UNIT 1

Explain in brief the following Primary market intermediaries:

Merchant Bankers: They assist companies in raising capital through activities
like underwriting, advisory, and issue management. They help in determining
the appropriate time, structure, and pricing of the issue.
Underwriters: They guarantee the purchase of securities from the issuing
company at a predetermined price. If the securities are not fully subscribed by
investors, underwriters purchase the remaining shares to ensure the issuer
receives the necessary funds.
Bankers to the Issue: They handle the collection of application forms,
application money, and allotment of shares during the IPO process. They act as
a link between the company and investors during the issue.
Registrars to the Issue: They maintain records of securities issued by the
company and handle tasks like processing applications, allotment, and dispatch
of share certificates to successful applicants.
Debenture Trustees: They represent the interests of debenture holders and
ensure that the issuer complies with the terms and conditions of the debenture
issue. They monitor the security provided for the debentures and ensure timely
payment of interest and principal.
Brokers to an Issue: They act as intermediaries between the company and
investors, facilitating the sale of securities during the IPO or other primary
market offerings.
Other Agencies (Credit Rating Agencies, Printers, Advertisers): Credit rating
agencies assess the creditworthiness of the issuer and assign ratings to the
securities being offered. Printers handle the printing of offer documents and
advertisements related to the issue, while advertisers promote the offering to
potential investors. These agencies play supporting roles in the issuance
process.
Participants of primary markets:
Government: Governments often issue securities in the primary market to
finance their operations, projects, or to manage their debt. These securities can
include treasury bills, bonds, and notes.
Corporations: Companies issue securities such as stocks and bonds in the
primary market to raise capital for various purposes like expansion, research
and development, or debt refinancing.
Institutions: Institutional investors such as mutual funds, pension funds,
insurance companies, and hedge funds participate in the primary market by
purchasing newly issued securities directly from the issuer or through
underwriters.
Investment Banks: Investment banks play a crucial role in the primary market
by underwriting securities, providing advisory services to issuers, and assisting
in the structuring and pricing of offerings. They help companies navigate the
process of going public through IPOs or issuing debt securities.
Public Accounting Firms: Public accounting firms often provide auditing and
financial advisory services to companies preparing to enter the primary market.
They ensure that the financial statements and disclosures provided by the issuer
are accurate and comply with regulatory requirements.

Regulatory framework for primary market:

The regulatory framework for the primary market typically involves a
combination of laws, regulations, and oversight bodies aimed at ensuring
transparency, fairness, and investor protection. Here are some key components:
Securities and Exchange Board of India (SEBI): SEBI is the primary regulatory
authority governing the primary market in India. It regulates securities
issuances, disclosures, and conduct of market participants to protect the interests
of investors and maintain the integrity of the market.
Companies Act: The Companies Act, along with its amendments, provides the
legal framework for the issuance of securities by companies. It outlines
requirements related to the issuance process, disclosures, shareholder rights, and
corporate governance standards.
SEBI (Issue of Capital and Disclosure Requirements) Regulations: These
regulations prescribe the detailed requirements for companies seeking to raise
capital through initial public offerings (IPOs), rights issues, preferential
allotments, and other primary market offerings. They cover aspects such as
eligibility criteria, disclosures, pricing, and allotment norms.
Listing Agreement: Companies intending to list their securities on stock
exchanges must comply with listing requirements specified by the stock
exchanges and SEBI. These requirements include financial reporting
obligations, corporate governance norms, and continuous disclosure
requirements.
Investor Protection Measures: Various regulations and guidelines are in place to
protect the interests of investors participating in the primary market. These
include rules related to disclosure of material information, prohibition of
fraudulent and unfair trade practices, and mechanisms for redressal of investor
grievances.
Credit Rating Regulations: SEBI regulates credit rating agencies and mandates
credit rating requirements for certain types of securities issued in the primary
market. These regulations aim to ensure the integrity and reliability of credit
ratings provided to investors.
Overall, the regulatory framework for the primary market is designed to foster
investor confidence, promote market efficiency, and facilitate capital formation
while maintaining the integrity and stability of the financial system.

Steps involved in listing of securities:

The process of listing securities involves several steps to ensure compliance
with regulatory requirements and to facilitate trading on stock exchanges. Here
are the typical steps involved:
Preparation and Due Diligence: The issuing company engages in thorough
preparation, including financial audits, legal compliance checks, and
preparation of offering documents such as prospectuses or offer documents.
Appointment of Intermediaries: The company appoints various intermediaries
such as merchant bankers, legal advisors, auditors, and registrars to the issue to
assist with the listing process.
Approval from Regulators: The company files necessary documents with the
Securities and Exchange Board of India (SEBI) and obtains approval for the
issuance and listing of securities. This involves complying with SEBI
regulations and guidelines for disclosures, pricing, and allotment.
Offering Process: The company launches the offering, which may include an
initial public offering (IPO), rights issue, or preferential allotment. It advertises
the offering, collects applications from investors, and determines the final
pricing and allotment of securities.
Allotment and Listing: After the offering period closes, the company finalizes
the allotment of securities to investors based on applicable regulations and
oversubscription criteria. Once allotment is completed, the securities are listed
on one or more stock exchanges as per the company's choice.
Trading Commencement: Once listed, the securities become available for
trading on the stock exchanges. Investors can buy and sell the securities through
brokers on the exchange's trading platform.
Post-Listing Compliance: The company must comply with ongoing disclosure
and reporting requirements prescribed by the stock exchanges and SEBI. This
includes timely submission of financial results, disclosures of material events,
and adherence to corporate governance norms.
Market Making (Optional): In some cases, especially for newly listed
companies, market makers may be appointed to provide liquidity and support
trading in the company's securities.
Throughout the listing process, the company, along with its intermediaries, must
ensure compliance with regulatory requirements, transparency in disclosures,
and fair treatment of investors to maintain market integrity and investor
confidence.

Roles and functions of secondary market:

The secondary market serves several roles and functions in the financial system:
Liquidity Provision: It allows investors to buy and sell previously issued
securities, providing liquidity to investors who wish to exit their positions or
enter new ones.
Price Discovery: Secondary markets determine the prices of securities based on
supply and demand, reflecting the market's perception of the true value of the
assets.
Risk Reduction: Investors can diversify their portfolios and manage risk by
buying and selling securities in the secondary market.
Capital Formation: Companies can raise additional capital by issuing new
securities in the primary market, knowing that investors can later trade these
securities in the secondary market.
Efficiency: The secondary market fosters efficiency by allocating capital to its
most productive uses, as prices adjust based on market information and investor
sentiment.
Market Transparency: It provides transparency by publicly displaying prices
and trading volumes, allowing investors to make informed decisions.
Arbitrage Opportunities: Traders can exploit price discrepancies between
different markets or instruments, contributing to market efficiency.
Overall, the secondary market plays a crucial role in the functioning of financial
markets, promoting liquidity, efficiency, and capital formation.

Market structure of secondary market:

The secondary market typically has a decentralized structure and can be
organized into various types of trading platforms:
Exchange-Traded Markets: These markets operate through centralized
exchanges where buyers and sellers interact in a regulated environment.
Examples include the New York Stock Exchange (NYSE) and NASDAQ.
Over-the-Counter (OTC) Markets: In OTC markets, securities are traded
directly between parties without a centralized exchange. Dealers facilitate trades
by matching buyers and sellers. Examples include the bond market and foreign
exchange market.
Electronic Communication Networks (ECNs): ECNs are electronic platforms
that automatically match buy and sell orders. They provide a venue for trading
outside traditional exchanges, often used for trading stocks and other financial
instruments.
Alternative Trading Systems (ATS): ATS are trading platforms that operate
outside traditional exchanges. They may offer alternative trading mechanisms,
such as dark pools, and cater to institutional investors seeking anonymity or
specialized trading strategies.
Broker-Dealer Networks: These networks consist of broker-dealers who
facilitate trades among their clients or with other broker-dealers. They provide
liquidity and execute trades on behalf of investors.
Crossing Networks: Crossing networks match buy and sell orders internally
within a single brokerage firm or institution, allowing them to execute large
orders without impacting market prices.
Overall, the secondary market structure is diverse, with various trading
platforms catering to different types of securities and investor preferences. Each
type of market structure has its own regulations, liquidity characteristics, and
trading mechanisms.

Participants of secondary market:

The secondary market involves several participants who play different roles in
buying, selling, and facilitating the trading of securities. Here are the main
participants:

Investors: These are individuals, institutions, or entities that buy and sell
securities in the secondary market. They include retail investors, such as
individual traders, and institutional investors, such as mutual funds, hedge
funds, pension funds, and insurance companies.
Brokers: Brokers act as intermediaries between buyers and sellers in the
secondary market. They execute buy and sell orders on behalf of investors and
provide various services, such as research, market analysis, and investment
advice. Brokers can be full-service brokers who offer a wide range of services
or discount brokers who provide basic execution services at lower costs.
Market Makers: Market makers are individuals or firms that provide liquidity to
the market by quoting both buy and sell prices for specific securities. They
stand ready to buy or sell securities at publicly quoted prices, helping to
facilitate trading and maintain orderly markets. Market makers earn profits from
the spread between the bid and ask prices.
Exchanges and Trading Platforms: Exchanges and trading platforms provide the
infrastructure and regulatory framework for trading securities in the secondary
market. They match buy and sell orders, ensure transparency, and enforce rules
and regulations. Examples include stock exchanges like the New York Stock
Exchange (NYSE) and electronic trading platforms like NASDAQ.
Regulators: Regulatory agencies oversee the secondary market to ensure fair
and orderly trading, protect investors, and maintain market integrity. They
enforce rules and regulations, conduct surveillance, and investigate misconduct.
Examples of regulatory agencies include the Securities and Exchange
Commission (SEC) in the United States and the Financial Conduct Authority
(FCA) in the United Kingdom.
Clearinghouses: Clearinghouses act as intermediaries between buyers and
sellers, ensuring the smooth settlement of trades in the secondary market. They
facilitate the transfer of securities and funds between counterparties, mitigate
counterparty risk, and maintain the integrity of the settlement process.
Depositories: Depositories hold and maintain securities in electronic form,
enabling efficient settlement and transfer of ownership in the secondary market.
They provide custody services, record-keeping, and facilitate the transfer of
securities between investors.
These participants interact within the secondary market ecosystem, each
contributing to the efficient functioning of the market and ensuring liquidity,
transparency, and investor protection.

Define brokers and also describe the types of brokers:

Brokers are intermediaries who facilitate the buying and selling of securities on
behalf of investors in the financial markets. They execute trades, provide
investment advice, and offer various services to their clients. Brokers may work
for brokerage firms or operate independently. Their primary role is to ensure
that investors' orders are executed efficiently and at the best available prices.
There are several types of brokers based on the services they offer and the
clients they serve:
Full-Service Brokers: These brokers offer a wide range of services, including
investment advice, research, financial planning, and portfolio management.
They cater to high-net-worth individuals and institutional investors who require
personalized services and guidance in managing their investments.
Discount Brokers: Discount brokers provide basic execution services at lower
costs compared to full-service brokers. They typically do not offer investment
advice or personalized services but focus on executing trades efficiently and at
competitive prices. Discount brokers are popular among individual investors
who prefer to manage their investments independently.
Online Brokers: Online brokers operate exclusively through online platforms,
allowing investors to trade securities electronically. They offer a user-friendly
interface, real-time market data, and low trading fees. Online brokers have
gained popularity among retail investors due to their convenience and
accessibility.
Institutional Brokers: Institutional brokers cater to institutional investors, such
as mutual funds, hedge funds, pension funds, and insurance companies. They
provide specialized services tailored to the needs of large institutional clients,
including block trading, algorithmic trading, and access to research and market
insights.
Execution-Only Brokers: These brokers focus solely on executing trades as
instructed by their clients without providing any investment advice or
recommendations. They offer fast and efficient order execution at competitive
prices but do not offer additional services beyond trade execution.
Introducing Brokers: Introducing brokers act as intermediaries between clients
and larger brokerage firms. They refer clients to the brokerage firm and may
provide some basic services, but the actual execution of trades and client
servicing is handled by the larger brokerage firm.
These types of brokers cater to different segments of the market and offer
varying levels of services and expertise to meet the diverse needs of investors.