Securities Market

 It is a market for securities (debt or equity),

where business enterprises (companies)
and governments can raise long-term
funds.
 Includes the stock market (equity
securities) and the bond market (debt).
 Classified into Primary market and
Secondary market.

By Ms Sneha Vaidya
Need for securities market
 The process of industrial growth ,requires the
development of the capital market, Which
provides ,long-term finance to entrepreneurs.
 To finance business operations either in the
private sector or in the public sector.
 A link between savings surplus sector
(Household) and saving deficit sector (Industry).

By Ms Sneha Vaidya
Primary Market
 Deals with the issue of new securities - Companies,
governments or public sector institutions
 The process of selling new issues to investors is called
underwriting.
 In the case of a new stock issue, this sale is an initial public
offering (IPO).
 Four elements of primary market: Investors, Issuers,
Intermediaries, Regulators
 Who can raise finance in this market? Public ltd Companies
and Government
 Who can invest in this market? Individuals, financial institutions,
mutual funds, insurance companies
 Major players: Underwriters, merchant banks, and agencies
 Functions: To facilitate transfer resources from savers to the
users
Mobilizing funds from savers to borrowers
By Ms Sneha Vaidya
Underwriter
 An underwriter gives an undertaking, to the issuing company
to take the unsubscribed shares.
 In India under writing agencies can be classified into following
categories: 'sole underwriting', 'syndicate underwriting', a 'sub-
underwriting under sole underwriting'.
 An underwriter enters into an agreement for underwriting with
the issuing company all alone.
 Syndicate underwriting is used when the investment
bankers form a syndicate to purchase the securities of
company because money needed for such venture may be
larger than any one banker may like to invest.
 The third underwriting method i.e., sub-underwriting,
involves appointment of a sub underwriter to quicken the sale
of securities and diversify the risk involved.

By Ms Sneha Vaidya
Features
 This is the market for new long term equity capital. The primary market
is the market where the securities are sold for the first time. Therefore it
is also called the new issue market (NIM).
 In a primary issue, the securities are issued by the company directly to
investors.
 The company receives the money and issues 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."
 The financial assets sold can only be redeemed by the original holder.

By Ms Sneha Vaidya
Primary Market Issues
 Issues made by an Indian company can be classified as Public, Rights,
Bonus and Private Placement.

By Ms Sneha Vaidya
Public Issue
 (a) Public issue: When an issue / offer of securities is made to
new investors for becoming part of shareholders’ family of the
issuer3 it is called a public issue. Public issue can be further
classified into Initial public offer (IPO) and Further public offer
(FPO).
 (i) Initial public offer (IPO): When an unlisted company makes
either a fresh issue of securities or offers its existing securities
for sale or both for the first time to the public, it is called an IPO.
This paves way for listing and trading of the issuer’s securities
in the Stock Exchanges.
 (ii) Further public offer (FPO) or Follow on offer: When an
already listed company makes either a fresh issue of securities
to the public or an offer for sale to the public, it is called a FPO.

By Ms Sneha Vaidya
Public Issue
 Offer of sale
1. It consists in outright sale of securities through the
intermediary of issue houses or share brokers.
2. It consists of two stages: the first stage is a direct sale by the
issuing company to the issue house and brokers at an agreed
price.
3. In the second stage, the intermediaries resell the above
securities to the ultimate investors. The issue houses purchase
the securities at a negotiated price and resell at a higher price.
The difference in the purchase and sale price is called turn or
spread.
 (b) Right Issue
1. When a listed company proposes to issue securities to its
existing shareholders, whose names appear in the register of
members on record date, in the proportion to their existing
holding, through an offer document, such issues are called
‘Right Issue’.
By Ms Sneha Vaidya
Public Issue
 (c) Private placement
1. It involves sale of securities to a limited number of sophisticated
investors such as financial institutions, mutual funds, venture capital
funds, banks, and so on.
2. It refers to sale of equity or equity related instruments of an unlisted
company or sale of debentures of a listed or unlisted company.
Preferential Issue
1. An issue of equity by a listed company to selected investors at a
price which may or may not be related to the prevailing market price
is referred to as preferential allotment in the Indian capital market.
2. In India preferential allotment is given mainly to promoters or
friendly investors to ward off the threat of takeover.

By Ms Sneha Vaidya
Secondary Market
 Stock markets - Centers for trading of securities.
 Origin - Screen based trading system in 1994-95
 Total turnover of Rs.51,30,816 crore during 2007-08
 Big exchanges - NSE and BSE
 The 19 small exchanges put together reported less
than 0.02% of total turnover during 2007-08, while 2
big exchanges accounted for over 99.98 % of
turnover.

By Ms Sneha Vaidya
Overview of changes that have
taken place in Indian securities
market in last ten years
 Three most noticeable changes which have taken place
are 1) Dematerialization , 2) Introduction of screen based
trading and 3) Shortening of trading and settlement
cycles.
 The trading and settlement cycle in Indian securities
market which got reduced from as long as 22 days to 2
days currently.
 Presently in India, stock exchanges follow T+2 days
settlement cycle.
 trading happens on every business day, excluding
Saturday, Sunday and exchange notified holidays. The
trading schedule is between 10:00 a.m. in the morning to
3:30 p.m. in the evening.
By Ms Sneha Vaidya
Continued….
 The SEBI has made it mandatory that only brokers and sub-brokers
registered with it can buy and sell shares in the stock exchange. A
person desirous of buying or selling shares on the stock market
needs to get himself registered with one of these brokers / sub-
brokers.
 Brokers/sub brokers ask their clients to deposit money with them
known as margin based on which brokers provide exposure to the
clients in the stock market.
 However signing of client-broker agreement is not sufficient. It is
also essential for a person to open a demat account through which
securities are delivered and received.
 This demat account can be opened with a depository participant
which again is a SEBI registered intermediary. Some of the leading
depository in the country are Stock Holding Corporation of India
Ltd., ICICI Bank, HDFC Bank etc
 If an individual buys shares ,it is in the demat account that credit of
shares are received. Similarly when a person sells shares, he has to
transfer shares to the brokers account through his demat account.
All the brokers/sub-brokers also essentially have a demat account.
By Ms Sneha Vaidya
Secondary market operations
 Trading:
 Buying and selling of securities on stock
exchange
 2 major players: investor and broker
 Investor: Buys at lower price and sells at higher
price
 Broker: acts as an agent on behalf of client
 Broker negotiates with clients and deals in
securities

By Ms Sneha Vaidya
Two Basic Methods - On the
exchange floor and Electronically
 Exchange floor

 You tell your broker to buy 100 shares of Acme Kumquats at market.
 Your broker’s order department sends the order to their floor clerk on the
exchange.
 The floor clerk alerts one of the firm’s floor traders who finds another floor
trader willing to sell 100 shares of Acme Kumquats. This is easier than is
sounds, because the floor trader knows which floor traders make markets in
particular stocks.
 The two agree on a price and complete the deal. The notification process
goes back up the line and your broker calls you back with the final price.
The process may take a few minutes or longer depending on the stock and
the market. A few days later, you will receive the confirmation notice in the
mail.

By Ms Sneha Vaidya
The process goes like this…
 Order placing:
 Investor places the order to either buy or sell the security at a
certain price.
 Shares can be bought and sold through a broker on telephone.
Brokers identify their clients by a unique code assigned to a
client.
 When price placed by the client: Limit order
 When broker executes the deal at best price: Best rate order
 When no price limit or time limit placed by the client: open order
 After the transaction is done by a client broker issues him
contract note which provides details of transaction. Apart from the
purchase price of security, a client is also supposed to pay
brokerage, stamp duty and securities transaction tax.

By Ms Sneha Vaidya
The process goes like this…
 Order Execution:
 Broker negotiates with other parties to execute the order
 Contract note:
 Broker prepares a contract note stating price, quantity of securities, date of
transaction, names of parties etc.
 Delivery and clearing:
 Transfer deed containing the details of the buyer and the broker is signed by
the seller. Delivery and clearing is done by the clearing house after 14 days
 Settlement:
 Cheques and securities are actually exchanged. The clearing house makes
payment and delivers the securities on that date.
 Trading of securities happen on the first day while settlement of the same
happens two days after. This means that a security bought on Monday will
be received by the client earliest on Wednesday which is called pay out day
by the exchange.
 There is provision which allows a broker to transfer securities till 24 hours
after pay out receipt.

By Ms Sneha Vaidya
Settlement takes place…
 Settlement of securities is done by the clearing
corporation of the exchange.
 Settlement of funds is done by a panel of banks
registered with the exchange.
 Clearing corporation identifies payable/ receivable
position of brokers based on which obligation report for
brokers are created. On T+2 days all the brokers who
has transacted two days before receive shares or give
shares to the clearing corporation of exchange. This all is
done through automated set up Depository which
involves NSDL and CDSL.

By Ms Sneha Vaidya
Types of contracts
 Spot contract: Payment and delivery of
securities on the same day/next day
 Ready delivery contract: Payment and
delivery of securities within 7 days from
the contract day
 Forward delivery contract: Payment and
delivery of securities at the end of every
fortnight through clearing house

By Ms Sneha Vaidya
Speculative transactions
 Options Dealings: A financial derivative that
represents a contract sold by one party (option writer) to
another party (option holder). The contract offers the
buyer the right, but not the obligation, to buy (call) or sell
(put) a security or other financial asset at an agreed-
upon price (the strike price) during a certain period of
time or on a specific date (exercise date).
 Call options give the option to buy at certain price, so the
buyer would want the stock to go up
 Put options give the option to sell at a certain price, so
the buyer would want the stock to go down.

By Ms Sneha Vaidya
Options
 For example, that you discover a house that you'd love to
purchase. Unfortunately, you won't have the cash to buy it for
another three months. You talk to the owner and negotiate a
deal that gives you an option to buy the house in three months
for a price of $200,000. The owner agrees, but for this option,
you pay a price of $3,000.
 The market value of the house skyrockets to $1 million.
Because the owner sold you the option, he is obligated to sell
you the house for $200,000. In the end, you stand to make a
profit of $797,000 ($1 million - $200,000 - $3,000).
 Though you originally thought you had found the house of your
dreams, you now consider it worthless. Because you bought an
option, you are under no obligation to go through with the sale

By Ms Sneha Vaidya
Speculative transactions
 Hedging: Hedging means reducing or controlling risk. This is done by taking
a position in the futures market that is opposite to the one in the physical
market with the objective of reducing or limiting risks associated with price
changes.
 An automobile manufacturer purchases huge quantities of steel as raw
material for automobile production. The automobile manufacturer enters into
a contractual agreement to export automobiles three months hence to
dealers in the East European market.
 This presupposes that the contractual obligation has been fixed at the time
of signing the contractual agreement for exports. The automobile
manufacturer is now exposed to risk in the form of increasing steel prices. In
order to hedge against price risk, the automobile manufacturer can buy steel
futures contracts, which would mature three months hence. In case of
increasing or decreasing steel prices, the automobile manufacturer is
protected. Let us analyze the different scenarios:

By Ms Sneha Vaidya
 Increasing steel prices

 If steel prices increase, this would result in increase in the value of the
futures contracts, which the automobile manufacturer has bought. Hence,
he makes profit in the futures transaction. But the automobile manufacturer
needs to buy steel in the physical market to meet his export obligation. This
means that he faces a corresponding loss in the physical market.
 But this loss is offset by his gains in the futures market. Finally, at the time
of purchasing steel in the physical market, the automobile manufacturer can
square off his position in the futures market by selling the steel futures
contract, for which he has an open position.

 Decreasing steel prices

If steel prices decrease, this would result in a decrease in the value of the
futures contracts, which the automobile manufacturer has bought. Hence,
he makes losses in the futures transaction. But the automobile manufacturer
needs to buy steel in the physical market to meet his export obligation.
 This means that he faces a corresponding gain in the physical market. The
loss in the futures market is offset by his gains in the physical market.
Finally, at the time of purchasing steel in the physical market, the
automobile manufacturer can square off his position in the futures market by
selling the steel futures contract, for which he has an open position.

By Ms Sneha Vaidya
Speculative transactions
 Margin Trading: Margin trading is buying stocks without having the entire
money to do it. The exchanges have an institutionalized method of buying
stocks without having the capital through the futures market. For example, if
you were to buy 2000 shares of say Company A, which trades at Rs 300,
you will need about Rs 6 lakh.  But if you buy a future contract of that
company, which comprises 2000 shares, you only need to pay a margin of
15 per cent. So by putting Rs 90,000, you can get an exposure of Rs 6 lakh.
 The margin call
Once the trader buys a future or stocks in the margin account, the client
gets the profit/loss since his purchase in his account.
 In both futures market and margin trading, if the value of the share falls
below the purchase price, the broker will make margin calls, asking the
client to deposit additional margin.
 In a normal market, these margin calls are not a problem as clients can
deposit the additional amount easily.
 When clients are not able to meet the margin requirement, the broker sells
the security so that he does not have to bear the risk in case the stock falls
further.

By Ms Sneha Vaidya
Margin Trading
 To trade on margin, you need a margin account.
This is different from a regular cash account, in
which you trade using the money in the account.
 An initial investment of at least some amount is
required for a margin account. This deposit is
known as the minimum margin. Once the
account is opened and operational, you can
borrow up to 50% of the purchase price of a
stock. This portion of the purchase price that you
deposit is known as the initial margin.

By Ms Sneha Vaidya
Demat Trading
 Depository - An organization that facilitates holding of securities in the electronic
form and enables DPs to provide services to investors relating to transaction in
securities. There are two depositories in India, namely NSDL and CDSL. As per
a SEBI guideline, the minimum net worth stipulated for a depository is Rs.100
crore.

 NSDL/CDSL - The securities are held in depository accounts, like the funds are
held in bank accounts. There are two depositories in India namely NSDL and
CDSL. NSDL (National Securities Depository limited) was established in August
1996 and is the first depository in India. CDSL (Central Depository Securities
Limited) is the other depository and was established in 1999.

 DP (Depository Participant) - A Depository Participant can be a financial

organization like banks, brokers, financial institutions, custodians, etc., acting as
an agent of the Depository to make its services available to the investors. There
are a total of 538 DPs registered with SEBI, as on March 31, 2006 and each DP
is assigned a unique identification number known as DP-ID.

By Ms Sneha Vaidya
 Demat form has the following benefits:

 1. It eliminates risks associated with forgery, counterfeiting and loss

due to fire, theft or mutilation and reduces brokerage charges,
 2. Settlement of Securities traded on the exchanges as well as off
market transactions,
 3. Reduces time taken to stock trading drastically avoiding
problems encountered in case of physical shares like signature
mismatch, postal delays and loss of certificates in transit,
 4. Enables quick ownership of securities resulting in increased
liquidity,
 5. Easy settlement of the ownership title of securities, and provides
easy receipt of public issue allotments
 6. Auto Credit of Rights / Bonus / Public Issues / Dividend
 7. No stamp duty on transfer of securities held in Demat form (as
against 0.5 per cent payable on physical shares)
 8. Increased liquidity, as securities can be sold at any time during
the trading hours (between 9:55 AM to 3:30 PM on all working
days), and payment can be received in a very short period of time

By Ms Sneha Vaidya
Demat trading process
 Instead of signing the transfer deed as seller and delivering share certificates to
a broker, you shall give your DP debit instruction when you sell your shares in
the electronic form.
 You can trade through any broker of your choice registered with the stock
exchanges connected with NSDL but will have to provide the details of your
account with the DP
 The money would be received from the broker/ paid to the broker in the same
fashion as done in case of buying/ selling of physical shares
 The DP will provide you a statement updated every fortnight giving details of
your holdings.
 When any company announces right, bonus or dividend for a particular
security, the DP will give details of the clients having electronic holdings of that
security as of record date/ book closure to the registrar.
 The registrar will then calculate the benefits due to all shareholders. The
disbursement of cash benefits like dividend or interest will be done by the
registrar whereas distribution of securities entitlements will be done by the DP
based on information provided by the registrar.

By Ms Sneha Vaidya
Demat settlement
 Rolling Settlement: Securities that are sold in the secondary market
typically settle three business days after the initial trade date. Within a
portfolio, if some stocks are sold on Wednesday, they will settle the
following Monday. Stocks in that same portfolio that are sold on
Thursday will settle on the following Tuesday. Finally, if some of the
stocks are sold on Friday, they will settle the following Wednesday. When
securities are sold and settled on successive business days, they are said
to be experiencing a rolling settlement.
 T+5: The rolling settlement is always on a ‘T + 5’ basis. ‘T’ represents the
trade day and ‘T + 5’ implies the settlement on the 5th trading day. Under
this pattern, the settlement cycle starts and ends on the same day, and the
settlement takes place on the 5th business day from the date of the
transaction, that is a transaction conducted on Monday will be settled on the
following Monday and a transaction of Tuesday will be settled on the
following Tuesday and so on.

By Ms Sneha Vaidya
BSE (1875)
 The Exchange reaches
physically to 417 cities and
towns in the country
 It provides an efficient market
for the trading in equity, debt
instruments and derivatives.
 Its online trading system is
popularly known as BOLT
 'BSE On-Line Trading System
(BOLT) has been awarded the
globally recognized the
Information Security
Management System
standard BS7799-2:2002.

By Ms Sneha Vaidya
BSE Milestones
 Developed the BSE Sensex in 1986
 Sensex futures contracts in 2000
 Sensex options in 2001
 Equity derivatives in 2002
 Switched to an electronic trading system in 1995
 1978-79 Base year of Sensex, defined to be 100

By Ms Sneha Vaidya
BSE (1875) TODAY SCENARIO:
 This automated, screen-based trading platform called BSE On-line
trading (BOLT) currently has a capacity of 80 lakh orders per day.
 Bombay Stock Exchange sold a 5 percent stake to Singapore Stock
Exchange for 1.89 billion India rupees, or $42.7 million, planning to
capitalize on Singapore's position as a regional hub for derivatives and
international listing                                 
 The Bombay Stock Exchange has successfully deployed Oracle
software, giving the exchange a single integrated system that should
help streamline its financial accounting and human resource
management processes.
 On Feb, 2010, the equity market capitalization of the companies listed
on the BSE was US$1.28 trillion, making it the largest stock exchange
in South Asia and the 12th largest in the world
 Nearly 4900 Indian companies listed & over 7700 scrips on the stock
exchange in 2010

By Ms Sneha Vaidya
SENSEX
 BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-
weighted index composed of 30 stocks that started January 1, 1986
 Consists of the 30 largest and most actively traded stocks
representative of various sectors
 Index is calculated based on a free-float capitalization method
 It uses its float, or shares that are readily available for trading
 The Market Capitalization of a company is determined by multiplying
the price of its stock by the number of shares issued by the company
 This Market capitalization is multiplied by a free float factor to
determine the free float market capitalization
 Free float factor represent the percentage of shares that are readily
available for trading

By Ms Sneha Vaidya
By Ms Sneha Vaidya
NSE
 It is recognized under Securities Contracts (Regulation) Act, 1956 in 1993 as a
stock exchange.
 The Capital Market (Equities) segment commenced operations in 1994 and the
Derivatives segment in June 2000.
 Membership : Any person can become a member by complying with the
prescribed eligibility criteria and exit by surrendering trading membership
without any hidden/overt cost. There are no entry/exit barriers to trading
membership.
 Screen Based Trading
Screen based trading uses modern telecommunications and computer
technology to combine information transmission with trading in financial assets.
Trading members are connected to the Exchange from their workstations to
the central computer located at the Exchange via satellite using VSATs (Very
Small Aperture Terminals). Buy and sell orders from the brokers reach the
central computer located at NSE and are matched by the computer.

By Ms Sneha Vaidya
NSE
 Benefits to the trading membership of NSE include:

1. access to a nation-wide trading facility for equities, derivatives, debt

and hybrid instruments/products,
2. ability to provide a fair, efficient and transparent securities market to
the investors,
3. use of state-of-the-art electronic trading systems and technology,
4. dealing with an organization which follows strict standards for trading
& settlement at par with those available at the top international
bourses,
5. a demutualised (Demutualization is the process through which a
member-owned company becomes shareholder-owned company)
Exchange which is managed by independent and experienced
professionals, and
6. dealing with an organization which is constantly striving to move
towards a global marketplace in the securities industry.
By Ms Sneha Vaidya
NSE
 Benefits to investors:
1. Best price
2. Exact separation of price and brokerage on
contract note
3. Date and time mentioned
4. Fair deal
5. Quick settlement
6. Safety

By Ms Sneha Vaidya
NIFTY
 NIFTY means National Index for Fifty accounting for
24 sectors of the economy
 S&P CNX Nifty is owned and managed by India
Index Services and Products Ltd. (IISL), which is a
joint venture between NSE and CRISIL.
 Nifty stocks represent about 62% of the Free Float
Market Capitalization as on Mar  31, 2010
 It is a simplified tool that helps investors and
ordinary people alike, to understand what is
happening in the stock market and by extension, the
economy. If the Nifty Index performs well, it is a
signal that companies in India are performing well
and consequently that the country is doing well
By Ms Sneha Vaidya
NIFTY
 Criteria to be in NIFTY 50:
 Average market capitalization of Rs.5,000 million
or more during the last six months.
 Liquidity: Cost of transaction (impact cost) of
less than 0.75% for more than 90% of trades,
over six months.
 At least 12% floating stock (not held by
promoters of the company or their associates .

By Ms Sneha Vaidya
By Ms Sneha Vaidya
SEBI – It’s role in the Secondary
Market :
 The SEBI is the regulatory authority established under
Section 3 of SEBI Act 1992 to protect the interests of the
investors in securities and to promote the development of,
and to regulate, the securities market and for matters
connected therewith and incidental thereto.
 SEBI has to be responsive to the needs of three groups,
which constitute the market:
 the issuers of securities
 the investors
 the market intermediaries

By Ms Sneha Vaidya
SEBI – It’s role in the Secondary
Market :
 Two broad approaches of SEBI is to
integrate the securities market at the
national level, and also to diversify the
trading products, so that there is an
increase in number of traders including
banks, financial institutions, insurance
companies, mutual funds, primary dealers
etc. to transact through the Exchanges.

By Ms Sneha Vaidya
Objectives
 to protect the interests of investors in
securities;
 to promote the development of Securities
Market;
 to regulate the securities market and
 for matters connected therewith or
incidental thereto

By Ms Sneha Vaidya
Functions
1. Regulates Capital Market
2. Checks Trading of securities.
3. Checks the malpractices in securities market.
4. It enhances investor's knowledge on market by
providing education.
5. It regulates the stockbrokers and sub-brokers.
6. To promote Research and Investigation

By Ms Sneha Vaidya
Powers and Functions
 Regulating the business in stock exchanges and any other
securities markets
 Registering and regulating the working of stock brokers, sub-
brokers, share transfer agents, bankers to an issue, trustees of
trust deeds, registrars to an issue, merchant bankers,
underwriters, portfolio managers, investment advisers and such
other intermediaries who may be associated with securities
markets in any manner
 Registering and regulating the working of the depositories,
[participants,] custodians of securities, foreign institutional
investors, credit rating agencies and such other intermediaries
 Registering and regulating the working of [venture capital funds
and collective investment schemes], including mutual funds

By Ms Sneha Vaidya
Powers and Functions
 Promoting and regulating self-regulatory organizations
 Prohibiting fraudulent and unfair trade practices relating to
securities markets
 Promoting investors' education and training of intermediaries
of securities markets
 Prohibiting insider trading in securities
 Regulating substantial acquisition of shares and take-over of
companies
 Calling for information from, undertaking inspection,
conducting inquiries and audits of the [ stock exchanges,
mutual funds, other persons associated with the securities
market] intermediaries and self- regulatory organizations in the
securities market  

By Ms Sneha Vaidya
Powers and Functions
 Calling for information and record from any bank
or any other authority or board or corporation
established or constituted by or under any
Central, State or Provincial Act in respect of any
transaction in securities which is under
investigation or inquiry by the Board
 Performing such functions and exercising such
powers as may be delegated to it by the Central
Government
 Conducting research for the above purposes

By Ms Sneha Vaidya
Regulations and Initiatives for
Indian Capital Market
 Sole Control on Brokers:
Under this rule every brokers and sub brokers have to get
registration with SEBI and any stock exchange in India.
 For Underwriters:
For working as an underwriter an asset limit of 20 lakhs has
been fixed
 For Mutual Funds:
SEBI's introduction of SEBI (Mutual Funds) Regulation in
1993 is to have direct control on all mutual funds of both
public and private sector.

By Ms Sneha Vaidya
Achievements:
 Issuing companies:
1. Disclosure of information – Intent to avoid misleading information
to investors
2. Underwriting is optional – Intent to reduce the cost of issue
3. Consent of SEBI before launching new issue in market
 Regulating portfolio management services:
1. A portfolio manager is a body corporate who, pursuant to a
contract or arrangement with a client, advises or directs or
undertakes on behalf of the client (whether as a discretionary
portfolio manager or otherwise), the management or
administration of a portfolio of securities or the funds of the client.
2. The services of a Portfolio Manager are governed by the
agreement between the portfolio manager and the investor. The
agreement should cover the minimum details as specified in the
SEBI Portfolio Manager Regulations

By Ms Sneha Vaidya
Achievements:
 Regulation of Mutual fund:
1. Are not allowed option trading, short selling, carry forward of
transactions
2. Can invest only in transferable securities
3. Only efficient mutual funds will be given future registration
 Action taken against companies delaying
transfer of shares and refund of public issue
money
 Regulating intermediaries, takeovers and
mergers, FIIs and merchant banking

By Ms Sneha Vaidya
Investors’ protection
 SEBI had issued guidelines for the protection of the investors through
the Securities and Exchange Board of India (Disclosure and Investor
Protection) Guidelines, 2000.
1. Eligibility Norms For Companies Issuing Securities:-

 No company shall make any issue of a public issue of securities, unless

a draft prospectus has been filed with the Board, through an eligible
Merchant Banker, at least 21 days prior to the filing of Prospectus with
the Registrar of Companies (ROCs). Provided that if, within 21 days from
the date of submission of draft Prospectus, the Board specifies changes,
if any, in the draft Prospectus (without being under any obligation to do
so), the issuer or the Lead Merchant banker shall carry out such
changes in the draft prospectus before filing the prospectus with ROCs.
 No listed company shall make any issue of security through a rights
issue where the aggregate value of securities, including premium, if any,
exceeds Rs.50 lacs, unless the letter of offer is filed with the Board,
through an eligible Merchant Banker, at least 21 days prior to the filing of
the Letter of Offer with RSE

By Ms Sneha Vaidya
Investors’ protection
2. Pricing By Companies Issuing Securities
 A listed company whose equity shares are listed on a stock
exchange, may freely price its equity shares and any security
convertible into equity at a later date, offered through a public or
rights issue. An unlisted company eligible to make a public issue
and desirous of getting its securities listed on a recognised stock
exchange pursuant to a public issue, may freely price its equity
shares or any securities convertible at a later date into equity
shares
 In case of initial public offer by an unlisted company, if the issue
price is Rs. 500/- or more, the issuer company shall have a
discretion to fix the face value below Rs. 10/- per share subject to
the condition that the face value shall in no case be less than Rs.
1 per share; and, if issue price is less than Rs. 500 per share, the
face value shall be Rs. 10/- per share

By Ms Sneha Vaidya
Investors’ protection
3. Pre- Issue Obligations
 No company shall make an issue of security through a
public or rights issue unless a Memorandum of
Understanding has been entered into between a lead
merchant banker and the issuer company specifying
their mutual rights, liabilities and obligations relating to
the issue
4. Contents Of Offer Document
 The prospectus should contain all material information
which shall be true and adequate so as to enable the
investors to make informed decision on the investments
in the issue

By Ms Sneha Vaidya
Govt Securities Market
 A Government security is a tradable instrument issued by the Central
Government or the State Governments.
 Such securities are short term (usually called treasury bills, with original
maturities of less than one year) or long term (usually called Government
bonds or dated securities with original maturity of one year or more).
 In India, the Central Government issues both, treasury bills and bonds or
dated securities while the State Governments issue only bonds or dated
securities, which are called the State Development Loans (SDLs).
 Government securities are issued through auctions conducted by the RBI.
Auctions are conducted on the electronic platform called the NDS – Auction
platform. Commercial banks, scheduled urban co-operative banks, Primary
Dealers, insurance companies and provident funds, who maintain funds
account (current account) and securities accounts (SGL account) with RBI,
are members of this electronic platform

By Ms Sneha Vaidya
Govt Securities Market
 Investing in Government securities has the
following advantages:
1. Safety as they carry the Sovereign’s commitment for
payment of interest and repayment of principal.
2. They can be held in dematerialized form.
3. Wide range of maturities from 91 days to as long as 30 years
to suit the duration of a bank's liabilities.
4. Can be sold easily in the secondary market to meet cash
requirements.
5. Can also be used as collateral to borrow funds in the repo
market.

By Ms Sneha Vaidya
Concepts
 Regulators: The key agencies that have a significant
regulatory influence , direct or indirect, over the securities
market such as SEBI, RBI, CLB, DEA and MCA etc.
 Stock Exchanges: A stock exchange is an institution where
securities that have already been issued are bought and sold.
Presently there are 23 stock exchanges in India, the most
important ones being BSE and NSE.
 Listed Securities: Securities that are listed on various stock
exchanges and hence eligible for being traded there are
called listed securities.
 Depositories: A depository is an institution which
dematerialize physical certificates and effects transfer of
ownership by electronic book entries. Presently there are two
depositories in India, viz. NSDL and CSDL.

By Ms Sneha Vaidya
Concepts
 Brokers: Brokers are registered members of the stock exchanges
though whom investors transact.
 Foreign Institutional Investors: Institutional investors from abroad
who are registered with SEBI to operate in the Indian Capital market
are called foreign institutional investors (FIIs).
 Merchant Bankers: Firms that specialize in managing the issue of
securities are called merchant bankers. They have to be registered
with SEBI.
 Primary Dealers: Appointed by the RBI, primary dealers serve as
underwriters in the primary market and as market makers in the
secondary market for governmental securities.
 Mutual Funds: A mutual fund is a vehicle for collective investment. It
pools and manages the funds of investors.
 Custodians: A custodian looks after the investment back office of a
mutual fund. It receives and delivers securities, collects income,
distributes dividends, and segregates the assets between schemes.
By Ms Sneha Vaidya
Concepts
 Registrars: Also known as a transfer agent, a registrar is employed by a
company or a mutual fund to handle all investor-related services.
 Underwriters: An underwriter agrees to subscribe to a given number of
shares (or any other security) in the event the public subscription is
inadequate. The underwriter, in essence, stands guarantee for public
subscription.
 Bankers to an issue: The bankers to an issue collect money on behalf of the
company from the applicants.
 Debenture Trustees: When debentures are issued by a company, a
debenture trustee has to be appointed to ensure that the borrowing firm
fulfills its contractual obligations.
 Venture Capital Funds: A venture capital fund is a pool of capital which is
essentially invested in equity shares or equity-linked instruments of unlisted
companies.
 Credit Rating Agencies: A credit rating agency assigns ratings primarily to
debt securities. In India there are two main credit rating agencies; Credit
Rating Investment Services of India Limited (CRISIL) and Investment
Information and Credit Rating Agency (ICRA).
By Ms Sneha Vaidya