- SHASHANK JOGANI S.Y.BFM ROLL NO.

28

INDEX

Sr. No.
1. 2. 3. 4. 5. 6. 7. 8. 9.

TOPIC
ACKNOWLEDGEMENT INTRODUCTION FUNCTIONS & RELATED USAGE DIFFERENCE BETWEEN PRIMARY AND SECONDARY PRODUCTS AVAILABLE LISTING, DEMAT & TRAINING INTERMEDIARIES SEBIS ROLE BIBLIOGRAPHY

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2 3 4 5 6 8 10 13 14

ACKNOWLEDGEMENT
I have taken efforts in this project. However, it would not have been possible without the kind support and help of many individuals and others. I would like to extend my sincere thanks to all of them. I am highly indebted to H.R College and the teaching faculty for their guidance and constant supervision as well as for providing necessary information regarding the project and also for their support in completing the project. I would like to express our gratitude towards my parents, fellow friends and the teacher Mr. Vishal Shah for their kind co-operation and encouragement which helped me in completion of this project. My thanks and appreciations also goes to all those who have in some ways helped me in developing the project and people who have willingly helped me out with their abilities.

INTRODUCTION
A market, which deals in securities that have been already issued by companies, is called as secondary market. It is also known as stock market. It is the base upon which the primary market is depending. The secondary market, also called aftermarket, is the financial market in which previously issued financial instruments such as stock, bonds, options, and future share bought and sold. The term "secondary market" is also used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for food production and feedstock, but a "second" or "third" market has developed for use in ethanol production). For the efficient growth of the primary market a sound secondary market is an essential requirement. The secondary market offers an important facility of transfer of securities activities of securities. Secondary market essentially comprises of stock exchanges, which provide platform for purchase and sale of securities by investors. In India, apart from the Regional Stock Exchanges established in different centres, there are exchanges like the National Stock Exchange (NSE), who provide nationwide trading facilities with terminals all over the country. The trading platform of stock exchanges is accessible only through brokers and trading of securities is confined only to stock exchanges. The activities of buying and selling of securities in a market are carried out through the mechanism of stock exchange. There are at present 24 Stock Exchanges in India, recognized by the government. The first organized stock exchange was established in India at Bombay in 1887. When the Securities Contracts (Regulation) Act was passed in1956, only 7 stock exchanges were recognized. There are three important stock exchanges in Bombay namely the Bombay Stock Exchange, National Stock Exchange and over the Counter Exchange of India. There has been a substantial growth of capital market in India during the last 25 years. With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market.

FUNCTIONS
Functions of the secondary market are: 1. To facilitate liquidity and marketability of the outstanding equity and debt instruments. 2. To contribute to economic growth through allocation of funds to the most efficient channel through the process of disinvestments to reinvestment. 3. To provide instant valuation of securities caused by changes in the internalenvironment (that is, company-wide and industry wide factors). Such valuation facilitates the measurement of the cost of capital and the rate of return of the economic entities at the micro level. 4. To ensure a measure of safety and fair dealing to protect investors interest. To induce companies to improve performance since the market price at the stock exchanges reflects the performance and this market price is readily available to investors.

RELATED USAGE
The term may refer to markets in things of value other than securities. For example, the ability to buy and sell intellectual property such as patents, or rights to musical compositions, is considered a secondary market because it allows the owner to freely resell property entitlements issued by the government. Similarly, secondary markets can be said to exist in some real estate contexts as well (e.g. ownership shares of time-share vacation homes are bought and sold outside of the official exchange set up by the time-share issuers). These have very similar functions as secondary stock and bond markets in allowing for speculation, providing liquidity, and financing through securitization.1) to facilitate liquidity marketability of long term instrument. 2) to provide instant valuation of securities caused by changes in the environment.

REASONS FOR TRANSITING IN SECONDARYMARKET:

There are two main reasons why individuals transact in the secondary market: (1) INFORMATION MOTIVATED REASONS: Information motivated investors believe that they have superior information about a particular security than other market participants. This information leads them to believe that the security is not being correctly priced by the market. If the information is good, this suggests that the security is currently under-priced, and investors with access to such information will want to buy the security. On the other hand, if the information is bad, the security will be currently overpriced and such investors will want to sell their holdings of the security. (2) LIQUIDITY MOTIVATED REASONS: Liquidity motivated investors, on the other hand, transact in the secondary m a r k e t because they are currently in a position of either excess or insufficient liquidity. Investors with surplus cash holdings (e.g., as a result of an inheritance) will buy securities, whereas investors with insufficient cash (e.g., to purchase a Car) will sell securities.

DISTINCTION BETWEEN PRIMARY MARKET AND SECONDARY MARKET

The main points of distinction between the primary market and secondary market are as follows: 1. Function: While the main function of primary market is to raise long-term funds through fresh issue of securities, the main function of secondary market is to provide continuous and ready market for the existing long-term securities. 2. Participants: While the major players in the primary market are financial institutions, mutual funds, underwriters and individual investors, the major players in secondary market are all of these and the stockbrokers who are members of the stock exchange. 3. Listing Requirement: While only those securities can be dealt within the secondary market, which have been approved for the purpose (listed), there is no such requirement in case of primary market. 4. Determination of prices: In case of primary market, the prices are determined by the management with due compliance with SEBI requirement for new issue of securities. But in case of secondary market, the price of the securities is determined by forces of demand and supply of the market and keeps on fluctuating.

PRODUCTS AVAILABLE IN THE SECONDARY MARKET

Following are the main financial products/instruments dealt in the secondary market: Equity: The ownership interest in a company of holders of its common and preferred stock. The various kinds of equity shares are as follows:Equity Shares: An equity share, commonly referred to as ordinary share also represents the form of fractional ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holders of such shares are members of the company and have voting rights.

Rights Issue / Rights Shares: The issue of new securities to existing shareholders at a ratio to those already held. Bonus Shares: Shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years. Preferred Stock / Preference shares: Owners of these kinds of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the companys creditors, bondh olders / debenture holders. Cumulative Preference Shares: A type of preference shares on which dividend accumulates if remains unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares. Cumulative Convertible Preference Shares: A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company. Participating Preference Share: The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid. Participation right is linked with the quantum of dividend paid on the equity shares over and above a particular specified level. Security Receipts: Security receipt means a receipt or other security, issued by a securitisation company or reconstruction company to any qualified institutional buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, title or interest in the financial asset involved in securitisation.

Government securities (G-Secs): These are sovereign (credit risk-free) coupon bearing instruments which are issued by the Reserve Bank of India on behalf of Government of India, in lieu of the Central Government's market borrowing programme. These securities have a fixed coupon that is paid on specific dates on half-yearly basis. These securities are available in wide range of maturity dates, from short dated (less than one year) to long dated (up to twenty years). Debentures: Bonds issued by a company bearing a fixed rate of interest usually payable half yearly on specific dates and principal amount repayable on particular date on redemption of the debentures. Debentures are normally secured / charged against the asset of the company in favour of debenture holder. Bond: A negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan. The various types of Bonds are as followsZero Coupon Bond: Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond. Convertible Bond: A bond giving the investor the option to convert the bond into equity at a fixed conversion price.

Commercial Paper: A short term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary. It is usually issued by companies with a high credit standing in the form of a promissory note redeemable at par to the holder on maturity and therefore, doesnt require any guarantee. Commercial paper is a money market instrument issued normally for tenure of 90 days. Treasury Bills: Short-term (up to 91 days) bearer discount security issued by the Government as a means of financing its cash requirements.

LISTING:
Listing is a process involved in listing something with someone. It is a permission to quote shares and debentures officially on the trading floor of the stock exchange. The listed shares appear on the official list of securities for the purpose of trading security listing is a step that is required to register and to place on record the security of accompany with the appropriate authority i.e. the recognized stock exchange. Securities are required to be listed under Section 9 of the Securities Contract (Regulation) Act, 1956.Thus; listing simply means the inclusion of any security for the purpose of trading in recognized stock exchange. Only public companies are allowed to list their securities in the stock exchange. Private Limited companies cannot get listing facility. They shall first convert themselves into public limited companies and their Articles of Association shall contain prohibitions as laid down in the listing agreement and as applicable to public limited companies.The issuer wishing to have trading privileges for its securities satisfies listingrequirements prescribed in the relevant statutes and in the listing regulations of theExchange. It also agrees to pay the listing fees and comply with listing requirements on continuous basis. All the issuers who list their securities have to satisfy the corporate governance requirement framed by regulators. The prices at which the securities are traded in the stock exchange are published in the newspapers. Investors are able to know these price trends from such publications. Compared to listed securities the trading of unlisted securities is difficult. The price trends in respect of unlisted securities are seldom known to the investors and the contract between the seller and buyer takes places mostly on one to one basis.

DE-MAT:
De-mat is dematerialization on shares. Dematerialization is a process by which the shares, debentures etc. in the physical form get converted into the electronic form and are stored in the computers by the depository. Earlier there used to be the hectic procedure of physical delivery of shares. Dematerialization is a unique process of trading the shares in the electronic form rather than the vulnerability of the physical delivery of the shares.The introduction of NEAT and BOLT has increased the reach of capital marketmanifolds. The increase in number of investors participating in the capital market has increased the probability of being hit by a bad delivery. The cost and time spent by the brokers for rectification of these bad deliveries tends to be higher. In this technologicalworld things are needed to move at a faster pace, and with the introduction of dematerial ization process the stock exchange has expanded its business at a tremendous speed.

TRADING:
The act of buying and selling of securities on a stock exchange is known as Stock Exchange Trading. Jobbers and brokers are the two categories of dealers in the stock exchange. A jobber is a dealer in securities while a broker is an agent or seller of securities. Every year a member has to decide and declare in advance whether he proposes to act as a jobber or a broker. A jobber gives two quotations as dealer insecurities, lower quotation for buying and higher one for selling. The difference between the two quotations is his remuneration. This system enables specialization in the dealings and

each jobber specializes in a certain group of securities. It also ensures smooth and prompt execution of transactions. The double quotation of a jobber assures fair-trading in the market. A broker is merely an agent to buy or sell on behalf of his clients. He is generalist. Broker has to negotiate terms and conditions of sale or purchase and safeguard his client's interest. He gets commission from his clients that is fixed by the stock exchange.

ONLINE TRADING:
Online trading in shares and securities has already been started in India. It has been made possible due to introduction of demat. ICICI Web Trade, HDFC Securities, Stock Holding Corporation of India and many other institutions have started the online trading system. The investors can carry out buying and selling of securities while sitting in the house or office. Internet connection is required for this purpose. The investors have to open an account with these institutions that provide online trading. There are three accounts opened into one place, De-mat Account, Bank Account and Online Trading Account. A password is given to each investor which is secret. Investors can carry out buying and selling securities at BSE and NSE during normal trading hours. The settlement is done automatically with the program of the computer. Margin Trading, Options and Futures Trading are also possible in this method.

INTERMEDARIES IN SECONDARY MARKET:

1. STOCK BROKER: A Stock Broker plays a very important role in the secondary market helping both the seller and the buyer of the securities to enter in to a transaction. The buyer and seller may be either a broker or a client. A broker is an intermediary who arranges to buy and sell securities on behalf of clients (the buyer and the seller). They get commission on these transactions. About one fourth of the members of the stock exchange are specialist known as market makers. A c c o r d i n g t o R u l e 2 ( e ) of SEBI (Stock-Brokers and Sub-Brokers) R u l e s , 1 9 9 2 , s tockbroker means a member of a recognized stock exchange. No stockbroker is allowed to buy, sell or deal in securities, unless he or she holds a certificate of registration granted b y SEBI. A stockbroker shall not buy, sell, and deal in securities, unless he h o l d s c ertificate granted by SEBI. 2. SUB BROKERS: A sub-broker is a person who intermediates between investors and stockbrokers. He acts on behalf of a stockbroker as an agent or otherwise for assisting the investors for buying, selling or dealing in securities through such stockbroker. Nosubbroker is allowed to buy, sell, or deal in securities, unless he or she holds a certificate of registration granted by SEBI. A sub-broker may take the form of a sole proprietorship, a partnership firm or a company. Stockbrokers of the recognized stock exchanges are permitted to transact with sub-brokers. He is also known as Revisers. 3. CUSTODIAN: Custodian of Securities means any person who carries on or proposes to carry on the business of providing custodial services. Custodial Services in relation to securities means safekeeping of securities of a client and providing services incidental thereto, and includes: 1. Maintaining accounts of securities of a client 2. Collecting the benefits or rights accruing to the client in respect of securities 3. Keeping the client informed of the actions taken or to be taken by the i s s u e r o f securities, having a bearing on the benefits or rights accruing to the client 4. Maintaining and reconciling records of the services. 4. JOBBER: A jobber is a specialist and independent dealer in securities. A jobber has to give two quotations as a dealer in securities. He gives lower quotation for buying and h i g h e r quotation for selling the securities. Jobber deals only with the brokers and not with the investors. His margin is fixed by competition among themselves as dealers. The margin is narrow when there is keen competition. Every year, a member of the stock exchange haste decide and declare in advance whether he proposes to act as a jobber or a broker. Each jobber specializes in a

certain group of securities. He ensures that the transactions are carried out smoothly and promptly. The double quotation of jobber assures fair-trading to investors. 5. TARANIWALA: A jobber who makes an orderly and continues auction in the stock market is c a l l e d Taraniwala. He is a localized dealer who handles transactions on a commission basis for other brokers who act on behalf of their customers. He trades in the stock market even for small differences in price and helps to maintain liquidity in the stock market. 6. ODD LOT DEALER: These are specialists who handle the odd lots. The standard trading unit for listed stock is called lot. The shares are normally traded in the lots of 5, 50, 100 etc. However, the minimum lot has become 1 due to dematerialization. But all the listed stocks are not compulsorily in the de-mat form. Odd lot dealers buy odd lots, which other members wish to sell for their customers and sell odd lots which others, want to buy. The price of odd lots is determined by the round lot transactions. The odd lot dealer earns his profit on the difference between the purchase and sales price. 7. ARBITRAGEUR: An arbitrageur is a specialist in dealing with securities in different stock exchange contrast the same time. He makes the profit by difference in the prices prevailing in different enters of market activity. He carries out these transactions with a good communication system and telephonic and tile-printer facility. He should have ability to get the prices from different centres before other members trading in the stock market. 8. SECURITY DEALER: The members who purchase and sale government securities on the stock exchange are known as Security Dealers. Each transaction has to be separately negotiated. The dealers should have information about the several kinds of government securities. They take risk in ready purchase and sale of securities for current requirements. Their role is restricted by the participation of LIC and Commercial Banks. 9. DEPOSITORIES: A depository is an entity where the securities of an investor are held in electronic form. The person who holds a de-mat account is a beneficiary owner. In case of a joint account, the account holders will be beneficiary holders of that joint account. Depositors help in the settlement of the dematerialized securities. Each custodian/clearing member is required to maintain a clearing pool account with the depositories. He is required to make available the required securities in the designated account on settlement day. 10.PORTFOLIO MANAGERS: A Portfolio Manager is a professional with experience and expertise in the field. He studies the market and adjusts the investment mix for his client on a continuing basis t o e n s u r e s a f e t y

o f i n v e s t m e n t a n d r e a s o n a b l e r e t u r n s t h e r e f r o m . A n y p e r s o n w h o pursuant to a contract or arrangement with a client, advises or directs or undertakes on b e h a l f o f t h e c l i e n t w h e t h e r a s a d i s c r e t i o n a r y p o r t f o l i o m a n a g e r o r o t h e r w i s e t h e management or administration of a portfolio of securities or the funds of the client, as the case may be is a portfolio manager. 11. STOCK EXCHANGES: A stock exchange or securities exchange is a marketplace where stocks offered for sale are listed and exchanged. Typically, the exchange is made up of a Board of Governors generally selected by the members, which is chosen to represent the interests of seat holders. The Exchange usually assigns a number of seats to brokers.

SEBI AND ITS ROLE IN THE SECONDARY MARKET

The following departments of SEBI take care of the activities in the secondary market. Sr.No. 1. Name of the Department Major Activities Market Intermediaries Registration, supervision, compliance monitoring Registration and Supervision and inspections of all market intermediaries in department (MIRSD) respect of all segments of the markets viz. equity, equity derivatives, debt and debt related derivatives. Market Regulation Formulating new policies and supervising the Department (MRD) functioning and operations (except relating to derivatives) of securities exchanges, their subsidiaries, and market institutions such as Clearing and settlement organizations and Depositories (Collectively referred to as Market SROs.) Derivatives Products (DNPD) and New Supervising trading at derivatives segments of Departments stock exchanges, introducing new products to be traded, and consequent policy changes

2.

3.

BIBLIOGRAPHY
http://www.scribd.com/doc/50042388/11/FUNCTIONS-OF-THE-SECONDARY-MARKET http://www.investopedia.com/terms/s/secondarymarket.asp#ixzz1x226vMec http://en.wikipedia.org/wiki/Secondary_market http://www.managementparadise.com/forums/environment-management-financial-services/205722secondary-market-india.html http://www.nios.ac.in/srsec319new/319el18.pdf http://www.sharetipsinfo.com/nsebse-articles1.html http://www.sharegyan.com/learn-stock-market/secondary-market/difference-in-demutualised-mutualexchange.php http://www.businessdictionary.com/definition/secondary-market.html