GROUP 4

OVERVIEW

Known as New Issue Market. Also known as Long Term Debt Market-Because it provides long term capital. Concerned with new securities. Introduced in the market for the first time and sold also for the first time. Used by companies, national government and corporations to generate funds for different purposes.

Follows a particular process-Involving dealers. So the price includes commission too. Also has the option of getting it directly from the company. Funds obtained thus are mainly used for setting new businesses or for expansion of the existing business. Also creates capital for the economy.

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.
Secondary market is also known as Old Issue Market

The term "secondary market" is used to refer to the

or After Market.

market term is to refer to loans which are sold by a mortgage bank to investors.

Another commonly referred to usage of secondary

 It is the financial market where previously issued

securities and financial instruments such as stock, bonds, options, and futures are bought and sold.

efficiently when new projects are financed through a new primary market offering, but accuracy may also matter in the secondary market because: 1. Price accuracy can reduce the agency costs of management, and make hostile takeover a less risky proposition and thus move capital into the hands of better managers. 2. Accurate share price aids the efficient allocation of debt finance whether debt offerings or institutional borrowing.

Accurate share price allocates scarce capital more

Secondary marketing is vital to an efficient and modern

capital market. In the secondary market, securities are sold by and transferred from one investor or speculator to another.

It is therefore important that the secondary market be

highly liquid originally, the only way to create this liquidity was for investors and speculators to meet at a fixed place regularly.

Secondary Market consists of exchanges such as: 1. Bombay Stock Exchange(BSE). 2. National Stock Exchange(NSE). 3. Over the Counter Exchange of India(OCTEI).

Companies & Investors Brokers Speculators

Companies & Investors

y Companies include those companies which are listed in the stock exchange and which issues prospectus for public subscription y Investors are those category of people who invest their earnings in various securities of capital market expecting returns . They are said to be the backbone of capital market. Their investments and money is the reason for the existence of capital market

Brokers
Jobbers: he purchases and sells securities on in his own name. he buys securities in his own name, keeps it for a short period of time and sells them at a profit known as jobbers return y Tarawaniwalas: he is a broker as well as a jobber. he may go against the interest of the interest of the investors and buys securities at low prices in his own name and sells to the same investor at a higher prices. y Commission brokers: He buys and sells securities on behalf of his clients for a commission. He gets the orders from his clients and executes them accordingly.

y Sub-brokers/remisiers: Sub-brokers is an agent of a stock broker .he helps the clients to buy and sell securities only through the stock brokers. He is not a member of stock exchange, so he can t deal directly in the stock exchange. His commission is paid out from the commission of the broker for whom he acts as an agent. he is known as remisiers in BSE. y Authorized clerks: He is appointed by stock broker to assist him in trading with securities. They have the power of attorney ,they can sign behalf of the broker .the main broker is liable for the activities of the clerk.

Speculators
y Client brokers :They act to as intermediaries &

earn brokerage y Floor-brokers: They include authorized clerks &sub-brokers on the trading floor & execute orders of the clients y Badla financers/badiwallas: Their main function is to give finance for carry forward deals in specified securities in return for interest. y Arbitragers: They are those brokers who buy securities from one market & sells in another market to take advantage of price differences in various markets.

y Bull/tejiwallas: bulls are those stock brokers are

optimistic in nature go on buying securities expecting to sell them at higher prices. y Bears/mandiwallas: they are pessimistic in nature expect a fall in prices and go on selling the securities. y Stags: they neither buy or sell securities in the market they buy new issues and sell them on allotments or even before on a profit. since they act fast ,they are called stags.

y Wolves: They are very quick to perceive changes in

the trends of market & trade fast and make a fast buck. y Lame duck: They are bear brokers who sell securities shortly by making wrong moves & ultimately ending in a loss.

The capital market instruments are

 Stocks  Bonds  Debentures  Shares

Debentures
A debenture is a document which either creates a debt or acknowledges it. Debenture issued by a company is in the form of a certificate acknowledging indebtedness. The debentures are issued under the Company's Common Seal. Debentures are one of a series issued to a number of lenders. The date of repayment is specified in the debentures. Debentures are issued against a charge on the assets of the Company. Debentures holders have no right to vote at the meetings of the companies.

Types of Debenture
y Secured Debentures y UnSecured or Naked Debentures y Third Party Convertible Debentures y Zero-Coupon Convertible Note y Convertible Debentures

Bonds
A bond is a formal contract to repay borrowed money with interest at fixed intervals. Bonds provide the borrower with external funds to finance long-term investments. Types of Bonds :
y y y y y

Fixed rate bonds Floating rate notes Zero-coupon bonds Inflation linked bonds Subordinated bonds

St cks
y The capital stock (or just stock) of a business

entity represents the original capital paid into or invested in the business by its founders. y Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in the company (i.e., they are owners), whereas bondholders have a creditor stake in the company (i.e., they are lenders). y Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely.

Types of stocks
y Common stock - common stock typically

carries voting rights that can be exercised in corporate decisions. y Preferred stock - It does not carry voting rights but is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders. y Convertible preferred - stock is preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date.

y SECURED PREMIUM NOTES y EQUITY SHARES WITH DETACHABLE y y y y y y

WARRANT SWEAT EQUITY SHARE TRACKING STOCK MORTGAGE BACKED SECURITIES(MBS) GDR/ADR DERIVATIVES GOLD ETF

SECURED PREMIUM NOTES

y SPN is a secured debenture redeemable at

premium issued along with a detachable warrant,redeemable after a notice period, say four to seven years. The warrants attached to SPN gives the holder the right to apply and get allotted equity shares; provided the SPN is fully paid

EQUITY SHARES WITH DETACHABLE WARRANTS

y A warrant is a security issued by company

entitling the holder to buy a given number of shares of stock at a stipulated price during a specified period. These warrants are separately registered with the stock exchanges and traded separately. Warrants are frequently attached to bonds or preferred stock as a sweetener, allowing the issuer to pay lower interest rates or dividends .
y Ex-Essar Gujarat, Ranbaxy, Reliance issue this type

of instrument

SWEAT EQUITY SHARES

y The phrase `sweat equity' refers to equity shares

given to the company's employees on favorable terms, in recognition of their work. Sweat equity usually takes the form of giving options to employees to buy shares of the company, so they become part owners and participate in the profits, apart from earning salary. This gives a boost to the sentiments of employees and motivates them to work harder towards the goals of the company

TRACKING STOCKS
y A tracking stock is a security issued by a parent

company to track the results of one of its subsidiaries or lines of business; without having claim on the assets of the division or the parent company. It is also known as "designer stock"

MORTGAGE BACKED SECURITIES(MBS)

y MBS is a type of asset-backed security, basically a

debt obligation that represents a claim on the cash flows from mortgage loans, most commonly on residential property. Mortgage backed securities represent claims and derive their ultimate values from the principal and payments on the loans in the pool.

GDR/ADR
y A negotiable certificate held in the bank of one country (depository) representing a specific number of shares of a stock traded on an exchange of another country. GDR facilitate trade of shares, and are commonly used to invest in companies from developing or emerging markets. y GDR prices are often close to values of related shares, but they are traded and settled independently of the underlying share y If the depository receipt is traded in the United States of America (USA), it is called an y American Depository Receipt, or an ADR. If the depository receipt is traded in a country y other than USA, it is called a Global Depository Receipt, or a GDR.

DERIVATIVES
yA

derivative is a financial instrument whose characteristics and value depend upon the characteristics and value of some underlying asset typically y commodity, bond, equity, currency, index, event etc

Futures
y A financial contract obligating the buyer to

purchase an asset, (or the seller to sell an asset), y such as a physical commodity or a financial instrument, at a predetermined future date and price.

Options
y A financial derivative that represents a contract

sold by one party (option writer) to another party (option holder) y The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreedupon price (the strike price) during a certain period of time or on a specific date (excercise date).

GOLD ETF
y A gold Exchange Traded Fund (ETF) is a

financial instrument like a mutual fund whose value depends on the price of gold. In most cases, the price of one unit of a gold ETF y approximately reflects the price of 1 gram of gold. As the price of gold rises, the price of the y ETF is also expected to rise by the same amount.

Recent Trends
y Private Equity y Exchange Traded Fund y Debt Financing y Over-the-Counter y FIIs y Growing merchant banking

GROWING STOCK EXCHANGE

y National stock Exchange y It is the 9th largest stock exchange in the world by

market capitalization and largest in India by daily turnover and number of trades, for both equities and derivative trading.

Currently, NSE has the following Major segments of the capital market:
y Equity y Futures and Options y Retail Debt Market y Wholesale Debt Market y Currency futures y MUTUAL FUND y Stocks lending and borrowing

INSURANCE SECTOR REFORM

y non-bank financial sector reform program consists of

two phases; y the first phase (2005-2008) and y second phase (2009-2012).

3.INVESTOR PROTECTION
SEBI strongly believes that investors are the backbone of the securities market. >>Investor Protection Fund (IPF) on July 10, 1987

4.COMMODITIES TRADING
y commodity trade, the international trade in primary y y y y y

goods. Spot trading Forward contracts Future contracts Hedging Delivery and condition gaurantees

SEBI-THE INDIAN CAPITAL MARKET REGULATOR

Securities and Exchange Board of India (SEBI) ensures corporate behaviour in alignment with the best global practices. In the context of globalization, if Indian corporate have to attract large capital and technology to survive fierce international competition, it is imperative that they adopt governance standards acceptable to global institutional investors.

Abolition of Controller of Capital Issues and Emergence of SEBI

y Prior to the setting of SEBI, the Capital Issues (Control) Act,1947

governed capital issues in India.

y The Narasimham Committee on the Reform of the Financial

System in India recommended the abolition of the CCI. It suggested that SEBI set up in1988 should be entrusted with the task of a market regulator to see that the market is operated on the basis of well-laid principles and conventions. SEBI has been empowered to control and regulate the new issue and old issues market, namely, the Stock Exchange

Objectives of the Board

The statutory objectives of the SEBI as per the Act. Protection of investors interests in securities Promotion of the development of the securities market Regulation of the securities market; and Matters connected therewith and incidental thereto.

Powers of the Board

y To carry out its responsibilities under the Act, theBoard is clothed with the same powers as are vested ina Civil Court with respect to the following matters: y The discovery and production of books of account and otherdocuments at such place and such time as may be specifiedby the Board. y Summoning and enforcing the attendance of persons andexamining them on oath. y Inspection of any books, registers and other documents of stockbrokers, sub-brokers, and share transfer agents.

Power to Issue Directions

y The Board is empowered to issue directions to the following intermediaries: y Stock-brokers, sub-brokers, share transfer agent, banker to an issue, trustee of

trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market;

y Depository, depository participant, custodian of securities, foreign

institutional investor, credit rating agency or any other intermediary associated with the securities market; mutual funds;

y Sponsors of venture capital funds, or collective investment schemes including y And to any company with regard to matters to be disclosed by the companies as

specified in section 11A.

Establishment of Securities Appellate Tribunals

y The Board is empowered to issue directions to the following y

y y

intermediaries: Stock-brokers, sub-brokers, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market; Depository, depository participant, custodian of securities, foreign institutional investor, credit rating agency or any other intermediary associated with the securities market; Sponsors of venture capital funds, or collective investment schemes including mutual funds; And to any company with regard to matters to be disclosed by the companies as specified in section 11A.

SEBI S ROLE IN PROMOTING CORPORATE GOVERNANCE

y According to SEBI s Chairman: The Securities and Exchange Board of India has been focusing on the following areas to improve corporate governance: y Ensuring timely disclosure of relevant information, y Providing an efficient and effective market system, y Demonstrating reliable and effective enforcement, y Enabling the highest standards of governance.

SEBI s Role in the New Era

y The SEBI has made progress in a number of areas: y Abolition of capital issues control and retaining

thesole authority for new capital issues;

y Regulation and reform of the capital market byarming

itself with necessary authority and powers;

y Regulating stock exchanges under Securitiescontracts

Regulation Act;

SEBI s Role in the New Era

y Bringing all primary and secondary

marketintermediaries under the regulatory framework;

y Enforcing companies to disclose all material factsand

specific risk factors associated with projectswhile going in for public issues.

The SEBI has made progress in a number of areas:

y SEBI s Role in the New Era y Bringing all primary and secondary market

intermediaries under the regulatory framework;

y Enforcing companies to disclose all material facts and

specific risk factors associated with projects while going in for public issues.

SUGGESTIONS FOR SEBI s IMPROVEMENT

y To monitor effectively the working of stock exchanges; y To insist on companies for the supply of extensive

information on a regular basis;

y To penalize members of stock exchanges who were

found to violate securities laws;

Capital Market & Indian Economy

Conclusion
y India's capital market witnessed a rapid growth since

around 1980. It accelerated by the end of the decade. This is also significant in comparison with other emerging market economies. Increases in nominal interest rates since early last decade, incentives offered on traded securities, and changes in related policies seem responsible for this development.

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