BASICS OF CAPITAL MARKET

The capital market consists of primary markets and secondary markets. The primary market creates long-term instruments through which corporate entities raise capital. This is also referred to as the new issue market. But secondary market is the one which provides liquidity and marketability to the Instruments created in the primary market by providing an arena for the buying & selling (trading) of these securities.

PRIMARY MARKET

SECONDARY MARKET

PRIMARY MARKET
Primary markets facilitate the formation of capital. This market generally referred to as the market for mobilization of resources by the companies and government. When a company wishes to raise capital by issuing securities, it goes to the primary market, where issuers exchange financial securities for long-term funds. No elements of trading in primary market operations and investors apply through applications and subscribe directly to equity / debt of a company.

Ways of raising capital in Primary Market.
 Public issue
 Rights issue

 Private placement.
 Bought-out deals.

PUBLIC ISSUE
Public issue involving the sale of securities to the public is the most important mode of raising long-term funds. Rights issue is the method of raising further capital fro the existing shareholders by offering additional securities to them on pre-emptive basis. For both public issue and rights issue SEBI has prescribed the prospectus contents and abridged prospectus requirements which should be accompanied by each application form.

PRIVATE PLACEMENT
Private placement is a way of selling securities by a company to one or few investors, and the terms of issue are negotiated between the company (issuing securities) and the investor. In private placement market, securities are sold, mainly to institutional investors like UTI, mutual funds, insurance companies (LIC and GIC) etc. SEBI has now prescribed a lock-in period for securities which are privately placed.

BOUGHT-OUT DEAL
A bought-out deal is a process whereby an investor or a group of investors buy out a significant portion of the equity of an unlisted company with a view to taking it to the public in an agreed time frame.

SECONDARY MARKET
 Secondary market is a market where securities

created in primary market are traded.  It provides liquidity to the securities issued in primary market.  The secondary market operates through the medium of stock exchanges which regulates the trading activities in the market and ensures a measure of safety and fair dealing to the investor.

 The first Indian stock exchange established at Mumbai in

1875 is the oldest exchange in Asia.  The stock exchanges in India are regulated under the Securities Contracts (Regulation) Act which was passed in 1956. Government has powers to supervise and control the stock exchanges and also keep a check on the governing body and supercede it if any irregularities are found committed.  SEBI oversees the functioning of the securities market and the intermediaries like Brokers, Portfolio Managers & Investment Advisors etc.

REGULATIONS OF CAPITAL MARKET
 Regulation of the capital markets & protection of investor's interest is primarily the responsibility of

the SEBI. • SEBI's functions include: •Regulating the business in stock exchanges and any other securities markets •Registering and regulating the working of collective investment schemes, including mutual funds. •Prohibiting fraudulent and unfair trade practices relating to securities markets. •Promoting investor's education and training of intermediaries of securities markets.

Cont.
• Prohibiting insider trading in securities, with the

imposition of monetary penalties, on erring market intermediaries. • Regulating substantial acquisition of shares and takeover of companies. • Calling for information from, carrying out inspection, conducting inquiries and audits of the stock exchanges and intermediaries and self regulatory organizations in the securities market.

Cont.
 Fraudulent and Unfair Trade Practices- SEBI is vested with powers to take action against practices relating to securities market manipulation &

misleading statements.  Inspection and Enforcement- SEBI has the powers of a civil court in respect of production of books, documents, records, accounts, summoning & enforcing attendance of company/person and examining them under oath. SEBI can levy fines for violations related to failure to submit information to SEBI or to redress investor grievances, violations by mutual funds/stock brokers and violations related to insider trading etc.

Recent Developments in Capital Markets
•Negotiated Dealing System- Electronic Order Matching (NDS-OM) Launched (Aug 1, 2005)- RBIoperated electronic trading system, does away with the physical exchange of forms between its trading members. Paperless transaction and transparency are key benefits.

•Mumbai as a Centre for International Fin (Nov 05). •Corporate Bond Market (announced by the FM in his Budget speech 2006-07)- to create a single, unified
exchange-traded market for corporate bonds.

•Anti-Money Laundering Guidelines (Jan, 2006)- to
discourage and identify any money laundering or terrorist financing activities.

•Introduction of Gold Exchange traded fund schemes by Mutual Funds (12th Jan, 2006).

Thank You