "!'ena%le '" /ur$hase se$uri'ies a' 'his /"in' %e$ause 'he$"m/any an# i's ines'men' %ankers seek '" sell all "!'he aaila%le se$uri'ies in a sh"r' /eri"# "! 'ime '" mee''he reuire# "lume an# mus' !"$us "n marke'in& 'hesale '" lar&e ines'"rs wh" $an %uy m"re se$uri'ies a'
"n$e* Marke'in& 'he sale '" ines'"rs $an "!'en in$lu#e a@r"a# sh"w@ "r @#"& an# /"ny sh"w@ in whi$h ines'men'%ankers an# 'he $"m/anyQs lea#ershi/ 'rael '" mee'wi'h /"'en'ial ines'"rs an# $"nin$e 'hem "! 'he alue"! 'he se$uri'y %ein& issue#*
+he se$"n#ary marke' is where se$uri'ies are 'ra#e# a!'er'he $"m/any has s"l# all 'he s'"$ks an# %"n#s "-ere# "n'he /rimary marke'* Marke's su$h as 'he New ?"rk '"$k
3$han&e (N?) C"n#"n '"$k 3$han&e "r Nas#a arese$"n#ary marke's* >n 'he se$"n#ary marke' smallines'"rs hae a %e''er $han$e "! %uyin& "r sellin&se$uri'ies %e$ause 'hey are n" l"n&er e3$lu#e# !r"m P>s#ue '" 'he small am"un' "! m"ney 'hey re/resen'*ny"ne $an /ur$hase se$uri'ies "n 'he se$"n#ary marke'as l"n& as 'hey are willin& '" /ay 'he /ri$e !"r whi$h 'hese$uri'y is %ein& 'ra#e#*
>n 'he se$"n#ary marke' an ines'"r reuires a %r"ker '"/ur$hase 'he se$uri'ies "n his "r her %ehal!* +he /ri$e "!'he se$uri'y =u$'ua'es wi'h 'he marke' an# 'he $"s' '"'he ines'"r in$lu#es 'he $"mmissi"n /ai# '" 'he %r"ker*
+he "lume "! se$uri'ies s"l# als" aries !r"m #ay '" #ay
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as #eman# !"r 'he se$uri'y =u$'ua'es* +he /ri$e /ai# %y'he ines'"r is n" l"n&er #ire$'ly rela'e# '" 'he ini'ial /ri$e"! 'he se$uri'y as #e'ermine# %y 'he rs' issuan$e an#'he $"m/any 'ha' issue# 'he se$uri'y is n"' a /ar'y '" any
sale %e'ween 'w" ines'"rs* E"weer 'he $"m/any $anen&a&e in a s'"$k %uy%a$k "n 'he se$"n#ary marke'*
B%&'#* +,-# Qe$"n#ary Marke'Q
newly issue# P> will %e $"nsi#ere# a /rimary
marke' 'ra#e when 'he shares are rs' /ur$hase# %y
ines'"rs #ire$'ly !r"m 'he un#erwri'in& ines'men' %ank7
a!'er 'ha' any shares 'ra#e# will %e "n 'he se$"n#ary
marke' %e'ween ines'"rs 'hemseles* n 'he
/rimary marke' /ri$es are "!'en se' %e!"rehan# whereas
in 'he se$"n#ary marke' "nly %asi$ !"r$es like su//ly an#
#eman# #e'ermine 'he /ri$e "! 'he se$uri'y*
&.uity shares/ !onds/ reerence shares/ treasury
!ills/ de!entures/ etc0 are some o the key
roducts availa!le in a secondary market0 S&B is
the regulator o the same0
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Stock &xchange
s'"$k e3$han&e #"es n"' "wn shares* ns'ea# i' a$'s asa marke' where s'"$k %uyers $"nne$' wi'h s'"$k sellers*'"$ks $an %e 'ra#e# "n "ne "r m"re "! seeral /"ssi%lee3$han&es su$h as 'he NR*
+he /rimary !un$'i"n "! an e3$han&e is '" hel/ /r"i#eliui#i'y7 in "'her w"r#s '" &ie sellers a /la$e '"@liui#a'e@ 'heir share h"l#in&s*
'"$ks rs' %e$"me aaila%le "n an e3$han&e a!'er a$"m/any $"n#u$'s i's ini'ial /u%li$ "-erin& (P>)* n an
P> a $"m/any sells shares '" an ini'ial se' "! /u%li$shareh"l#ers ('he /rimary marke')* !'er 'he P> @="a's@shares in'" 'he han#s "! /u%li$ shareh"l#ers 'heseshares $an %e s"l# an# /ur$hase# "n an e3$han&e('he se$"n#ary marke')*
+he e3$han&e 'ra$ks 'he ="w "! "r#ers !"r ea$h s'"$kan# 'his ="w "! su//ly an# #eman# se's 'he s'"$k /ri$e*
Stock 1rading
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M"s' s'"$ks are 'ra#e# "n e3$han&es whi$h are /la$es
where %uyers an# sellers mee' an# #e$i#e "n a /ri$e*"me e3$han&es are /hysi$al l"$a'i"ns where
'ransa$'i"ns are $arrie# "u' "n a 'ra#in& =""r*
+he "'her 'y/e "! e3$han&e is ir'ual $"m/"se# "! ane'w"rk "! $"m/u'ers where 'ra#es are ma#e
ele$'r"ni$ally*
Screen Based 1rading System (SB1S)
N in'r"#u$e# !"r 'he rs' 'ime in n#ia !ully au'"ma'e#s$reen %ase# 'ra#in&* ' uses a m"#ern !ully$"m/u'erise# 'ra#in& sys'em #esi&ne# '" "-er ines'"rsa$r"ss 'he len&'h an# %rea#'h "! 'he $"un'ry a sa!e an#
easy way '" ines'*Ns au'"ma'e# s$reen %ase# 'ra#in& m"#ern !ully$"m/u'erise# 'ra#in& sys'em #esi&ne# '" "-er ines'"rsa$r"ss 'he len&'h an# %rea#'h "! 'he $"un'ry a sa!e an#easy way '" ines'* +he N 'ra#in& sys'em $alle#QNa'i"nal 3$han&e !"r u'"ma'e# +ra#in&Q (N+) is a!ully au'"ma'e# s$reen %ase# 'ra#in& sys'em whi$ha#"/'s 'he /rin$i/le "! an "r#er #rien marke'
S1,C M'%&1 #+C&S
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'"$k marke' in#i$es are use!ul in un#ers'an#in& 'he leel"! /ri$es an# 'he 'ren# "! /ri$e m"emen's "! 'he marke'*
A stock market index is created by selecting a group ofstocks that are capable of representing the whole market or a specied sector or segment of the market.
!he change in the prices of this basket of securities ismeasured with reference to a base period.
+here is usually a /r"isi"n !"r &iin& /r"/er wei&h's '"
#i-eren' s'"$ks "n 'he %asis "! 'heir im/"r'an$e in 'hee$"n"my*
s'"$k marke' in#e3 a$' as 'he in#i$a'"r "! 'he/er!"rman$e "! 'he e$"n"my "r a se$'"r "! 'he e$"n"my*
+heir use!ulness:
• n#i$es hel/ '" re$"&ni2e %r"a# 'ren#s in 'he marke'*
• +he ines'"r $an use 'he in#i$es '" all"$a'e 'he !un#s
ra'i"nally am"n& 'he s'"$ks*
•
+e$hni$al analys's use 'hese in#i$es '" /re#i$' 'he!u'ure marke'*
• n#i$es !un$'i"n as a s'a'us re/"r' "n 'he &eneral
e$"n"my*
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ndex Calculation
"#$!%#$A FO# &%'%"!$ &!O"*& !O "A'"+'A!%$%- :
• Cis'in& his'"ry: +he $"m/any sh"ul# hae lis'in&
his'"ry "n B !"r a' leas' "ne year
• +ra$k re$"r#: +he $"m/any sh"ul# hae lis'in&
his'"ry• Marke' $a/i'ali2a'i"n: "m/any sh"ul# hae "ne
am"n& 100 marke' $a/i'ali2a'i"ns "! B
• n# ea$h $"m/any sh"ul# hae m"re 'han0*5H "!
'"'al marke' $a/i'ali2a'i"n "! B NDR
• ,reuen$y "! 'ra#in&: "m/any s'"$ks
• sh"ul# %e 'ra#e# "n ea$h an# eery 'ra#in& #ay !"r
'he las' "ne year
• n#us'rial re/resen'a'i"n: "m/any h"ul# %e alea#er in 'he in#us'ry i' re/resen's
Formula for Sensex
SS& S (sum "! !ree ="a' marke' $a/ "! 0maj"r $"m/anies "! B) 3 n#e3 alue in 1989 4 Marke' $a/ alue in 1989*
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Formula for NIFTY
#F15 6 (Sum o ree 7ow market ca o 89ma:or stocks o #S&) 3 ndex value in;
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How SEBI Regulate Secondary Market
1 ,egistration of Sto!/ ro/ers
2 ,egistration of Sub5bro/ers
4 ,e!ognition of Sto!/ E'!hanges
6 &orporate ,estru!turing> Substantial A!$uisition of Shares and Ta/eovers
< ,egistration of oreign Institutional Investors
? "rohibiting fraudulent and unfair trade pra!ti!es relating to se!urities
mar/ets#
: The duty of the oard to prote!t the interests of investors in se!urities and
to regulate the se!urities mar/et#
The following departments of SEBI take care of the activities in thesecondary market#
Sr#*o# *ame of the .epartment (a=or A!tivities
1# (ar/et Intermediaries,egistration andSupervision department(I,S.
,egistration) supervision) !omplian!e monitoring andinspe!tions of all mar/et intermediaries in respe!t of allsegments of the mar/ets vi@# e$uity) e$uity derivatives)debt and debt related derivatives#
2# (ar/et ,egulation
.epartment (,.
ormulating new poli!ies and supervising the fun!tioning
and operations e'!ept relating to derivatives of se!uritiese'!hanges) their subsidiaries) and mar/et institutions su!has &learing and settlement organi@ations and.epositories &olle!tively referred to as (ar/et S,-sB#
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4# .erivatives and *ew"rodu!ts .epartments.*".
Supervising trading at derivatives segments of sto!/e'!hanges) introdu!ing new produ!ts to be traded) and!onse$uent poli!y !hanges
%ole , S&B n ",
+he rules re&ula'i"ns an# /r"$e#ures rela'in& '" /u%li$ issues in
n#ia are &"erne# %y B* ny $"m/any &"in& /u%li$ in n#ia
sh"ul# &e' a//r"al !r"m B %e!"re "/enin& i's P>*
C ssuer $"m/anys lea# mana&ers su%mi' 'he /u%li$ issue
/r"s/e$'us '" B /r"i#e $lari$a'i"n make $han&es '"
'he /r"s/e$'us su&&es'e# %y B an# &e' i' a//r"e*
B ali#a'e 'he P> an# make sure 'ha' #"$umen' has en"u&h
in!"rma'i"n '" hel/ ines'"rs '" 'ake #e$isi"n %e!"re a//lyin&
shares
Ma:or 'chievements
B has enj"ye# su$$ess as a re&ula'"r %y /ushin& sys'ema'i$
re!"rms a&&ressiely an# su$$essiely* B is $re#i'e# !"r ui$k
m"emen' '"war#s makin& 'he marke's ele$'r"ni$ an# /a/erless
%y in'r"#u$in& +T5 r"llin& $y$le !r"m Ouly G001 an# +T in /rilG00G an# !ur'her '" +TG in /ril G00*
+he r"llin& $y$le "! +TG means e''lemen' is #"ne in G #ays
a!'er +ra#e #a'e* B has %een a$'ie in se''in& u/ 'he
re&ula'i"ns as reuire# un#er law*
B #i# away wi'h /hysi$al $er'i$a'es 'ha' were /r"ne '" /"s'al
#elays 'he!' an# !"r&ery a/ar' !r"m makin& 'he se''lemen'
/r"$ess sl"w an# $um%ers"me %y /assin& De/"si'"ries $' 1996*
B has als" %een ins'rumen'al in 'akin& ui$k an# e-e$'ie
s'e/s in li&h' "! 'he &l"%al mel'#"wn an# 'he a'yam as$"*
n >$'"%er G011 i' in$rease# 'he e3'en' an# uan'i'y "!
#is$l"sures '" %e ma#e %y n#ian $"r/"ra'e /r"m"'ers* n li&h' "!
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'he &l"%al mel'#"wn i' li%eralise# 'he 'ake"er $"#e '" !a$ili'a'e
ines'men's %y rem"in& re&ula'"ry s'ru$'ures*
"recautions o investing in the Stock Markets• Make sure y"ur %r"ker is re&is'ere# wi'h B an# 'he
3$han&es
• nsure 'ha' y"u re$eie $"n'ra$' n"'es !"r all y"ur
'ransa$'i"ns
• nes' in a manner 'ha' ma'$hes 'heir risk '"leran$e
•
D" n"' %e misle# %y marke' rum"rs lurin& a#er'isemen' "rFh"' 'i/s
• +ake in!"rme# #e$isi"ns %y s'u#yin& 'he !un#amen'als "! 'he
$"m/any
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