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What are the various types of


financial markets?

The Financial Markets can


broadly be divided into:

 MONEY MARKET

 CAPITAL MARKET

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Capital Market
 The market where investment
instruments like bonds, equities and
mortgages are traded is known as the
Capital Market.

 The primal role of this market is to make


investment from investors who have
surplus funds to the ones who are
running a deficit.

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Significance of Capital Market

 Link between savers and investors


 Stability in security prices
 Speed up economic growth and development
 Helps in capital formation
 Helps in creating liquidity

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Types of Capital Markets :

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 PRIMARY MARKET :
A market where the issuers access the
prospective investors directly for
funds required by them either for
expansion or for meeting the
working capital needs. This process
is called disintermediation where the
funds flow directly from investors to
issuers.

The primary market is also called new


issue market.

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Features of Primary Market:
 This is the market for new long term capital. The primary
market is the market where the securities are sold for the
first time. Therefore it is also called New Issue Market
(NIM).
 In a primary issue, the securities are issued by the
company directly to investors.
 The company receives the money and issue new security
certificates to the investors.
 Primary issues are used by companies for the purpose of
setting up new business or for expanding or modernizing
the existing business.
 The primary market performs the crucial function of
facilitating capital formation in the economy.
 The new issue market does not include certain other
sources of new long term external finance, such as loans
from financial institutions. Borrowers in the new issue
market may be raising capital for converting private
capital into public capital; this is known as ‘going public’.
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Methods of raising capital in the
Primary Market:

 Public issue
 Private placement
 Euro issues
 Government securities
 Offer for sale
 Right issue
 Electronic initial public offering

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SECONDARY MARKET :

A market where securities are


traded after being initially offered
to the public in the primary
market and/or listed in the stock
exchange. Majority of the trading
is done in the secondary market.
This market comprises of Equity
market and Debt Market.

Secondary market provides liquidity


to the securities on the
exchange(s) and this activity
commences subsequent to the
original issue.
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Features of Secondary Markets
 Help in determining fair prices based on
demand and supply forces and all
available information
 Provides easy marketability and liquidity
for investors
 Facilitation in capital allocations in
primary market through price signalling
 Enabling investors to adjust portfolios of
securities

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Participants in the Secondary
Market
 Stock Exchange
 Clearing Corporation
 Depositories/ DP
 Trading Member (Stock Broker)/
Clearing Member
 Registrar to an Issue and Share Transfer
Agent

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What are the products dealt in
Secondary Markets ?

 Equity shares

 Debentures

 Government securities

 Bonds

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Difference between Primary and
Secondary Market
In the primary market, securities are
offered to public for subscription for the
purpose of raising capital or fund.
Secondary market is an equity trading
avenue in which already existing/pre-
issued securities are traded among
investors.
Secondary market could be either auction
or dealer market. While stock exchange
is a part of an auction market.
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Market Participants
 Investors
 Issuers
 Regulators
 Custodians
 Broker Dealers
 Depositories
 Clearing Agents
 Lead Managers

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 Issuer - An Issuer is a legal entity that develops,
registers and sells securities for financing its
operations.
 Investors - A stock investor is an individual or
institution who puts money to buy securities,
offering potential profitable returns, as interest,
income, or appreciation in value.
 GOAL: CAPITAL GAINS
 Rely on fundamental analysis for investment
decisions

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 Regulators -Financial institution responsible for
supervision, which subjects issuers to certain
requirements, restrictions and guidelines, aiming
to maintain the integrity of the financial system.
Non-Government Bodies Government Bodies
 Registrars- A Registrar is an institution or
organization that is responsible for keeping
records of bondholders and shareholders
 Custodians - A custodian bank, or simply
custodian, is a specialized financial institution
responsible for safeguarding a firm's or individual's
financial assets.

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 Brokers and Dealers Clients Members
licensed to sell securities Broker /Dealer
Regulatory Bodies Structure of the
Financial Industry A broker/dealer is the
catalyst for financial transactions Buyer
Broker Stock Exchange Broker Seller

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Securities and Exchange Board of
India (SEBI)
SEBI is the regulator of securities market
in India. It was established on 12 April
1988.

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SEBI is required to regulate and promote the securities
market by:
 Providing fair dealings in the issues of securities and
ensuring a market place where funds can be raised at
a relatively low cost.
 Providing a degree of protection to the investors and
safeguard their rights and interests so that there is a
steady flow of savings into the market.
 Regulating and developing a code of conduct and fair
prices by intermediaries in the capital market like
brokers and merchant banks with a view to make
them competitive and professional. 19
Role of SEBI in Indian Capital Market
 Power to make rules for controlling stock exchange :
SEBI has power to make new rules for controlling stock exchange in India. For example, SEBI
fixed the time of trading 9 AM and 5 PM in stock market.

 To provide license to dealers and brokers :


SEBI has power to provide license to dealers and brokers of capital market. If SEBI sees that
any financial product is of capital nature, then SEBI can also control to that product and its
dealers.

 To Stop fraud in Capital Market :


SEBI has many powers for stopping fraud in capital market.
> It can ban on the trading of those brokers who are involved in fraudulent and unfair trade
practices relating to stock market.
> It can impose the penalties on capital market intermediaries if they involve in insider trading.

 To Control the Merge, Acquisition and Takeover the companies :


SEBI sees whether this merge or acquisition is for development of business or to harm capital
market.

 To audit the performance of stock market :


SEBI uses his powers to audit the performance of different Indian stock exchange for bringing
transparency in the working of stock exchanges.
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 To make new rules on carry - forward transactions :
> Share trading transactions carry forward can not exceed 25% of broker's
total transactions.

> 90 day limit for carry forward.

 To create relationship with ICAI :


SEBI creates good relationship with ICAI for bringing more transparency in the
auditing work.

 Introduction of derivative contracts on Volatility Index :


For reducing the risk of investors, SEBI has now been decided to permit Stock
Exchanges to introduce derivative contracts on Volatility Index

 To Require report of Portfolio Management Activities :


SEBI has also power to require report of portfolio management to check the
capital market performance.

 To educate the investors :


Time to time, SEBI arranges scheduled workshops to educate the investors.

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