Beruflich Dokumente
Kultur Dokumente
C5
Intermediaries
Chapter
New Issue Market
Intermediaries
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"Rules" mean the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules, 1992;
d)
"stock exchange" means a stock exchange which is for the time being recognised by the Central Government under Section 4 of the New Issue Market Securities Contracts (Regulation) Act, 1956 (42 of 1956);
"stock broker" means a member of a stock exchange; "sub-broker" means any person not being a member of a stock exchange who acts on behalf of a stock-broker as an agent or otherwise for assisting the investors in buying, selling or dealing in securities through such stock-brokers; "Regulations" mean the Securities and Exchange Board of India (Stock Brokers and Sub- Brokers) Regulations, 1992.
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e) f)
g)
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Conditions of grant of certificate to sub-broker. The Board may grant a certificate to a sub-broker subject to the following conditions, namely: a) he shall pay the fees in the manner provided in the regulations; b) he New shallIssue takeMarket adequate steps for redressal of grievances of the investors within one month of the date of the receipt of the complaint and keep the Board informed about the number, nature and other particulars of the complaints received; c) in case of any change in the status and constitution, the sub-broker shall obtain prior permission of the Board to continue to buy, sell or deal in securities in any stock exchange; and d) he is authorised in writing by a stock-broker being a member of a stock exchange for affiliating himself in buying, selling or dealing in securities: Provided such stockbroker is entitled to buy, sell or deal in securities.
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Trading System
Trading on stock exchanges is carried out through brokers and dealers. All members can act as brokers and for this purpose they have to maintain security New deposits. Brokers act as agents buying and selling or others for Issue Market which they receive brokerage commission at stipulated rates. Dealers act as principals and sell securities on their own accounts.
However, members cannot enter into contract with any person other that member without prior permission from the Governing Body. The stock exchange rules, bye-laws and regulations have identified eight major functional specializations for the members.
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Commission Broker
2.
3. 4.
Floor Broker
Tataniwala
New Issue Market
5.
6. 7.
Odd-lot Dealer
Budiwalas Security Dealer
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Banking Services
Universal Banking
Universal banks are the one-stop shops, who deal with a wide portfolio of Issue Market financialNew products integrating commercial banking, term lending, retail operations investment banking, mutual funds, pension funds, insurance, underwriting of issues securities issuance etc. Universal banks derive benefit from economies of scale, direct mobilisation of funds from the general public through bank deposits, using such deposit funds for the term lending and retail business. As the universal banks would serve more
customers with the same existing network, and the customers would be ultimately benefited with the low cost of services.
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Correspondent Banking Services provided by correspondent bank include cheque collection, data processing, federal funds trading, securities safekeeping or sale of securities, loans to directors and officers, international transactions New Issue Market investment banking advice on mergers and acquisitions, loan participation and many others. Retail Banking It is a subset of commercial banking. A retail banker provides banking service for individuals. Private Banking In private banking, the banking services, including lending and investment management, are offered only for wealthy individuals.
Cont.
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CHIPS The Clearing House Interbank Payment System (CHIPS) is a computerised fund transfer system for international dollar payments linking major US and foreign banks with offices in New York. SWIFT Society for Worldwide Interbank Financial Telecommunications, a
New Issue Market
cooperative company that transmits financial messages, payment orders, foreign exchange confirmations and delivery of securities to nearly 7,000
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Cont.
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The investment management company has to issue unit certificates to accepted scheme applicants, at the most six weeks from the date of closure of the subscription list. A unit certificate issued under the scheme is freely transferable. The investment management company, on production New Issue Market of the instrument of transfer, together with relevant unit certificates, registers the transfer and returns the unit certificate to the transferee within 30 days of the date of such production.
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Fund Manager
Fund managers sell the units of funds to investors at the net asset value
(NAV) and are also ready to purchase units from the investors at the net asset value. In case of a "no-load" fund, the fund manager sells the units by mail to the investors. Since there are no other intermediaries, this type of fund does not have a sales commission. In terms of a loaded fund, the units are sold through a salesperson. When investors purchase units, a part of the investor's equity is removed as the load at the beginning of the contract. This is called the front-end loading. By adding the commission at the time of sale of units by the investors, exit fees or back-end loading can also be charged.
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The commission to be paid to the salesperson is added to the net asset value. Apart from this, the fund managers also charge a management fee
for the cost of operating the portfolios. These costs include expenses that will be borne by the fund manager such as brokerage fees, transfer costs, New Issue Market book-keeping expenses, and fund managers' salaries.
Mutual Funds
"A mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. Anybody with an investible surplus of as little as a few thousand rupees can invest in mutual funds. These
investors buy units of a particular mutual fund scheme that has a defined investment objective and strategy."
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ENTITIES IN A MUTUAL FUND OPERATION A mutual fund represents a vehicle for collective investment. In India, the following entities are involved in a mutual fund operation. 1. 2. 3. 4. 5. 6. Sponsor New Issue Market Mutual Fund Trustees Asset Management Company (AMC) Custodian Registrars and Transfer Agents
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The Unit Trust of India was the first mutual fund set up in India in the year 1964. In the year 1992, the Securities and Exchange Board of India (SEBI) Act wasNew passed. The objectives of SEBI are to protect the interest of Issue Market investors in securities and to promote the development of and to regulate the securities market. All mutual funds whether promoted by public sector or private sector entities, including those promoted by foreign entities are governed by the same set of regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI.
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REGULATORY BODIES
There are four regulatory bodies for the Indian capital market. The main capital market regulator is
Issue Market TheNew Securities and Exchange Board of India
The Reserve Bank of India (RBI) Department of Company Affairs (DCA) Department of Economic Affairs (DEA)
Other regulatory bodies are CLB, RBI, SEBI, DEA, DCA, SEC, FRB, etc.
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AUDITING BODIES
Good corporate governance stipulates that all public companies having a paid-up capital of Rs 5 crores or more have to constitute a committee of New Market the Board of Issue Directors known as the audit committee, which will consist of not less than three directors. At least two-thirds of the total number of the members of such a committee should not be managing or whole time directors. The members have to elect a chairman from amongst themselves.
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Credit Rating
Credit Rating is a symbolic indication of the current opinion regarding the relative capability of a corporate entity to service its debt obligations in New Issue Market time with reference to the instrument being rated. It enables the investor to differentiate between debt instruments on the basis of their underlying credit quality. To facilitate simple and easy understanding, credit rating is expressed in alphabetical or alphanumerical symbols.
Credit Rating 1. Financial Instruments Rating
a) Bond Rating
b) Equity Rating c) Short-term Instruments Rating
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a)
Customer Rating
b)
c)
Sovereign Rating
Borrower Rating
Newpurposes Issue Market The various for which credit rating is applied are:
1.
Long-term/medium-term debt obligations such as debentures, bonds, preference shares or project finance debts are considered long-term and debts ranging from 1 to 3 years like fixed deposits are considered medium-term; Short-term debt obligations the period involved in one year or less and cover money market instruments such as commercial paper, credit notes, cash certificates etc.;
2.
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Equity Grading and Assessment, structured obligations, municipal bonds, mutual fund schemes, plantation schemes, real estate projects, infrastructure-related debts, ADR, GDR issues, bank securities etc.
New Issue Market
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TECHNOLOGY/INTERNET PROVIDERS
In order to smoothen the online trading and terminal updating, technology
is a must. For Internet trading to succeed, good business models as well as a comprehensive technology strategy are imperative. With net trading in securities and rapid consolidation between multiple stock exchanges, the securities marketplace is fast becoming an international market place.
New Issue Market
Cont.
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Investment Companies
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Investment Companies in India Unit Trust of India (UTI) Mutual Funds of Commercial Banks (MFS)
Issue Market LifeNew Insurance Corporation of India (LIC)
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