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TOPICS TO BE COVERED
PRIMARY MARKET AND ITS INTERMEDIARIES PRIMARY MARKET ORGANISATION :

ACTIVITIES/PROCEDURES
SECONDARY MARKET

CAPITAL MARKET INSTRUMENTS

CAPITAL MARKET : The capital market is an important constituent of the financial system . It is a market for long-term funds both equity and debt and funds raised both within and outside the country. The capital market aides economic growth by mobilizing the savings of the economic sectors and directing the same towards channel of productive use . The development of an efficient capital market is necessary for creating a climate conducive to investment and economic growth. The capital market comprises the primary capital market and the secondary capital market.

PRIMARY MARKET AND ITS INTERMEDIARIES

PRIMARY MARKET: The primary market is a market for new issues. It is also called new issues market. It is a market for fresh capital. Funds are mobilized in the primary market through prospectus , rights issue and private placement.

PRIMARY ISSUES

PUBLIC ISSUE

RIGHTS ISSUE
OFFER FOR SALE PRIVATE PLACEMENTS

INITIAL PUBLIC OFFER (IPO)

FOLLOW ON PUBLIC OFFER (FPO)

PRIVATE PREFERENTIAL QUALIFIED PLACEMENTS ISSUE INSTTITUTION PLACEMENTS

INITIAL PUBLIC OFFER: Initial public offering is an offering of either a fresh issue of securities or an offer for sale of an existing securities , or both by an unlisted company for the first time to the public. IPO enables listing and trading of the issuers securities. FOLLOW-ON PUBLIC OFFER(FPO): An FPO is an offering of either a fresh issue of securities or an offer for sale of securities to the public by an already listed company through an offer document. It is an offer for sale of securities by a listed company. FPO is also known as seasoned or subsequent public offering. Listed companies issue FPOs to finance their growth plans. Investors participating in these offerings take informed decisions based on its track record and performance.

PROSPECTUS: Prospectus is an offer document in case of a public issue. It has all relevant details including price and number of shares being offered. It is registered with ROC after the closure of issue in case of a book built issue.
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The Process for Book Building: 1. The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'. 2. The Issuer specifies the number of securities to be issued and the price band for orders. 3. The Issuer also appoints syndicate members(underwriters, financial institutions, brokers etc) with whom orders can be placed by the investors.

4. 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.
5. A Book should remain open for a minimum of 5 days. 6. Bids cannot be entered less than the floor price.

8. Bids can be revised by the bidder before the issue closes. 9.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. 10. The book runner and the company conclude the final price at which it is willing to issue the stock and allocation of securities. 11. Generally, the number of shares are fixed, the issue size gets frozen based on the price per share discovered through the book building process. 12. Allocation of securities is made to the successful bidders. 13. Trading of securities starts on the exchange on which the shares are listed.

OFFER DOCUMENT means prospectus in case of a public issue or offer for sale and letter of offer in case of a rights issue. Some of the information that has to be disclosed in offer document are EPS, P/E , average net worth return based on last three years, pre issue EPS for three years , credit ratings , internal and external risk factors etc. LISTED COMPANY means a company which has any of its securities offered through an offer document listed on a recognized stock exchange and also includes public sector undertakings whose securities are listed on a recognized stock exchange. OFFER FOR SALE means offer of securities by existing shareholder(s) of a company to the public for subscription through an offer document. PUBLIC ISSUE means an invitation by a company to the public to subscribe to the securities offered through a prospectus. ISSUER COMPANY means a company which has filed offer documents with the SEBI for making issue of securities. 9

RIGHTS ISSUE: It is an offer of new securities by a listed company to its existing shareholders on pro-rata basis. Rights issue is different from public issue: In a right issue, new shares are offered to existing shareholders while in public issue shares are issued to public at large. In case of rights issue, shareholders can renounce their rights entitlement (REs) while there is no such thing in case of a public issue.

Rights shares are allotted based on shareholding as on record date as against proportionate allotment based on application size in public issues. All details of shareholders on record date is available with the company, other than those who have purchased RE from the market and become eligible for rights issue subsequently.

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INDIAN DEPOSITORY RECEIPTS(IDRs): Just as Indian companies tap foreign capital markets to raise funds , similarly , foreign companies can now issue their shares to Indian nationals in India. To enable Indian investors to diversify risk and as a step towards integration of the Indian capital market with the international capital markets, foreign companies are allowed to tap the Indian capital markets through IDRs. An IDR is an instrument dominated in Indian rupees in the form of a depository receipt against the underlying equity of issuing company to enable foreign companies to raise funds from Indian capital markets. PRIVATE PLACEMENTS: Private placements refer to the direct sale of newly issued securities by the issuer to a small number of investors through merchant bankers. The number of investors can only go upto 49. PREFERENTIAL ISSUE: A public or rights issue is cumbersome and requires compliance with statutory provisions . Hence, many companies opt for preferential allotment.
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A preferential issue is an issue of shares or of convertible securities by listed companies to a select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer company has to comply with the Companies Act and the requirement pertaining to preferential allotment in SEBI (DIP) guidelines which inter-alia include pricing, disclosures in notice etc. The preferential issue of equity shares/ Fully Convertible Debentures (FCDs) / Partly Convertible Debentures (PCDs) or any other financial instruments which would be converted into or exchanged with equity shares at a later date, by listed companies whose equity share capital is listed on any stock exchange, to any select group of persons under section 81(1A) of the Companies Act 1956 on private placement basis shall be governed by these guidelines. Such preferential issues by listed companies by way of equity shares/ Fully Convertible Debentures (FCDs) / Partly Convertible Debentures (PCDs) or any other financial instruments which would be converted into / exchanged with equity shares at a later date, shall be made in accordance with the pricing provisions mentioned below:
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Pricing of the issue The issue of shares on a preferential basis can be made at a price not less than the higher of the following: i) The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date; OR ii) The average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the two weeks preceding the relevant date. QUALIFIED INSTITUTIONS PLACEMENTS (QIP): Qualified institutional placement (QIP) is a capital raising tool, whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants, which are convertible into equity shares, to a qualified institutional buyer (QIB).
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Apart from preferential allotment, this is the only other speedy method of private placement for companies to raise money. It scores over other methods, as it does not involve many of the common procedural requirements, such as the submission of pre-issue filings to the market regulator. To enable listed companies raise money from domestic markets in a short span of time, market regulator Sebi introduced the concept of QIP in 2006. This was also done to prevent listed companies in India from developing an excessive dependence on foreign capital. Prior to introduction of QIPs, the complications associated with raising capital in the domestic markets had led many companies to look at tapping overseas markets via foreign currency convertible bonds (FCCB) and global depository receipts (GDR). This has also helped issuing companies price their issues closer to the prevailing market price. The specified securities can be issued only to QIBs, who shall not be promoters or related to promoters of the issuer. The issue is managed by a Sebiregistered merchant banker. There is no pre-issue filing of the placement document with Sebi. The placement document is placed on the websites of the stock exchanges and the issuer, with appropriate disclaimer to the effect that the placement is meant only for QIBs on private placement basis and is not an offer 14 to the public.

AUCTION BASED BOOK BUILDING: Pure auction is an additional method of book building in which the bidders would be free to bid at any price above the floor price and allotment would be on price priority basis and at differential prices. This method can be used only in case of FPOs.

REVERSE BOOK BUILDING: It is a price discovery mechanism for companies who want to delist their shares or buy back shares from shareholders. RED HERRING PROSPECTUS:
It is a preliminary registration statement that must be filed with the Securities and Exchange Commission or provincial securities commission. It describes the issue (IPO) and the prospects of the company. There is no price or issue size stated in the Red Herring. It is updated several times before being called the final prospectus. It is called so because it contains a passage in red that states the company is not attempting to sell its shares before the registration is approved by the SEC.
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MERCHANT BANKER:
A merchant banker means any person who is engaged in the business of issue management either by making arrangements regarding selling , buying or subscribing to securities or acting as manager /consultant / advisors or rendering corporate advisory services in relation to such issue management. Merchant bankers require compulsory registration with SEBI to carry out their activities. Different categories of merchant bankers Category 1: These can carry on any activity related to issue management , that is, preparation of prospectus and other information relating to the issue , determining the financial structure tie-up of financers ,final allotment of securities , refund of subscription and so on. They can also act as advisors ,consultants , managers , underwriters or portfolio managers .
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Category 2: these can act as advisors , consultants , co-managers , underwriters , and portfolio managers. Category 3: these managers can act as underwriters , advisors and consultants to an issue Category 4: these merchant bankers can only act as advisors or consultants to an issue. Thus , only category 1 merchant bankers could act as lead managers to an issue. With effect from December 9 , 1997 , however , only category 1 merchant bankers are registered by the SEBI . To carry on activities as portfolio managers, they have to obtain separate certificate of registration from the SEBI.

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UNDERWRITERS: Another important intermediary in the new issue market is the underwriters to issues of capital who agree to take up securities which are not fully subscribed. They make a commitment to get the issue subscribed either by others or by themselves. Though underwriting is not mandatory after April 1995 , its organization is an important element of the primary market. They are appointed by the issuing company in consultation with the lead managers or merchant bankers to the issues. A statement to the effect that in the opinion of lead manager , the underwriters asset are adequate to meet their obligation should be incorporated in the prospectus. BANKERS TO THE ISSUE: The bankers to an issue are engaged in activities such as acceptance of application money from the investors in respect of issues of capital and refund of application money.
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The term issue means an offer for sale / purchase of security by any body corporate / person / group of persons on his /its/ their behalf to or from the public / the holders of securities of the body corporate / person / group of persons.

BROKERS TO THE ISSUE: Brokers are the persons mainly concerned with the procurement of subscription to the issue from the prospective investors. The appointment of brokers is not compulsory and the companies are free to appoint any number of brokers. The managers to the issue and the official brokers organize the preliminary distribution of securities and procure direct subscription from as large or as wide a circle of investors as possible. SHARE TRANSFER AGENT(STA): STA maintains the records of the holders of the securities on behalf of companies and deals with all the matters connected with the transfer/redemption of its securities.
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REGISTRAR TO AN ISSUE(RI): The RI carries on activities such as collecting application from the investors , keeping a proper record of the applications and money received from investors/paid to sellers , assisting the issuers in determining the basis of allotment of securities in consultation with the stock exchange(s), finalizing the allotment of securities and processing/dispatching allotment letters , refund orders certificates and other related documents in respect of issue of capital. PORTFOLIO MANAGEMENT: PORTFOLIO means total holdings of securities of a person. Portfolio managers advice/directly undertake the management/administration of portfolio of securities/funds of clients, on their behalf . Portfolio management can be discretionary or non-discretionary. Discretionary portfolio management permits the exercise of discretion by the portfolio manager with regards to the investment/management of the portfolio.
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Funds are invested in an non-discretionary portfolio management in accordance with the direction of the client(s). Portfolio management services in the country should be carried out with in the framework of SEBI regulations. according to these, merchant bankers can carry out such activities , but other categories of portfolio managers must obtain a certificate or registration from SEBI. BOOK RUNNING LEAD MANAGER(BRLM): BRLM is lead merchant banker appointed by the issuer company and whose name is mentioned in the offer document.

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PRIMARY MARKET ORGANISATION : ACTIVITIES/PROCEDURES

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PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO THE SECURITIES MARKET Prohibition of certain dealings in securities No person shall directly or indirectly(a) buy, sell or otherwise deal in securities in a fraudulent manner; (b)use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange;

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(d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.

Prohibition of manipulative, fraudulent and unfair trade practices

(1) Without prejudice to the provisions of regulations mentioned above, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:(a) indulging in an act which creates false or misleading appearance of trading in the securities market; (b) dealing in a security not intended to effect transfer of beneficial ownership 24 but intended to operate only as a device to inflate, depress or cause fluctuations

in the price of such security for wrongful gain or avoidance of loss; (c) advancing or agreeing to advance any money to any person thereby inducing any other person to offer to buy any security in any issue only with the intention of securing the minimum subscription to such issue;

(d) paying, offering or agreeing to pay or offer, directly or indirectly, to any person any money or moneys worth for inducing such person for dealing in any security with the object of inflating, depressing, maintaining or causing fluctuation in the price of such security;
(e) any act or omission amounting to manipulation of the price of a security; (f) publishing or causing to publish or reporting or causing to report by a person dealing in securities any information which is not true or which he does not believe to be true prior to or in the course of dealing in securities; (g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security;
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(h) selling, dealing or pledging of stolen or counterfeit security whether in physical or dematerialized form; (i) an intermediary promising a certain price in respect of buying or selling of a security to a client and waiting till a discrepancy arises in the price of such security and retaining the difference in prices as profit for himself; (j) an intermediary providing his clients with such information relating to a security as cannot be verified by the clients before their dealing in such security; (k) an advertisement that is misleading or that contains information in a distorted manner and which may influence the decision of the investors; (l) an intermediary reporting trading transactions to his clients entered into on their behalf in an inflated manner in order to increase his commission and brokerage; (m) an intermediary not disclosing to his client transactions entered into on his 26 behalf including taking an option position;

(n) circular transactions in respect of a security entered into between intermediaries in order to increase commission to provide a false appearance of trading in such security or to inflate, depress or cause fluctuations in the price of such security; (o) encouraging the clients by an intermediary to deal in securities solely with the object of enhancing his brokerage or commission. (p) an intermediary predating or otherwise falsifying records such as contract notes. (q) an intermediary buying or selling securities in advance of a substantial client order or whereby a futures or option position is taken about an impending transaction in the same or related futures or options contract. (r) planting false or misleading news which may induce sale or purchase of securities.

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INSIDER means any person who, (i) is or was connected with the company or is deemed to have been connected with the company and is reasonably expected to have access to unpublished price sensitive information in respect of securities of a company, or (ii) has received or has had access to such unpublished price sensitive information. PRICE SENSITIVE INFORMATION means any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of securities of company. Explanation.The following shall be deemed to be price sensitive information : (i) periodical financial results of the company; (ii) intended declaration of dividends (both interim and final); (iii) issue of securities or buy-back of securities; (iv) any major expansion plans or execution of new projects. (v) amalgamation, mergers or takeovers; (vi) disposal of the whole or substantial part of the undertaking; (vii) and significant changes in policies, plans or operations of the company
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PROHIBITION ON DEALING, COMMUNICATING OR COUNSELLING Prohibition on dealing, communicating or counselling on matters relating to insider trading. No insider shall (i) either on his own behalf or on behalf of any other person, deal in securities of a company listed on any stock exchange[when in possession of] any unpublished price sensitive information; Or (ii) Communicate or counsel or procure directly or indirectly any unpublished price sensitive information to any person who while in possession of such unpublished price sensitive information shall not deal in securities : Provided that nothing contained above shall be applicable to any communication required in the ordinary course of business [or profession or employment] or under any law.

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A )No company shall deal in the securities of another company or associate of that other company while in possession of any unpublished price sensitive information. Above Regulation does not to apply in certain cases. B.) (1) In a proceeding against a company in respect of regulation A, it shall be a defence to prove that it entered into a transaction in the securities of a listed company when the unpublished price sensitive information was in the possession of an officer or employee of the company, if :

(a) the decision to enter into the transaction or agreement was taken on its behalf by a person or persons other than that officer or employee; and
(b) such company has put in place such systems and procedures which demarcate the activities of the company in such a way that the person who enters into transaction in securities on behalf of the company cannot have access to information which is in possession of other officer or employee of the company; and
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(c) it had in operation at that time, arrangements that could reasonably be expected to ensure that the information was not communicated to the person or persons who made the decision and that no advice with respect to the transactions or agreement was given to that person or any of those persons by that officer or employee; and

(d) the information was not so communicated and no such advice was so given.
(2) In a proceeding against a company in respect of regulation 3A which is in possession of unpublished price sensitive information, it shall be defence to prove that acquisition of shares of a listed company was as per the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. Violation of provisions relating to insider trading. Any insider who deals in securities in contravention of the provisions of regulation above [or A] shall be guilty of insider trading.

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SECONDARY MARKET

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SECONDARY MARKET: Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market via an IPO and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets, derivative and the debt markets. In the secondary market, there are basically three parties to a transaction. These are buyers, sellers and intermediaries between them. The first two categories consist of retail investors, high net worth individuals (HNIs), Mutual Fund Houses, Corporate and Institutional Investors, Foreign Institutional Investors etc. Intermediaries such as stockbrokers, depositories, depository participants and banks facilitate payment of money in share transactions. Most common stock trading is directed through an organized stock exchange or trading network. Whether a stock exchange or trading network, the goal is to match investors wishing to buy stocks with investors wishing to sell stocks 33

CERTAIN IMPORTANT TERMS: Price: - The price of a stock is totally guided by the forces of demand and supply. The share prices of liquid stocks with wide participation keep changing throughout the trading hours They can be tracked continuously on trading screens. Circuit Filters: - Share prices can swing in a volatile manner on back of news or even due to rigging by operators. It is important to protect the interest of investors and guard them against major losses due to such volatile price movements. So stocks are subjected to an upper and a lower circuit. The price of the stock can move within this range only on a particular trading day There are various slabs like 2%, 5%, 10% and 20% circuit that different stocks are subjected to. The slabs are fixed depending on various factors like share price, retail share holding etc. Volume: - The term volume refers to the total number of shares traded during the day .Volumes can be calculated for a particular stock, an index or even for the entire exchange.
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BOMBAY STOCK EXCHANGE (BSE OR SENSEX) AND NATIONAL STOCK EXCHANGE (NSE OR NIFTY) are the major indices in India. There are several other state stock exchanges and commodity exchanges like MCX and NCDEX etc. Following are the major indices of some of the countries:

Nikkei - Japan Kospi - Korea Hang Seng - Hong Kong Shanghai Index - China Straits Times - Singapore FTSE - London, Great britain Dow Jones, Nasdaq index - USA CAC - France DAX - Germany
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STOCK BROKING: The business of dealing in stocks and other securities for clients or the process of investing in the share market, either individually or through a broker is known as stock broking. This is primarily done by opening a Demat account. If done through a broker, he opens an account, helping you to operate through online stock broking facility. After the amount is invested, the broker tracks and monitors the investments, changes or reinvests depending on the performance and generates reports for them. This entire process is known as stock broking.

DEMAT ACCOUNT: The term "demat", refers to a dematerialised account for individual Indian citizens to trade in listed stocks or debentures in electronic form rather than paper, as required for investors by the Securities and Exchange Board of India (SEBI). In a demat account, shares and securities are held electronically instead of the investor taking physical possession of certificates. A demat account is opened by the investor while registering with an investment broker (or subbroker). The demat account number is quoted for all transactions to enable electronic settlements of trades to take place.
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CUSTODIAL SERVICES: The provision of efficient custodial services forms an important element in the evolution of a matured stock market system. The custodians of securities who provide custodial services play a critical role in secondary market . Main functions of such services include Maintaining accounts of securities of clients . Collecting the benefits and rights accruing to him in respect of the securities. Keeping him informed of the actions taken /to be taken by the issuer of securities . Maintaining and reconciling records of the services referred to above.

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DEPOSITORY: A depository is like a bank wherein the deposits are securities (viz. shares, debentures, bonds, government securities, units etc.) in electronic form.

A Depository can be compared with a bank, which holds the funds for depositors. An analogy between a bank and a depository may be drawn as Follows:

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DEPOSITORIES IN INDIA: There are two depositories in India which provide dematerialization of securities. The National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). THE BENEFITS OF PARTICIPATION IN A DEPOSITORY ARE: Immediate transfer of securities No stamp duty on transfer of securities Elimination of risks associated with physical certificates such as bad delivery, fake securities, etc. Reduction in paperwork involved in transfer of securities Reduction in transaction cost Ease of nomination facility Change in address recorded with DP gets registered electronically with all companies in which investor holds securities eliminating the need to correspond with each of them separately Transmission of securities is done directly by the DP eliminating correspondence with companies Holding investments in equity, debt instruments and Government securities in a single account; automatic credit into demat account, of shares, arising out of bonus /rights /consolidation/merger etc.
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Depository Participant (DP) The Depository provides its services to investors through its agents called depository participants (DPs). These agents are appointed by the depository with the approval of SEBI. According to SEBI regulations, amongst others, three categories of entities, i.e. Banks, Financial Institutions and SEBI registered trading members can become DPs. Market Capitalisation Market capitalisation is defined as value of all listed shares on the countrys exchanges. It is computed on a daily basis. Market capitalisation of a particular company on a particular day can be computed as product of the number of shares outstanding and the closing price of the share. Here the number of outstanding shares refers to the issue size of the stock. Market Capitalisation = Closing price of share * Number of outstanding shares. Similarly, to compute the market capitalization of all companies listed on an Exchange we aggregate the market capitalization of all the companies traded on 40 the Exchange

ROLE OF A STOCK EXCHANGE IN BUYING AND SELLING SHARES: The stock exchanges in India, under the overall supervision of the regulatory authority, the Securities and Exchange Board of India (SEBI), provide a trading platform, where buyers and sellers can meet to transact in securities. The trading platform provided by NSE is an electronic one and there is no need for buyers and sellers to meet at a physical location to trade. They can trade through the computerized trading screens available with the NSE trading members or the internet based trading facility provided by the trading members of NSE. BID AND ASK PRICE: The Bid is the buyers price. It is this price that you need to know when you have to sell a stock. Bid is the rate/price at which there is a ready buyer for the stock, which you intend to sell. The Ask (or offer) is what you need to know when you're buying i.e. this is the rate/ price at which there is seller ready to sell his stock. The seller will sell his stock if he gets the quoted Ask price. If an investor looks at a computer screen for a quote on the stock of say 41 XYZ Ltd, it might look something like this:

Here, on the left-hand side after the Bid quantity and price, whereas on the right hand side we find the Ask quantity and prices. The best Buy (Bid) order is the order with the highest price and therefore sits on the first line of the Bid side (1000 shares @ Rs. 50.25). The best Sell (Ask) order is the order with the lowest sell price (2000 shares @ Rs. 50.35). The difference in the price of the best bid and ask is called as the Bid-Ask spread and often is an indicator of liquidity in a stock. The narrower the difference the more liquid or highly traded is the stock.
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Short Selling and Securities Lending & Borrowing: Short Selling means selling of a stock that the seller does not own at the time of trade. Short selling can be done by borrowing the stock through Clearing Corporation/Clearing House of a stock exchange which is registered as Approved Intermediaries (AIs). Short selling can be done by retail as well as institutional investors. Naked short sale is not permitted in India, all short sales must result in delivery, and information on short sale has to be disclosed to the exchange by end of day by retail investors, and at the time of trade for institutional investors. The Securities Lending and Borrowing mechanism allows short sellers to borrow securities for making delivery. Securities in the F&O segment are eligible for short selling. Securities Lending and Borrowing (SLB) is a scheme that has been launched to enable settlement of securities sold short. SLB enables lending of idle securities by the investors through the clearing corporation/clearing house of stock exchanges to earn a return through the same. For securities lending and borrowing system, clearing corporations/clearing house of the stock exchange would be the nodal agency and would be registered as the "Approved Intermediaries"(AIs) under the Securities Lending Scheme, 1997. Under SLB, securities can be borrowed for a period of 7 days through a screen based order matching mechanism. Securities in the F&O segment are eligible for SLB.
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Reduction of Trading Cycle: Earlier, the trading cycle for stocks, based on type of securities, used to vary between 14 days to 30 days and the settlement involved another fortnight. The Exchanges, however, continued to have different weekly trading cycles, which enabled shifting of positions from one Exchange to another. It was made mandatory for all Exchanges to follow a uniform weekly trading cycle in respect of scrips not under rolling settlement. In December 2001, all scrips were moved to rolling settlement and the settlement period was reduced progressively from T+5 to T+3 days. From April 2003 onwards, T+2 days settlement cycle is being followed.

ASBA: Application Supported by Blocked Amount (ASBA) is a major primary market reform. It enables investors to apply for IPOs / FPOs and rights issues without making a payment. Instead, the amount is blocked in investors own account and only an amount proportionate to the shares allotted goes out when allotment is finalized.

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For all trades executed on a given day, it is important to determine the obligations standing at the end of the day against parties to trade. This process of ascertaining obligations is known as clearing, and the process of meeting or discharging these obligations is known as settlement. NSCCL is the corporation that deals with all clearing and settlement activities at NSE.

NSCCL: The National Securities Clearing Corporation Limited, a subsidiary of National Stock Exchange of India Ltd., was incorporated in August 1995 to carry out the clearing and settlement of the trades executed in the Equities and Derivatives segments of NSE. It also operates Subsidiary General Ledger (SGL) for settlement of trades in government securities and undertakes settlement of transactions on other stock exchanges like the Over the Counter Exchange of India (OTCEI). NSCCL commenced clearing operations in April 1996. The purpose behind setting up NSCCL was:

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To bring and sustain confidence in clearing and settlement of securities. To promote and maintain, short, consistent and well defined settlement cycles without any deviations. To provide counter-party risk guarantee. Margin payout NSCCL aggregates trades executed over a trading period, assesses the net positions in order to find out the liabilities of the members. Finally, it ensures that the respective liabilities are met with a regular movement of funds and securities.

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CAPITAL MARKET INSTRUMENTS

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INNOVATIVE DEBT INSTRUMENTS FORWARD CONTRACT DEBENTURES/BONDS

FUTURES CONTRACT

PREFERENCE SHARES

OPTION CONTRACT

CAPITAL MARKET INSTRUMENTS

EQUITY /ORDINARY SHARES

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Equity shares: Equity shares are those shares which are ordinary in the course of company's business. They are also called as ordinary shares. These share holders do not enjoy preference regarding payment of dividend and repayment of capital. Equity shareholders are paid dividend out of the profits made by a company. Higher the profits, higher will be the dividend and lower the profits, lower will be the dividend. Preference Shares: Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a company bankruptcy, preferred stock shareholders have a right to be paid company assets first. Preference shares typically pay a fixed dividend, whereas common stocks do not. And unlike common shareholders, preference share shareholders usually do not have voting rights.

Debenture: A type of debt instrument that is not secured by physical asset or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital. Like other types of bonds, debentures are documented in an indenture.
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Callable and Putable Bonds:

A callable bond gives the issuer of a bond an option to call, or redeem, a bond before its formal term. A callable bond (also called redeemable bond) is a type of bond (debt security) that allows the issuer of the bond to retain the privilege of redeeming the bond at some point before the bond reaches its date of maturity. In other words, on the call date(s), the issuer has the right, but not the obligation, to buy back the bonds from the bond holders at a defined call price.
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Puttable bond (put bond, putable or retractable bond) is a bond with an embedded put option. The holder of the puttable bond has the right, but not the obligation, to demand early repayment of the principal. The put option is exercisable on one or more specified dates. This type of bond protects investors: if interest rates rise after bond purchase, the future value of coupon payments will become less valuable. Therefore, investors sell bonds back to the issuer and may lend proceeds elsewhere at a higher rate. Bondholders are ready to pay for such protection by accepting a lower yield relative to that of a straight bond. A putable bond allows the holder of the bond to sell it back to the issuer before term

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Forwards A forward contract or simply a forward is a contract between two parties to buy or sell an asset at a certain future date for a certain price that is predecided on the date of the contract. The future date is referred to as expiry date and the pre-decided price is referred to as Forward Price. It may be noted that Forwards are private contracts and their terms are determined by the parties involved. A forward is thus an agreement between two parties in which one party, the buyer, enters into an agreement with the other party, the seller that he would buy from the seller an underlying asset on the expiry date at the forward price. Therefore, it is a commitment by both the parties to engage in a transaction at a later date with the price set in advance. Futures Like a forward contract, a futures contract is an agreement between two parties in which the buyer agrees to buy an underlying asset from the seller, at a future date at a price that is agreed upon today. However, unlike a forward contract, a futures contract is not a private transaction but gets traded on a recognized stock exchange.
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In addition, a futures contract is standardized by the exchange. All the terms, other than the price, are set by the stock exchange (rather than by individual parties as in the case of a forward contract). Also, both buyer and seller of the futures contracts are protected against the counter party risk by an entity called the Clearing Corporation. The Clearing Corporation provides this guarantee to ensure that the buyer or the seller of a futures contract does not suffer as a result of the counter party defaulting on its obligation. In case one of the parties defaults, the Clearing Corporation steps in to fulfil the obligation of this party, so that the other party does not suffer due to non-fulfilment of the contract. To be able to guarantee the fulfilment of the obligations under the contract, the Clearing Corporation holds an amount as a security from both the parties. This amount is called the Margin money and can be in the form of cash or other financial assets. Also, since the futures contracts are traded on the stock exchanges, the parties have the flexibility of closing out the contract prior to the maturity by squaring off the transactions in the market.

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Options Like forwards and futures, options are derivative instruments that provide the opportunity to buy or sell an underlying asset on a future date. An option is a derivative contract between a buyer and a seller, where one party (say First Party) gives to the other (say Second Party) the right, but not the obligation, to buy from (or sell to) the First Party the underlying asset on or before a specific day at an agreed-upon price. In return for granting the option, the party granting the option collects a payment from the other party. This payment collected is called the premium or price of the option. The right to buy or sell is held by the option buyer (also called the option holder); the party granting the right is the option seller or option writer.

Unlike forwards and futures contracts, options require a cash payment (called the premium) upfront from the option buyer to the option seller. This payment is called option premium or option price.
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Options can be traded either on the stock exchange or in over the counter (OTC) markets. Options traded on the exchanges are backed by the Clearing Corporation thereby minimizing the risk arising due to default by the counter parties involved. Options traded in the OTC market however are not backed by the Clearing Corporation. There are two types of optionscall options and put optionswhich are explained below Call option A call option is an option granting the right to the buyer of the option to buy the underlying asset on a specific day at an agreed upon price, but not the obligation to do so. It is the seller who grants this right to the buyer of the option. It may be noted that the person who has the right to buy the underlying asset is known as the buyer of the call option. The price at which the buyer has the right to buy the asset is agreed upon at the time of entering the contract. This price is known as the strike price of the contract (call option strike price in this case). Since the buyer of the call option has the right (but no obligation) to buy the underlying asset, he will exercise his right to buy the underlying asset if and only if the price of the underlying asset in the market is more than the strike price on or before the expiry date of the contract. The buyer of the call option does not have an obligation to buy if he does not want to.
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Put option A put option is a contract granting the right to the buyer of the option to sell the underlying asset on or before a specific day at an agreed upon price, but not the obligation to do so. It is the seller who grants this right to the buyer of the option. The person who has the right to sell the underlying asset is known as the buyer of the put option. The price at which the buyer has the right to sell the asset is agreed upon at the time of entering the contract. This price is known as the strike price of the contract (put option strike price in this case). Since the buyer of the put option has the right (but not the obligation) to sell the underlying asset, he will exercise his right to sell the underlying asset if and only if the price of the underlying asset in the market is less than the strike price on or before the expiry date of the contract. The buyer of the put option does not have the obligation to sell if he does not want to.

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PRESENTED BY: PULKIT JAIN NAMRATA LALWANI R. KARTIK OJASVI PARWANI

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