CAPITAL MARKET

.
 DEFINITION

• A capital market is a market for securities

(debt or equity), where business enterprises
(companies) and governments can raise long-
term funds.
Types of securities:

Managed funds (whether owned by the investing

individuals or by an investment company).

Bank deposits

Primary securities – equities, bonds, etc.

Distinctive features of capital markets:

Market is two-way – clients sell as well as buy.

Prices are flexible rather than administered /

fixed like management commission
charges.

The information structure is complex.

They deal in primary securities.

These securities are variable in price (like managed

funds but unlike bank deposits and financial
management).

Trade occurs without intervention of financial

intermediary (banks).
Functions of capital markets:

(i) Risk sharing

(ii) Information sharing

Information structure of capital markets:
In capital markets, in contrast to other financial markets:
Many clients / traders are sophisticated professionals as
skilled and
knowledgeable as the dealer. Indeed, insider traders / clients
know more than anyone else.

Insider traders know something, e.g. forthcoming takeover

bid, which is unknown to others.
Insiders’ purchases or sales may signal their information.
Markets for banking, insurance, etc.,

Primary and secondary capital markets:

Primary capital markets organize new issues of securities.
Secondary capital markets are a ‘second hand’ market
 Primary market
• Companies in order to meet the financial
requirements of its projects raises capital through
issue of securities(shares and debentures) in the
primary market.
• Capital issues of the companies were controlled by
the capital issue control act, 1947.
SEBI(1988)
Control on capital issue were substituted by securities
exchange board of india under SEBI act, 1992.
 Types of issue
A company can raise its capital through issue of
shares and debentures my means of
• Public issue
• Rights issue
• Bonus issue
• Private placement
• Bought out deal
 Secondary market
• The secondary market is that segment of the
capital market where the outstanding
securities are traded.
• The secondary market operates through the
medium of stock exchanges which regulates
the trading activities in this market .
 Regulatory authorities
• US securities and exchange commission
• Securities and exchange board of india.
• Australian securities and investments
commission
• Authority of financial markets
• Canadian securities administrators
• Securities and exchange surveillance
commission.
 Capital market vs money market
Capital market
• It’s for long-term investment
• Selling stocks & bonds for borrowing money
only
• Stocks &bonds are used
 Money market
• It’s for short term only
• It can be both for borrowing & lending money
• Commercial paper, certificates of paper,
treasury bills etc are used.
 Capital market instrument in India
• Equity shares
• Preference shares
• Debentures/bonds
• Innovative debt instrument
• Options/option contracts
• Futures contracts