Diff b/w Primary and Secondary Market

(1) While the primary markets offer issues, which are directly made available to the investors, the secondary markets deal with issues, which are already existing. (2) Primary markets are those where securities are offered to the public in the form of subscription with the intention of raising money. On the other hand, secondary market refers to the market where trading of already existing securities take place. (3) In a primary market, the securities, stocks or bonds are bought directly from the company issuing all of the above. These are usually bought at a "par value". In the secondary market, the existing securities, bonds or stocks are traded again. (4) if an individual had purchased bonds or any other investment instruments from the primary market a year back and the individual now wants to avail of the principal amount the bonds may be sold off in secondary market.

Rights issue
A rights issue is an issue of additional shares by a company to raise capital under a seasoned equity offering. The rights issue is a special form of shelf offering or shelf registration. With the issued rights, existing shareholders have the privilege to buy a specified number of new shares from the firm at a specified price within a specified time.A rights issue is in contrast to an initial public offering, where

shares are issued to the general public through market exchanges. Closed-end companies cannot retain earnings, because they distribute essentially all of their realized income, and capital gains each year.They raise additional capital by rights offerings. Companies usually opt for a rights issue either when having problems raising capital through traditional means or to avoid interest charges on loans. A rights issue is directly offered to all shareholders of record or through broker dealers of record and may be exercised in full or partially. Subscription rights may either be transferable, allowing the subscription-rights holder to sell them privately, on the open market or not at all. A right issuance to shareholders is generally issued as a tax-free dividend on a ratio basis (e.g. a dividend of one subscription right for one share of Common stock issued and outstanding). Because the company receives shareholders' money in exchange for shares, a rights issue is a source of capital in an organisation.

The Difference Between an Investor and a Speculator Speculators - They are those that buy securities without holding
them for a long period. They invest in stocks not for purpose of receiving dividends. They are short term players in the market. They study and predict the market so s to know the best time to buy or sell stocks. They sell their shares because they anticipate the prices are peaking or to realize a profit. To be a successful speculator is as tasking as living and breathing the market you want to speculate in. Often, they will buy shares in a company because they are "in play"

(which is another way of saying a stock is experiencing higher than normal volume and its shares may be accumulated or sold by institutions). They buy stock not on the basis of careful analysis, but on the chance it will rise from any cause other than a recognition of its underlying fundamentals. Speculation can be profitable in the short term (especially during bull markets), it very rarely provides a lifetime of sustainable income or returns. It should be left only to those who can afford to lose everything they are putting up for stake. The Speculators primary interest lies in anticipating and profiting from market fluctuations. The Investors primary interest lies in acquiring and holding suitable securities at suitable prices.

Investors They are people that buy stocks and hold them for a
longer period of time. They are long-term players in the market. They hold on to their stocks and receive dividends at the end of the year. If they invest in bonds, they wait until the maturity period of the bond. They maintain their long-term objective for investing in the market. Usually. they carefully analyses a company, decides exactly what it is worth, and will not buy the stock unless it is trading at a substantial discount to its intrinsic value. They make their investment decisions based on factual data and do not allow their emotions to get involved. The speculator will drive prices to extremes, while the investor (who generally sells when the speculator buys and buys when the speculator sells) evens out the market

Definition of 'Buyback'
The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies will buy back shares either to increase the value of shares still available (reducing supply), or to eliminate any threats by shareholders who may be looking for a controlling stake.

BOOK BUILDING PROCESS

When ever a company goes public it has to bring it's IPO(Initial Public Offer) in the market with a price band which is set by the promoters of the company and the whole process is to be completed according to the guidelines of SEBI. No company can breach the guidelines for an IPO as described by the SEBI in it's red herring prospectus. Book Building process goes from various stages which are explained here in detail.

Book Building is basically a capital issuance process used in Initial Public Offer (IPO) which aids price and demand discovery. It is a process used for marketing a public offer of equity shares of a company. It is a mechanism where, during the period for which the book for the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The process aims at tapping both wholesale and retail investors. The offer/issue price is then determined after the bid closing date based on certain evaluation criteria.

The Process for Book Building:

The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'. The Issuer specifies the number of securities to be issued and the price band for orders. The Issuer also appoints syndicate members with whom orders can be placed by the investors. Investors place their order with a syndicate member who inputs the orders into the 'electronic book'. This process is called 'bidding' and is similar to open auction. A Book should remain open for a minimum of 5 days. Bids cannot be entered less than the floor price. Bids can be revised by the bidder before the issue closes. On the close of the book building period the 'book runner evaluates the bids on the basis of the evaluation criteria which may include Price aggression Investor quality Earliness of bids, etc. The book runner and the company conclude the final price at which it is willing to issue the stock and allocation of securities. Generally, the number of shares are fixed, the issue size gets frozen based on the price per share discovered through the book building process. Allocation of securities is made to the successful bidders. Book Building is a good concept and represents a capital market which is in the process of maturing.

Fixed Price Process :

Price at which the securities are offered/allotted is known in advance to the investor. Demand for the securities offered is known only after the closure of the issue Payment if made at the time of subscription wherein refund is given after allocation.

Book Building Process :

Price at which securities will be offered/allotted is not known in advance to the investor. Only an indicative price range is known. Demand for the securities offered can be known everyday as the book is built. Payment only after allocation.

SHARE CAPITAL
Share capital or issued capital refers to the portion of a company's equity that has been obtained (or will be obtained) by trading stock to a shareholder for cash or an equivalent item of capital value. For example, a company can set aside share capital to exchange for computer servers instead of directly purchasing the servers from existing equity. Share capital usually comprises the nominal values of all shares issued, less those repurchased by the company. It includes both

common stock (ordinary shares) and preferred stock (preference shares). If the market value of shares is greater than their nominal value (value at par), the shares are said to be at a premium (called share premium, additional paid-in capital or paid-in capital in excess of par).

Types of Share Capital

Authorised Share Capital is also referred to, at times, as

registered capital. This is the total of the share capital which a limited company is allowed (authorized) to issue to its shareholders. It presents the upper boundary for the actually issued share capital (hence also 'nominal capital').

Issued Share Capital is the total of the share capital issued

to shareholders. This may be less than the authorized capital.

Subscribed Capital is the portion of the issued capital, which

has been subscribed by all the investors including the public. This may be less than the issued share capital as there may be capital for which no applications have been received yet ('unsubscribed capital').

Called up Share Capital is the total amount of issued

capital for which the shareholders are required to pay. This may be less than the subscribed capital as the company may ask shareholders to pay by installments.

Paid up Share Capital is the amount of share capital paid

by the shareholders. This may be less than the called up capital as payments may be in arrears ('calls-in-arrears').

Initial public offering

An initial public offering (IPO) or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises

Disadvantages of an IPO
There are several disadvantages to completing an initial public offering, namely:

Significant legal, accounting and marketing costs Ongoing requirement to disclose financial and business information Meaningful time, effort and attention required of senior management Risk that required funding will not be raised

Public dissemination of information which may be useful to competitors, suppliers and customers

Advantages
1- help in raising capital 2- help in pay off debt and R&d 3- help in increase in market share of company 4- increased public awareness of the company

Kinds of Speculators
These are some important kinds of speculators at stock exchange :

1.Jobber:Jobber is a professional speculator who has a complete information regarding the particular shares he deals. He transacts the shares of profit. He conducts the securities in his own name. He is the member of the stock exchange and he deals only with the members.

2.Broker:Broker is a person who transact business in securities on behalf of his clients and receives commission for his services. He deals between the jobbers and members our side the house. He is an experienced agent of the public.

3.Bull:He is a speculator who purchases various types of shares. He purchases to sell them on higher prices in future. He may sell the shares and securities before coming in possession. If the price falls then he suffers a loss.

4.Bear:He is always in a position to dispose of securities which he does not possess. He makes profit on each transaction. He sells the various securities for the objective of taking advantages of an expected fall in prices.

5.LameDuck:When bear fails to meet his obligations he struggles to meet finance like the Lame Duck. This may happen when he has been concerned. Generally a bear agrees to dispose off certain shares on specific date. But sometimes he fails to deliver due to non availability of shares in the market. If the other party refuses to postpone the delivery them lame duck suffers heavy losses.

6.Stag:He is also a speculator. He purchases the shares of newly floated company and shown himself a genuine investor. He is not willing to become an actual shareholder of the company. He purchases the shares to sell them above the par value to earn premium. A stag also suffer a loss.

LONG POSITION

A long position in the stock market means that an investor has purchased a stock with the expectation that its price will rise. A long position is sometimes referred to as being "long the market." Investors who are "bullish" about the market will take a long position, expecting higher prices in the future. The vast majority of investors take a long position in the market when they invest and investors who purchase for the long-term almost always take a long position. Investors who subscribe to the theory of "buying low and selling high" will take a long position. The opposite of a long position is a short position. Investors who are "short the market" sell stock (as opposed to buying stock) in the expectation of lower prices in the future.

Short Position

The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value.

Difference between long position and short position

1. Taking a long position means that an investor buys a share in the hope that its price will rise. Taking a short position is the converse it means that an investor sells a share in the hope that its price will fall. 2. A long position means that the investor is bullish on the

market, while taking a short position means that he is bearish on the market. 3. A long position can be held for a short-, medium-, or longterm. An investor person can buy and hold a share for as long as he likes from one day to many years 4. When an investor takes a short position, it usually means that he is selling the share without owning it.. 5. An investor who takes a long position makes a profit when the market price of the share rises above his buying price; if its market price falls, he makes a loss. An investor who takes a short position makes a profit when the price of the share falls below his selling price. If its market price rises over his selling rate, he makes a loss.

Arbitrage
It is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit at zero cost. Arbitrage is possible when one of three conditions is met:
1. The same asset does not trade at the same price on all markets

("the law of one price").

2. Two assets with identical cash flows do not trade at the same price.
3. An asset with a known price in the future does not today trade

at its future price discounted at the risk-free interest rate (or, the asset does not have negligible costs of storage; as such, for example, this condition holds for grain but not for securities).

A put or put option is a contract between two parties to

exchange an asset, the underlying, at a specified price, the strike, by a predetermined date, the expiry or maturity. One party, the buyer of the put, has the right, but not an obligation, to sell the asset at the strike price by the future date, while the other party, the seller, has the obligation to buy the asset at the strike price if the buyer exercises the option.

A call option, often simply labeled a "call", is a financial contract

between two parties, the buyer and the seller of this type of option.[1] The buyer of the call option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price). The seller (or "writer") is obligated to sell the commodity or financial instrument should the buyer so decide. The buyer pays a fee (called a premium) for this right. The buyer of a call option purchases it in the hope that the price of the underlying instrument will rise in the future. The seller of the option either expects that it will not, or is willing to give up some of

the upside (profit) from a price rise in return for the premium (paid immediately) and retaining the opportunity to make a gain up to the strike price

Difference between Call and Put Option

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An option in financial markets refers to a derivative instrument which derives its value from the underlying; an option enables a person to take long or short position in market depending on his or her view. Options are of two types one is call option and other is put option, lets look at the differences between call and put option to get a better idea about both of them 1. A call option is one which allows the buyer of the option to buy an agreed quantity of stock at predetermined price to the seller of call option, while put option is one which allows the buyer of the option to sell agreed quantity of stock at predetermined price to the seller of the put option. 2. A person who buys call option is bullish on the stock while the seller of call option is bearish on the stock while a person who buys put option is bearish on the stock and seller of put option is bullish on the stock. 3. Call option buyers benefits when the price of stock rises while the put option buyers benefits when the price of stock falls. Conversely call option writer benefits when the price of stock falls and put option writer benefits when the price of stock rises. 4. A call option buyer has the right to buy the stock even if the

current price of stock is more than agreed price between call option buyer and call option writer, while a put option buyer can sell the stock even if the current price of stock is less than agreed price between put option buyer and put option writer.

Escrow
An escrow is:

an arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money and/or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfillment of contractuallyagreed conditions by the transacting parties, or an account established by a broker, under the provisions of license law, for the purpose of holding funds on behalf of the broker's principal or some other person until the consummation or termination of a transaction;[1] or,

a trust account held in the borrower's name to pay obligations such as property taxes and insurance premiums.

Definition of 'Qualified Institutional Buyer - QIB'

Primarily referring to institutions that manage at least $100 million in securities including banks, savings and loans institutions, insurance companies, investment companies, employee benefit plans, or an entity owned entirely by qualified investors. Also included are

registered broker-dealers owning and investing, on a discretionary basis, $10 million in securities of non-affiliates.