CLASS – BBA 5

SUBJECT :- INVESTMENT MANAGEMENT

UNIT-02

What is stock market operations ?

A stock market is a platform where investors come to trade in financial instruments like shares,
bonds, and derivatives. The stock exchange works as a facilitator of this transaction and enables
the buying and selling of shares.

Classification of Securities market :-

1. Debt market -
- Government securities market
- Corporate debt market

2. Equity market –
- Primary equity market
- Secondary equity market

3. Derivatives market –
- Options market
- Future market

Explanation of securities market :-

1. Debt market :-
Debt market is where investors buy and sell debt securities, mostly in the form of bonds.
Debt market in India is one of the largest in Asia.

- Government securities market :- Government securities are investment products

issued by the both central and state government of India in the form of bonds,
treasury bills, or notes.
- Corporate equity market :- It is a market where the corporate debt securities of both
private sector & public sector undertakings are traded.

2. Equity market –
Equity market, often called as stock market or share market, is a place where shares of
companies or entities are traded. The market allows sellers and buyers to deal in equity or shares
in the same platform. In the global context, equities are traded either over the counter or at stock
exchanges.

- Primary equity market :- Primary market is also known as new issue market. As in this
market securities are sold for the first time, i.e., new securities are issued from the
company.
- Secondary equity market:- The secondary market is where investors buy and sell
securities from other investors (think of stock exchanges). For example, if you want to
buy Apple stock, you would purchase the stock from investors who already own the
stock rather than Apple. Apple would not be involved in the transaction.

3. Derivatives market:-
 The term derivative refers to a type of financial contract whose value is dependent on an
underlying asset, group of assets, or benchmark. These contracts can be used to trade any
number of assets and carry their own risks.

- Options market:- Options are financial derivatives that give the buyer the right to buy
or sell the underlying asset at a stated price within a specified period.
- Future market:- A futures market is an auction market in which participants buy and
sell commodity and futures contracts for delivery on a specified future date.

What is Stock market indices ?

A stock market index, also known as stock market indices,, is a statistical measure that reflects
changes taking place in the market. It’s created by grouping a few similar stocks among the
securities listed on the exchange and the selection criteria could be the size of a company, its
market capitalisation or type of industry.

Important Words:-
NSE- National stock exchange
BSE – Bombay stock exchange
SEBI – securities Exchange Board of India
WDM – whole sale Debt market
OTC market:- over the counter
IPO – initial public offering
RBI- Reserve Bank Of India

TOPIC:- NEW ISSUE MARKET

PRIMARY MARKET :-

Meaning :-
In a primary market, securities are created for the first
time for investors to purchase. A company issues
security in a primary market as an initial public offering
(IPO). Investors purchase the newly issued securities in the
primary market. Such a market is regulated by the
Securities and Exchange Board of India (SEBI).

FUNCTIONS OF PRIMARY MARKET:-

1. New Issue Offer:-

This is one of the major primary market functions. It is this market that organises offering of a
new issue, which has not been traded on any other exchange before. It’s because of this reason
that the primary market is also called new issue market.
2. Underwriting Services:-
One of the most important and vital aspects of offering a new issue offer is underwriting. The role
of an underwriter in the primary marketplace is to buy unsold shares. Often financial institutions
play the role of underwriters, earning a commission in the process.
3. Distribution of New Issue:-
This is another vital function of primary market. The distribution process is initiated with a
new prospectus issue.
TYPES OF PRIMARY MARKET ISSUE:-

- Public issue:-
The public issue is one of the most common methods of issuing securities to the
public. The company enters the capital market to raise money from kinds of investors.
Here, the securities are offered for sale to new investors. The new investor becomes
the shareholder of the issuing company. This is called a public issue.
- Private placement:-
Private placements mean that when a company offers its securities to a small group of
people. The securities may be bonds, stocks, or other securities. The investors can be
either individual or institution or both.
- Preferential issue:-
The preferential issue is one of the quickest methods for a company to raise capital for
their business. Here, both listed and unlisted companies can issue shares.

What is SEBI ? What are its functions .

SEBI is a statutory regulatory body established on the 12th of April, 1992. It monitors and
regulates the Indian capital and securities market while ensuring to protect the interests of the
investors, formulating regulations and guidelines.

Functions of SEBI:-

1 )SEBI is primarily set up to protect the interests of investors in the securities market.
2) It promotes the development of the securities market and regulates the business.
3) SEBI provides a platform for stockbrokers, sub-brokers, portfolio managers, investment
advisers, share transfer agents, bankers, merchant bankers, trustees of trust deeds, registrars,
underwriters, and other associated people to register and regulate work.
4) It regulates the operations of depositories, participants, custodians of securities, foreign
portfolio investors, and credit rating agencies.
5)It prohibits insider trading, i.e. fraudulent and unfair trade practices related to the securities
market.

Objectives of SEBI:-
The objectives of the Stock Exchange Board of India are:

1. Protection to the investors:-

The primary objective of SEBI is to protect the interest of people in the stock market and provide a
healthy environment for them.

2. Prevention of malpractices:-
This was the reason why SEBI was formed. Among the main objectives, preventing malpractices is
one of them.

3. Fair and proper functioning:-

SEBI is responsible for the orderly functioning of the capital markets and keeps a close check over
the activities of the financial intermediaries such as brokers, sub-brokers, etc.

Rights as a Shareholder:-
• To receive the share certificates, on allotment or transfer.
• To participate and vote in general meetings either personally or through proxy.
 • To receive corporate benefits like rights, bonus etc. once approved.
• To receive copies of the Annual Report containing the Balance Sheet, the Profit & Loss
Account and the Auditor’s Report.
• To make nomination in respect of shares held by you.

Rights as a Debenture Holder:-

• To receive interest / redemption in due time
• To receive a copy of the trust deed on request
• To apply for winding up of the company if the company fails to pay its debt.

TOPIC:- SECONDARY MARKET

MEANING :-
The secondary market is where investors buy and sell securities they already own.

FUNCTION:-
Following are the main functions of secondary markets:

1.Secondary markets or stock exchange houses verify a company’s value before including them in
their trade list. Hence, investors can be confident that they are buying from a trustworthy source.
2.Stock exchange houses provide a platform for investors to trade securities, such as equity
shares, bonds, preference shares, treasury bills, debentures, etc. without involvement of the
issuing companies.
3.Transactions can be done anytime and the market allows for active trading for immediate
purchase or selling with little variation in price among different transactions.
4.Investors can liquidate their holdings through an organised exchange. Securities that you hold
can be sold in various stock exchanges.
5. The secondary market for securities allows investors to easily sell their holdings and exchange
them into cash when required

Types of secondary market:-

1)Stock exchange:-
Stock exchanges are centralised platforms where the trading of securities is executed, without any
connection or contact between the buyer and seller. National Stock Exchange (NSE), Bombay Stock
Exchange (BSE), New York Stock Exchange (NYSE) and NASDAQ are some examples of such
platforms.

2)Over-the-Counter (OTC) Market:-

Over-the-counter (OTC) markets are decentralised markets where participants engage in trading
directly with each other. As a result, unregulated OTC market traders have to deal directly with
counter-party risks in absence of regulatory oversight.

TOPIC :- PUBLIC ISSUE

Meaning :-
When a company raises funds by selling or issuing its shares to the public through issue of offer
document/prospectus, it is called a public issue.

Types of Public Issue:-

-Initial Public Offer (IPO:-
When a company makes a public issue for the first time, the public issue is called as initial public
offer (IPO).

-Further public offer (FPO):-

When a company makes another public issue to raise capital, it is called further public /follow-on
offer (FPO).

Advantages of Public Issue:-

1.No financial burden i.e. no fixed rate of interest payable. However, in order to service the
equity, dividend may be paid.
2.Enhance shareholders’ value if the Company performs well.
3.Greater Transferability.
4.Trading and Listing of securities at stock exchanges.
5.Better liquidity of securities.
6.Helps building reputation of promoters, Company and its products/services, provided the
Company performs well.

Disadvantages of Public Issue:-

-Time consuming process.
-Expensive
-Several legal formalities
-Involvement of many intermediaries.
-Transparency requirements and public disclosure of information may lead to lack of privacy.

Methods of Public Issue :-

• Public Issue or Initial Public Offer (IPO):-Under this method, the company issues a
prospectus to the public inviting offers for subscription. The investors who are interested
in the securities apply for the securities they are willing to buy.
• Private Placement:-In this method, the issuing company sells its securities privately to one
or more institutional brokers who in turn sell them to their clients and associates. This
method is quite convenient and economical. Moreover, the company gets the money
quickly and there is no risk.
• Offer for Sale:-Under this method, the issuing company allots or agrees to allot the
security to an issue house at an agreed price. The issue house or financial institution
publishes a document called an ‘offer for sale’. It offers to the public shares or debentures
for sale at higher price.