Beruflich Dokumente
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COM, I YEAR
FINANCIAL SERVICES,
MARKETS AND
INSTITUTIONS
A brief and handy note
1
INDIAN FINANCIAL SYSTEM
1.
2.
3.
4.
5.
2
(IIBI). It provides finance for expansion, diversification and modernization of
industries.
The Small industries Development Bank of India which is the wholly owned
subsidiary of IDBI commenced its operations on April 2, 1990. The SIDBI administers
the Small Industries Development Fund and the National Equity fund.
OBJECTIVES OR FUNCTIONS OF FINANCIAL SERVICES
1.
2.
3.
4.
5.
Fund raising.
Fund deployment.
Specialized services.
Regulation (SEBI, RBI, IRDA)
Economic growth.
Specialized Services:
1.
2.
3.
4.
5.
6.
7.
8.
Credit rating.
Venture Capital.
Lease financing.
Mutual funds.
Merchant Banking.
Credit cards.
House finance.
Banking & Insurance.
Intangibility.
Customer Orientation
Inseparability.
Perishability.
Dynamism.
Market Players.
Instruments.
Specialized Institutions.
Regulatory bodies.
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Regulatory Bodies: RBI, IRDA, Central Government, SEBI, Finance Ministry of
Central Government etc., (they focus and monitor)
FINANCIAL
INSTITUTION
SYSTEM
DEPOSITARIES ERA
LEGISLATIVE ERA
FINANCIAL MARKET
4
INDIAN CAPITAL MARKET
DEFINITION: (Common, unique)
A Market for borrowing & lending long term capital funds required by business
enterprise.
CHARACTERISTICS OF CAPITAL MARKET:
1. Securities Market: It mainly deals with shares & debentures. Another name
for shares & debentures is securities.
2. Security Price: Prices of these securities are based on the demand and
supply.
3. Participants: Who are all dealing with Indian capital market, are considered
to be its participants. (ex) Stock exchanges, Brokers, Foreign institutional
investors, Indian Institutional investors custodians, portfolio depositories,
merchant bankers, share transfer agents, underwriters, venture capital
funds, mutual funds, regulators etc.,
4. Location: It does not confine to any specific location. Wherever the business
is being taken place all those places are considered to be Indian Capital
Market.
FUNCTIONS OF CAPITAL MARKET:
1. Allocation function.
2. Liquidity function.
3. Other functions.
1. Indicative function
2. Savings & Investment function
3. Transfer function
4. Merger function
CONSTITUENTS OF INDIAN CAPITAL MARKET:
CONSTITUENTS OF INDIAN CAPITAL
INDUSTRIAL SECURITIES
MARKET
PRIMARY MARKET
(NEW ISSUE MARKET)
SECONDARY
MARKET
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1. Government and semi-government securities.
2. Guaranteed return on investment.
3. Institutional based investors have to do certain percentage as per law. Indian
Institutional investors have to buy some percentage of shares when the
government issue bonds.
4. Heavy volume of transaction.
SECONDARY MARKET:
1. Deal with securities already issued by companies.
2. Buying & selling of shares & debentures.
3. Stock exchange or share Market.
NEW ISSUE MARKET (NIM):
It is the backbone of secondary market.
FUNCTIONS OF NIM:
1. Transfer function: transfer resources from saver to entrepreneurs.
2. Investigative function: Merchant bankers & other agencies, technical
analysis, economical, financial analysis, legal aspects & environmental
factors.
3. Advisory services: Determining the type, Mix, timing, size, selling
strategies of investments, terms & conditions of issue.
4. Guarantee function: Function of underwriting.
5. Distribution function: Sale of securities to ultimate investors, Brokers and
dealers are involved, they act as mediators between investors and issuers.
DIFFERENCE BETWEEN NIM & SECONDARY MARKET:
ASPECTS
Issue of Securities
Location
Transfer of Securities
Administrative set up
AIM
Price Movement
NIM
Fresh
No proper Location
Company to a person
Not Required
Long term borrowing
Secondary market
movement
SECONDAY MARKET
Existing
A place or proper location
Person to person
Required
Liquidity trading
Various factors
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6. Financial Institutions.
7. Government & Statutory agencies or bodies.
MANAGERS TO ISSUE:
1. Appointed by Issuing Company.
2. Manages the entire activity.
3. Merchant banking division, subsidiary of commercial banks, foreign banks,
private banks and private agencies can act as a managers to issue.
DUTIES ARE:
1.
2.
3.
4.
Drafting prospectus.
Preparing expenses budget.
Determining the appropriate timing of the issue.
Advising the company on various aspects of the issue.
REGISTRAR TO ISSUE:
1. Appointed with the consultation of the manager.
2. SEBI has given guidelines.
GENERAL DUTIES ARE:
1.
2.
3.
4.
5.
6.
7.
UNDERWRITERS:
1. Contract between company & underwriters.
2. Underwriter guarantees subscription.
3. Financial institutions, Banks & approved investment company can act as
underwriters.
4. At the time of appointment the company verifies:
1. His financial strength.
2. Experience in primary market.
3. Past underwriting performance.
4. Outstanding underwriting commitment.
5. Investor clientele. (pronounced as clainclit means contacts)
6. Unsubscribed shares will be taken up by him.
7. If not company can claim damage.
BANKERS:
1. They collect application money & application forms.
2. They charge commission for their service.
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3. If the issue is big, more than one banker may be appointed.
4. They may be called coordinating banker or collecting banker.
ADVERTISING AGENCY:
At the time of appointment the company can see:
1.
2.
3.
4.
5.
FINANCIAL INSTITUTIONS:
1.
2.
3.
4.
SEBI
Registrar of companies.
RBI in case of issue involving foreign investment.
Stock Exchange.
Industrial licensing authority(Giving license to start the business)
Pollution control authority etc.,
PUBLIC ISSUE
PLACEMENT
RIGHTS ISSUE
No intermediaries.
Reaches a large section of investing public.
Wide distribution of shares.
Increases the performance of the company.
No Discrimination or partiality.
Transparency.
RIGHTS ISSUE:
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DEFINITION: According to section 81 of Indian Companies Act 1956, A Company
which issue new shares either after two years of its formation or after one year of
its first issue of shares, whichever is earlier has to offer to existing holders.
1.
2.
3.
4.
5.
6.
Existing Company.
Listed in the Stock Exchange.
Offer to Existing shareholders.
Existing shareholders have the right to sale or transfer.
Detailed circular to existing shareholders.
Sufficient time to be given.
Less Expensive.
No need of prospectus.
No advertisement required.
No underwriting required.
Equitable distribution of shares.
It prevents favourtism & Nepotism.
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Stock Exchange or Securities market comprises of all the place where buyers &
sellers of stock & bonds or their representatives undertake transactions involving
the sale of securities.
Hasting
CHARACTERISTICS OF STOCK EXCHANGE:
1. An Association of Individuals: (Group of people joining together and
doing the business)
1) Registered body as per law.
2) No business for themselves.
3) Assist, regulate & control trading.
4) Brokers & agents are authorized to deal in trading.
2. Control by the Governing Body: (Separate body is there)
1) Only members can enter in the floor.
2) Members can do trading-They can sit and watch how the trading is
being done.
3) Commission for brokers & dealers.
4) Frame by-laws (Rules & Regulation) of Exchange.
3. Abiding by Rules & Regulations:
1) Function as per Rules & Regulation.
2) Members follow rules otherwise penalized.
3) Members admission is based on Rules.
4. Listed Securities:
1) Listed securities transacted.
2) Enlisting to protect the interest of investors.
3) Procedure for listing.
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e) Small Stock Exchanges managed by the Secretary.
POWERS OF GOVERNING BOARD:
1. To make, amend rules & by-laws of Stock Exchange. (Rules can be made in
the same way it can be changed)
2. To Admit & Expel members.
3. To manage the properties & finance of the stock exchange.
4. To determine the mode & conditions of stock exchange business. (How the
stock exchange business has to be conducted)
5. To supervise, direct & control all activities that affect the stock exchange.
MEMBERS OF STOCK EXCHANGE:
Members here refer to Stock Broker.
A person who obtains license from a stock exchange to do trading business in that
Exchange is called member of that stock exchange.
He applies & gets the license. Individuals & Organization can become brokers if they
want.
QUALIFICATION OF MEMBERS:
According to Securities Contract & Regulation Act 1956:
1.
2.
3.
4.
5.
6.
7.
8.
9.
CONTROL OVER STOCK EXCHANGE: (How the Stock Exchanges are being
controlled by Indian Government?)
Stock Exchanges in India are controlled by Central government through the
following processes:
1. Granting recognition to Stock Exchanges. (It has the power to start a Stock
Exchange)
2. Listing of Securities
3. Registration of Brokers.
GRANTING RECOGNITION TO STOCK EXCHANGES:
1. In India it is recognized by Central Government.
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2. Recognition under Securities Contract and Regulation Act 1956. (Based on
the provision of this Act they are giving license)
3. Stock Exchange submits application to Central Government.
4. A Copy of bye-laws.
5. A Copy of Constitution, Governing body etc.,
6. Government will scrutinize the application & check for two conditions:
1) The bye-law should protect the interest of
investors.
2) Their intention to follow the conditions of
Central Government.
7. Granting Recognition.
RENEWAL OF RECOGNITION:
Recognition means, getting license. It will be given only for a specific period. Apply
before 3 months prior to expiry of recognition.
WITHDRAWAL OF RECOGNITION:
If they act against the interest of trade, Central Government is empowered to
withdraw the Recognition.
LISTING
MEANING:
(Admission of the shares of a public limited company on a recognized stock
exchange for trading)
OBJECTIVE OF LISTING:
1. To provide Marketability, Liquidity & transferability for the Securities.
2. To ensure fair (decent) dealing in securities.
3. To safeguard the interest of the investors and General investing public.
(Interest-give protection to investors money)
ADVANTAGES OF LISTING:
1. To the Company.
2. To Shareholders or investors.
ADVANTAGES TO THE COMPANY:
1. Broadens & diversify shareholding.
2. Compiles with Statutory provisions. (Section 73 & 81 of Companies Act)
3. Ensures a saving in the cost of rising new capital.
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ADVANTAGES TO THE SHAREHOLDERS OR INVESTORS:
1.
2.
3.
4.
Ensures liquidity.
Ensures Re-finance facility. (loan against de-mat a/c)
Protect Investors interest. (investors will not get affected)
Income tax concession.
DISADVANTAGES OF LISTING:
1.
2.
3.
4.
5.
Hard rules & Regulation by SEBI. (It will be difficult for them to understand)
Speculators misuse price fluctuations to make money.
Managerial personal misuse available information.
Vital information published may be advantage for competing companies.
High Cost.
LISTING PROCEDURE:
1. Attaching listing application & documents: When the company submit
the application to the stock exchange it has to attach some documents with
the application. The documents to be attached with the application are :
a) Copies of MOA & AOA.
b) Copy of statement in lieu of prospectus. (in lieu of- instead
of)
c) Specimen copy of Share certificate, Debenture certificate,
letters of Allotment, Letter of Acceptance, Transfer receipts,
Renewal Receipts, Letter of Renunciation etc.,
d) Capital Structure details.
e) Statement showing the distribution of shares.
f) Dividends & Bonus details in the last 10 years.
g) Details of shares & Debentures.
h) Brief history of the company.
2. Scrutiny of Listing Application: After receiving the application they have
to check for the following things.
Check Articles for the following provisions:
a) Whether they have used Common transfer form.
b) Fully paid shares should be completely free from lien. (There
should not be any pledging loan against the assets or shares
of the company)
c) If at all, any calls in advance paid, it will carry only interest
not any other benefits.
d) Unclaimed dividends should not be forfeited before the time
limit.
e) Whether 60% of each class of securities was offered to the
public and minimum issued capital should be 3 crores.
f) Whether the company is of fair size, has a broad base capital
structure.
3. Listing agreement:
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It is an agreement between the Stock exchange and the Company.
It contains or covers,
1)
2)
3)
4)
5)
6)
Letter of Allotment
Share transfer form
Book closure format for payment of dividend
Issue procedure for rights shares
Issue procedure for convertible debentures
Holding of Directors meeting, directors Report, annual
report, resolution etc.,
Once listing agreement is done, one copy of this agreement will be sent to SEBI and
also to Government of India.
OTCEI: (Over the Counter Exchange of India)
In November 1992, it was started in India. It was incorporated under section 25 of
Indian Companies Act 1956. It is being supervised by SEBI and Government of India.
It is being promoted by a group of Institutions, ICICI, IDBI, SBI, IFCI, LIC, GIC, CAN
Bank.
FEATURES OF OTCEI:
1. Use of Modern Technology.
2. Restriction for other stocks. (Small companies are only allowed not for all the
companies, purely meant for small companies)
3. Minimum issued Capital 30 lakhs to 20 crores.
4. Minimum subscription would be 40% or 20 lakhs whichever is higher.
5. Base Capital requirement for member minimum of 4 lakhs.
6. All India Network.
7. Satellite facilities are being used.
8. Deals with Equity shares, preference shares, bonds, debentures etc.,
9. Computerization of transactions.
ADVANTAGES OF OTCEI:
1.
2.
3.
4.
5.
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1.
2.
3.
4.
5.
6.
7.
8.
PROMOTORS:
1. Stock funds.
2. Bond funds.
3. Balanced funds.
4. Index fund.
5. Money market fund.
6. Dual fund.
7. Specialized fund.
8. Taxation fund.
9. Real estate funds.
10.Junk-Bond fund.
DISADVANTAGES OF MUTUAL FUND:
1.
2.
3.
4.
5.
6.
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*To provide non-financial services like arrange for funds rather than providing it.
*In 1969-By Grind lays Bank-UK, In India 1973-SBI (State Bank of India)
FUNCTIONS OF MERCHANT BANKERS:
1. Corporate counseling.
2. Project counseling.
3. Capital Structure.
4. Portfolio management.
5. Issue management.
6. Credit syndication.
7. Working Capital Management.
8. Venture Capital Management.
9. Lease finance.
10.Fixed Deposit.
11.Other functions:
a) Treasury management
b) Stock Broking
c) SSI Counseling (Small Scale Industry)
d) Equity research & investment counseling.
e) Assistance to NRI investors.
f) Foreign collaboration.
DEMERITS OR DRAWBACKS OF MERCHANT BANKERS:
1.
2.
3.
4.
5.
6.
Co-operative Banks
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3. Nithi and Chit funds.
4. Co-operative movement
5. Joint stock Companies.
6. Consolidation of commercial banks.
Co-operative
7. Nationalization of banks.
8. Investment banks.
9. Development of financial institutions.
10.Investment & Insurance Companies.
11.Stock exchange & Market operations
12.Specialized financial Institutions.
13.Merchant Banking or bankers.
14.Universal Bankers.
FINANCIAL SYSTEM:
1.
2.
3.
4.
Financial
Financial
Financial
Financial
FINANCIAL INSTITUTIONS:
It consists of Central bank, commercial banks, Co-operative bank, Development
banks, Merchant banks, Hire purchase financing company, leasing company,
factoring company, asset-liability management company, underwriters, mutual fund
companies etc.,
FINANCIAL MARKET & CLASSIFICATIONS:
1.
2.
3.
4.
Capital Market.
Money Market.
Foreign Exchange Market.
Government Securities Market.
Organized
Unorganized
ORGANIZED
1.
2.
3.
4.
5.
Commercial Banks
Co-operative banks
Regional rural banks
NABARD
Foreign Banks
UNORGANIZED
1. Indigenous Bankers
2. Money lenders
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Risk factor.
Rate of return.
Diversification (for various purpose)
Provide finance to Government.
Finance to all types of sector.
Finance to all locations.
Satisfy moral & ethical values.
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MONEY MARKET:
MONEY MARKET
BORROWERS
LENDERS
Government
Agriculturalists
Traders
Business man
Commercial
banks
6. NBFCS
1. Central bank
2. Commercial
banks
3. Co-operative
banks
4. Foreign banks
5. NBFCS
1.
2.
3.
4.
5.
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7. In 1970-RBI prohibited brokers.
8. RBI implement restrictive monetary policy-Call money market will be active.
RBI has liberal policy-Call money market will become dull.
9. It is popularly used in all types of banks.
TREASURY BILLS:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Introduced in 1987.
Popularly known as CD & NCD. (N Negotiable)
Deposit cash with bank & get promissory note from banks.
Amount & maturity date will be mentioned.
It can be traded in the Secondary market.
Holder on the maturity date is eligible for the payment.
Banker will make the payment on the maturity date or due date.
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6. On the due date issuer will make the payment.
7. Interest also paid on the due date.
8. It is another form of fund raising.
9. Credit rating can be obtained.
10.Issuers net worth should be 4 crores.
11.Current ratio should be 1.33:1