IBA, Main Campus

Regulations of Financial Markets

structure of financial system

Lecture 3

By
ysaudagar@iba.edu.pk
M. Yousuf Saudagar
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 Financial Markets
A financial market is a mechanism that allows people to trade financial
securities (stocks and bonds) commodities (precious metals or
agricultural goods) etc. at low transaction costs & at prices that reflect
the efficient-market hypothesis.
Financial markets can be divided into:
a) Money market provide financial intermediaries, i.e. banks, non-bank
financial institutions, a way by which to borrow and lend in the
short term and square their respective positions.
b) Capital markets provide long-term finance, both equity and debt ，
for government and the corporate sector. They provide financing
through the issuance of shares or common stock and enable the
subsequent trading thereof.
c) Bond markets provide financing through the issuance of bonds, and
enable the subsequent trading thereof.
d) Commodity markets facilitate the trading of commodities. 2
 Financial Markets
e) Derivatives markets provide instruments for management of fin risk.
f) Futures markets provide standardized forward contracts for trading
products at some future date.
g) Insurance markets facilitate the redistribution of various risks.
h) Foreign exchange markets facilitate trading of foreign exchange and
provide a working environment for international trade.
All these markets work in close collaboration with each other.
Performance of one market affects that of other, in one or other way.
These markets play an important role in sending monetary policy
signals to the national economy.
In fact, monetary policy communications are initiated in the financial
markets, particularly money and Forex markets, which then impose an
impact on the other financial intermediaries (banks, NBFIs), firms and
households and then finally affect inflation and economic growth. 3
 Debt and Equity Markets
A firm or an individual can obtain funds in a financial market in 2 ways:
1. Issue debt instruments, such as a bond or a mortgage, which is a
contractual agreement by the borrower to pay the holder of the
instrument, fixed amounts at regular intervals (interest and principal
payments) until a specified date (the maturity date).
A debt instrument is short-term if its maturity is less than a year
and long-term if its maturity is 10 years or longer. Debt instruments
with a maturity between one and 10 years are said to be
intermediate-term or medium term.
2. Issue equities, such as common stock, which are claims to share in
the net income and the assets of a business.
If you own one share of common stock in a company that has
issued one million shares, you are entitled to 1 one-millionth of the
firm’s net income and one-millionth of the firm’s assets.
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 Money and Capital Markets
• Another way of distinguishing between markets is on the basis of the
maturity of the securities traded in each market.
• The money market is a financial market in which only short-term
debt instruments (with maturity of less than one year) are traded.
• The capital market is the market in which longer term debt (with
maturity of one year or greater) and equity instruments are traded.
• Money market securities are usually more widely traded than longer-
term securities and so tend to be more liquid. These securities have
smaller fluctuations in prices making them safer investments.
• Banks actively use the money market to earn interest on surplus
funds temporarily. This is also called management of liquidity risk.
• Capital market securities, such as stocks and long-term bonds, are
also held by FIs such as banks, insurance companies and pension
funds, which have little uncertainty about the amount of funds they
will have available in the future. 5
 Exchanges and Over-the-Counter Markets
• Secondary markets can be organized in two ways.

• One method is to organize exchanges, where buyers and sellers of

securities (or their agents or brokers) meet in one central location to
conduct trades.
• The Karachi, Lahore & Islamabad Stock Exchanges for stocks are
examples of organized exchanges, now all merged and named PSX.
• The other method of organizing a secondary market is to have an
over-the-counter (OTC) market, in which dealers who have an
inventory of securities stand ready to buy and sell securities “over
the counter” at different locations, to anyone who comes to them
and is willing to accept their prices.
• Because over the-counter dealers are in computer contact and know
the prices set by one another, the OTC market is very competitive
and not very different from a market with an organized exchange.6
 Primary and Secondary Markets
• Primary market is a financial market wherein new issues, such as a
bonds or stocks, are sold to initial buyers by the corporation
borrowing the funds.
• A secondary market is a financial market in which securities that
have been previously issued can be resold.
• Pakistan Stock Exchange is an also examples of secondary market
where previously issued stocks are traded.
• Other examples of secondary markets are foreign exchange markets,
futures markets, and options markets.
• Brokers are agents of investors who match buyers with sellers of
securities. Securities brokers & dealers are crucial players in
secondary markets.
• Dealers link buyers & sellers by buying & selling securities at stated
prices.
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 Int’l Bond Market – Foreign bonds & Eurobonds
• Foreign bonds are sold in a foreign country and are denominated in
that country’s currency. For example, if the Pakistan Government
sells a bond in the United States denominated in U.S. dollars, it is
classified as a foreign bond.
• Eurobond, a bond denominated in a currency other than that of the
country in which it is sold e.g. a bond denominated in USD sold in
London.
• Eurocurrencies are fCy deposited in banks outside the home country.
• Eurodollars are the most important of the Eurocurrencies, which are
U.S. dollars deposited in foreign banks outside US. Eurodollars
escape regulation of Federal Reserve Board / reserve requirements.
• Note: the term euro can create confusion with Eurobond,
Eurocurrencies & Eurodollars. In fact most Eurobonds are not
denominated in euros but are denominated in USDs. Similarly,
Eurocurrency has nothing to do with Euros but in fact are USDs
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deposited in banks outside the US.
 structure of financial system
1. Money Market

2. Depositories

3. Mutual funds

4. Capital markets

5. Non-Bank Financial Institution

6. Financial Markets & the Allocation of Capital

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Money Market

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 money Market and its role
• The primary role of the money market is to encourage trading of
money in short-term financial instruments called ’’paper.“
• The traditional money market securities offer lower returns than
most other securities.
• The price of these instruments in Pakistan is determined according to
the benchmark, i.e. Karachi Interbank Offered Rate (KIBOR).'
• Money market investments are also called cash investments because
of their short maturity period. These instruments are easy to
liquidate & are considered safe to deal.
• Money market securities are issued by government, financial
institution and large corporation.
• In Pakistan also there are companies with strong credit ratings who
issue commercial papers / bonds, debentures, etc. to meet their
financial needs.
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 Interbank lending
• The main function of the money market is interbank lending, that is,
banks borrowing and lending to each other using T-bills, commercial
paper, repurchase agreements and similar instruments.
• The duration is usually no longer than a week.
• These transactions have to be settled via banks’ accounts with the
central bank.
• If payment flows leave one bank with a surplus of reserves and
another with a shortage of reserves, they have an incentive to trade
with each other at a market-determined rate.
• The interbank market forms the center of a wider money market in
which non-bank financial institutions also participate.
• Overnight liquidity and transparent pricing helps to maintain
efficient working of the financial markets.
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 International money market (IMM)
• The international money market is playing a vital role in the
development of international trade.
• The international monetary system accommodates the need for
foreign-currency denominated transactions.
• The Asian money market is also linked up with the IMM because
Asian governments, banks and businesses needed to facilitate
business and trade in a faster way rather than borrowing U.S. dollar
deposits from European/US banks.
• The IMM progressed further in the mid 1980s when options began
trading on currency futures.
• Forex market is one of the largest market of the world, being most
actively traded, with Daily Forex Trading volume of around $5.3
Trillion. 

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 The basic tools of the money market framework
1. The demand for reserves
During stressed times, the interbank market may not work
effectively and a bank that is short of liquidity may find it more
difficult than usual to borrow money. The central bank uses reserves
as a tool to check the money market by reducing the reserve
requirement.
2. Discount Rates
SBP communicate the stance of monetary policy by setting a short-
term interest rate. The operations in money markets are conducted
with the objective that the interest rates at which banks transact for
short periods of time are close to this policy rate.
3. Open market operations (OMO) refer to a central bank initiative by
buying and selling of government securities in the open market at
its own, in order to expand or contract the amount of money in the
banking system. When the SBP wants interest rates to rise, it sells
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securities to banks.
Depository

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 depository
• Depository is a place where financial securities are held in
dematerialized form.
• To achieve this purpose, the depository may stock the securities or
dematerialize them.
• Dematerialization is a process by which physical certificates are
converted into electronic form.
• It is responsible for maintenance of ownership records & facilitation
of trading in dematerialized securities.
• It is a facility for holding securities, which enables securities
transactions to be processed by book entry.
• The system changes the ownership of securities without any
physical movement or endorsement of certificates and execution of
transfer instruments.
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 Central Depository company
• CDC of Pakistan Limited was incorporated as a public limited
company in 1993 and started operations in September 1997.
• Regulated by the SECP, this is the sole entity in Pakistan, handling
electronic settlement of transactions carried out at all three stock
exchanges of the country.
• It has branches in Karachi, Lahore, Islamabad and Hyderabad.
• CDC was mainly established to operate the Central Depository
System (CDS) for equity, debt and other financial instruments that
are traded in the Pakistani Capital Market.
• It operates CDS which is an electronic book entry system used to
record and maintain securities and their transfer registration.
• All the members of stock exchanges, banks and DFIs can open their
account as a Participant, whereas corporate bodies and qualified
private investors can open their account as an Account Holder.
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 advantages of electronic settlement of securities through CDS
a) Reduction of workload due to paperless settlement.

b) Immediate transfer of ownership.

c) Investors can have their securities directly subscribed in IPOs,

credited to their accounts in electronic form.

d) Immediate credit of bonus, rights and new issues.

e) Suitable place for keeping pledging of securities.

f) No stamp duty on transfers in CDS.

g) Risk of damaged, lost, forged or duplicate certificates has been

eliminated.

h) No traditional vaults due to the paperless environment.

i) No hassle during book closure. 18

 CDC’s services to customers
• The Depository Participant (DP), who as an agent of the depository,
offers depository services to investors.
1. Investor Account Services (IAS) allows retail investors to open &
maintain securities accounts directly with CDC.
2. Trustee and Custodial Services (T&C).
3. Share Registrar Services (SRS) provides to issuing companies state-
of-the-art facilities for registrar and transfer agent services,
including registration and verification of shares and records.
4. Deposit of Securities
5. Transfer of Securities
6. Pledging of Securities
7. Pledge Release
8. Pledge Call
9. Withdrawal of Securities
10.Specialized services for corporate customers' requirements 19
Mutual Funds

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 What is mutual fund
• A mutual fund is an investment company that uses members’ capital
to buy a diverse group of securities from other companies.
• It pools together savings of various investors, individuals as well as
institutions, and collectively invests these savings in stocks, bonds
and / or money market instruments.
• Mutual fund units, or shares, are issued, purchased or redeemed as
needed at the fund’s current net asset value (NAV) per unit, which is
total value of all the securities in the fund, divided by the number of
shares in the fund.
• Profit is paid by:
a) Dividend Payments: Annually, the fund’s management will declare
dividends in either cash form or in the form of bonus units.
b) Appreciation in Price: When the price of a fund increases due to
appreciation in the overall portfolio, it results in capital gains for
investors who can now redeem their units at a higher price. 21
 Advantages of investing in mutual fund
It offers many advantages to investors:
a) Linking investors, particularly retail ones with capital & money
market.
b) They give small investors access to professionally managed,
diversified portfolios of equities, bonds and other securities,
which are otherwise difficult to manage. Mutual funds are
operated by fund managers, who invest the funds in the most
professional manner in financial markets and attempt to produce
capital gains and income for the fund’s investors.
c) Mutual funds provide investors with exposure to a diversified
portfolio of investment instruments, reducing the investors’
overall portfolio risk.
d) Each shareholder participates proportionally in the gain or loss of
the fund and thus risk is spread out.
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 advantages of investing in mutual funds
e) In contrast to a bank’s term deposit scheme, investors holding
units of open-ended mutual funds can invest and disinvest at any
time to match their particular liquidity needs with little or no
transaction cost.
f) Investors can transfer part or all of their investments from one
fund to another so as to obtain the most benefit from their
money.
g) Under the current tax rules, capital gains on sale of units as well
as bonus units are exempt from taxes.

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 Management Company
A management company is responsible for:
a) Analyzing and choosing the investments that will be most
beneficial to the unit holders.
b) The day-to-day running
c) Marketing of the fund
d) Attendance to client queries
e) Financial reporting to the regulatory bodies, etc.
f) Make sure that unit holders' accounts are accurate and up to
date.
g) Investors are regularly informed of how the funds investments
are performing.

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 trustee
• The Trustee must hold under its control all the property of the fund
in trust for the unit holders.
• Cash and other assets must be deposited or registered in the name
of or to the order of the Trustee.
• The Trustee must carry out the instructions of the management
company in all matters including:
a) Investment of the fund property,
b) Disposition of the fund property
• However, the trustee must ensure that they are not in conflict with
the Deed, the Rules and applicable laws.

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 commissions and fees in mutual funds
Front-end Load:
• Entry / front-end load are the sales and processing charges
payable by an investor upon purchase of units.
• This charge is added to the Net Asset Value in determining the
Offer Price.
• This is a one-time charge and is paid on investment.
Back-end Load:
• Exit / back-end load are the sales and processing charges payable
by an investor upon redemption of units.
• This charge is deducted from the Net Asset Value in determining
the Redemption Price.
• This also is a onetime charge and is paid at the time of redemption
of units.
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 Two broad categories of mutual funds
• Open-ended fund: An open-ended fund is a collective investment
scheme which can issue and redeem shares at any time. An investor
will purchase shares in the fund directly from the fund itself rather
than from the existing shareholders.
• Closed-ended fund: A closed-end fund is with a limited number of
shares. The shares are not redeemable until the fund liquidates. An
investor can acquire shares in a closed-end fund by buying shares on
a secondary market from a broker, market maker, or other investor.,
as opposed to an open-end fund.
• The price of a share in a closed-end fund is determined partially by
the value of the investments in the fund, and partially by the
premium (or discount) placed on it by the market.
• SECP allows conversion of a closed-end fund to an open-end fund in
order to provide product diversification.
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 Types of Mutual Funds
• Before investing, every potential investor wants to know what
returns can be expected on their investment, as well as the potential
associated risks.
• In general, the higher the return, the higher the risk of loss.
• There are some funds that are less risky than others, but all mutual
funds have some level of risk. This is a fact for all investments.
• Each fund has a predetermined investment objective that tailors the
fund’s assets, areas of investments and investment strategies.
• There are broadly three types of mutual funds and all mutual funds
fall within these categories:
1. Money Market funds
2. Fixed income funds (bonds)
3. Equity funds (stocks)
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 Types of Mutual Funds
• Money Market Funds: The money market consists of short-term
debt instruments, mostly T-bills. Thus it is a low risk low return fund
• Income Funds: These funds invest primarily in government and
corporate debt. Their purpose is to provide continuous income on a
regular basis. Income funds are a comparatively safe investment.
While fund holdings may appreciate in value, the primary objective
of these funds is to provide a steady cash flow to investors. As such,
the potential investors in these funds consist of conservative
investors and retirees.
• Equity Funds: These funds invest in stocks. Investment objective of
this class of funds is long-term capital growth with some income.
There are different types of equity funds in the market to match
various types of equities.

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 Types of Mutual Funds
• Balanced Funds: The objective of these funds is to provide a
balanced mixture of safety, income and capital appreciation with
combination of fixed income and equities. A typical balanced fund
might have a weighting of 60% equity and 40% fixed income.
• Global/International Funds: These funds invest outside the home
country of the investors, including the home country of the investor.
These funds are safer than domestic investments & can be held as
part of a well-balanced portfolio, which reduces risk by
diversification as economic conditions of each country are different.
• Specialty Funds: These funds invest in the securities of a particular
industry, sector or geographic region. Specialized funds offer higher
returns but higher risk due to lack of diversification.
• Index Funds: These funds replicate the performance of a broad
market index like KSE 100 index or S&P 500. An investor in index
fund knows that most fund managers can’t beat the market. An
index fund merely replicates the market return and benefits. 30
 Regulatory Control of Mutual funds
• SECP regulates the mutual funds industry. Besides, it also regulates
stock exchanges, listed companies, insurance industry, investment
banks and the stock brokerage business in Pakistan.
• The SECP establishes a stringent set of rules and requirements to
operate an Asset Management Company. SECP, therefore, places
considerable emphasis on market development while also
administering and enforcing various corporate and securities laws.
• The SECP wants to promote investment through mutual funds, and
therefore it has allowed investment of 50% of provident funds in
authorized unit trust schemes.
• SECP also allows exposure of up to 20% of their funds to a single
scheme.
• It has been made obligatory for asset management companies to
have the unit trust schemes that they manage, rated by a rating
agency registered with the SECP.
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Capital Markets

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 importance of capital markets
• The stock market is the most important part of the capital market.
• The best way for a business organization or a company is to raise
money equity capital is through the stock market.
• Companies sell their shares of ownership in a public market and thus
raise additional finance.
• Stock is the capital raised by a corporation through the issuance and
distribution of its shares.
• Stockholder is a person or organization holding these shares.
• Market capitalization is the aggregate value of all the shares issued
by a corporation.
• Size of a corporation is a measured by the share price times the
number of shares outstanding of a publicly traded company, and it
represent the public opinion of a company’s net worth and is a
determining factor in stock valuation.
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 Capital market - pakistan
• A stock exchange provides investors with the facility to quickly and
easily sell securities. This is called liquidity.
• Efficiency of a capital market contributes to the economic growth of
a country. Economic growth mainly depends on the:
a) availability of capital and
b) its efficient allocation to the productive sector of the economy.
• Efficient capital allocation means that funds are channeled towards
profitable investment projects.
• Therefore, there is a direct relationship between the capital market
and economic development.
• The GoP, along with SECP, has been trying to
a) improve market efficiency,
b) enhance transparency and
c) bring the Pakistani equity market up to international standards.
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 Capital market - pakistan
For this purpose many reforms have been initiated.
The most prominent of these is the formation of SECP, which
introduced:
a) screen-based trading
b) shortening of the trading cycle
c) demutualization of stock exchanges
d) establishment of depositories
e) disappearance of physical share certificates and
f) better risk management systems in stock exchanges.
Pakistan's capital market is playing a significant role in the economic
development of the country.
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 International Capital Market
• A group of various countries’ capital markets constitutes the
international capital market, where shares, bonds, debentures,
currencies, mutual funds & other LT securities are purchased & sold.
• It is a place for the international companies and investors to deal in
shares and bonds of different countries.
• It provides opportunity to prosper at levels which were otherwise
impossible to access.
• Since the advancement of IT, there has been a revolution in the
global financial sector and all financial markets are covered by
international capital markets.
• Companies have to take certificates for dealing in the international
market. Suppose a Pakistani company wants to sell shares in Hong
Kong, it can do so by taking a certificate named Global Depository
Receipt (GDR). It is a type of negotiable financial security that is
traded on a local stock exchange but represents a security that is
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issued by a foreign publicly listed company.
 Non-Banking
Financial Institution
(NBFIs)

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 non-banking financial institutions (NBFIs)
• The main objective of introducing NBFIs was to enable the existing
single-product institutions serving specific markets to offer a whole
range of financial products through a one-window operation
according to the prescribed regulatory requirements followed by
international banking.
• The various financial services which used to be handled by small
companies are now managed by NBFIs.
• The following investment financial services are offered by NBFIs:
a) Leasing
b) Housing finance
c) Venture capital investment
d) Discount Houses
e) Investment advisory and
f) Asset management.
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 leasing
• Leasing is a legal agreement between two parties that specifies the
terms and conditions for the rental of property.
• For example, leasing a machine is based on an agreement. This
agreement does not take place between the customer and the
machine dealer; rather it is between the customer and a leasing
company. In other words, the machine is actually sold to the leasing
company (the lessor) who, in turn, rents the machine to the actual
customer (the lessee).
• There are two categories of leasing:
• Direct lease: You identify the asset & arrange for the leasing
company to buy it from the manufacturer/previous owner to lease it
to you.
• Sale-and-leaseback: You sell an asset you already own to the leasing
company & then lease it back.
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 three major types of leasing
1. Finance lease
2. Operating lease
3. Contract hire.
• Finance lease (full payout lease): A customer obtains all the financial
benefits (and risks) without actually acquiring a legal title. At the end
of the lease, the asset is transferred to lessee.
• Operating lease: It is like a regular rental. The lessor is not expected
to recover the total asset value through lease payments & therefore
may lease it again to anyone on expiry. This option does not allow the
lessee to become the owner of the asset at any time.
• Contract hire: This is also a form of operating lease that include a
number of additional services such as maintenance, repairs, etc.
• Hire purchase: This is an agreement for the hiring of an asset with
an option to purchase. The legal title will pass to you only when all
payments have been made. The term of a hire purchase must be
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significantly shorter than the working life of the asset.
 housing finance and venture capital
• Housing Finance: Also called Mortgage finance is generally extended
for 3 purposes (1) construction (2) outright purchases and (3)
renovation.
Housing finance services available in Pakistan are still at an
evolutionary stage due to both demand and supply factors.
• Venture Capital: VC investment refers to funds provided for start-up
businesses with potential for high growth.
This is a risk investment; therefore venture capital companies require
a matching rate of return, along with some measure of control over
the management and strategic orientation of the investee company.
Venture capitalists usually exit from the project after a certain
period of time, i.e. 3 to 7 years, when the equity is either sold back to
the client company or offered on the stock exchange.
VC business in Pakistan has essentially remained limited in scope
despite the enabling regulatory framework provided by the SECP.42
 Financial Market Intermediaries
• Term financial intermediary refers to an institution who performs
intermediation between two or more parties in a financial situation.
• Usually the first party is a provider of a product or service and the
second party is a consumer or customer.
• Financial intermediaries are banking and non-banking institutions
which transfer funds from those who have surplus funds to those
who would like to utilize those funds.
• Bank Financial Intermediaries are central banks & commercial banks.
• Non-Bank Financial Intermediaries (NBFIs) are insurance companies,
mutual funds, investment companies, merchant banks, pension’s
funds, discount houses, etc. These are broadly classified as:
1. Fee-based or Advisory Financial Intermediaries
2. Asset-based Financial Intermediaries.
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 Financial Market Intermediaries
• Fee-Based/Advisory Financial Intermediaries offer following advisory
services and charge a fee accordingly for the services rendered.
a) New/rights issue management
b) Underwriting of scrip issues
c) Portfolio management
d) Corporate analysis
e) Arrangement of Syndicated Credit
f) Arranging external/foreign alliance services
g) Mergers and Acquisitions
h) Debenture issuance
i) Capital Restructuring
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 Financial Market Intermediaries
• Asset-based Financial Intermediaries finance the specific
requirements of their customers.
• The required infrastructure, in the form of the required asset or
finance is provided on easy financial terms.
• Such companies earn their incomes from the interest spread, i.e. the
difference between interest paid and interest earned.
• These financial institutions are regulated by regulatory authorities.
• They must provide evidence to the regulators of the qualifications of
the persons advising potential clients in order to protect the interests
of the depositors or equity holders.

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 Financial Market Intermediaries
• Merchant Bankers carry out the work of new issue management as
well as underwriting and portfolio management.
• They have to carry out the work related to the new issue, such as:
a) determination of security,
b) mix to be issued,
c) drafting of prospectus, application forms, allotment letters,
d) appointment of registrars for handling share applications and
transfer,
e) making arrangement for underwriting placement of shares,
f) appointment of brokers and bankers to issue,
g) making public notification of the issue.
• They are also known as lead managers to an issue.
• Merchant bankers can act as consultants, advisers, portfolio
managers, underwriters.
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 Financial Market Intermediaries
• Underwriters: The company issuing shares has to appoint
underwriters in consultation with the merchant bankers or lead
managers.
• The underwriters are the institutions or agencies, which make a
commitment to taking up the issue of shares in cases where the
company fails to achieve full subscription from the public.
• They receive commission for their services.
• Underwriting services are provided by the brokers, investment
companies, commercial banks, etc.
• The underwriters play an important role in the development of the
primary market.

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 Bankers to the Issue
• Bankers to the Issue: Bankers play a very important part in the
operations of the primary market.
• They collect applications for shares and debentures, along with
application money from investors in respect of issue of shares.
• They also refund the application money to the applicants to whom
shares could not be allotted on behalf of the issuing company.
• The issuing company is not authorized to collect the application
money directly. Money on account of new rights issues of shares and
debentures must be collected through the banks.
• Therefore, an issuing company has to appoint bankers to collect
money on its behalf.

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 Registrar
• Registrar is an intermediary who carries out functions such as
keeping a proper record of applications and money received from
investors, assisting the companies in determining the basis of
allotment of shares as per stock exchange guidelines.
• Also, in consultation with stock exchanges, it assists in the
finalization of allotment of shares and processing and dispatching of
allotment letters, refund orders, share certificates and other
documents related to capital issues.
• A registrar can also be called a Share Transfer Agent who maintains
records of holders of shares of the company on behalf of the
company and handles all matters related to transfer and redemption
of securities of the company.
• They also function as Depository Participants.

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 Brokers
• Brokers are the middlemen who provide a very important link
between the prospective investors and the issuing company.
• They assist in the subscription to issues by the public.
• The appointment of brokers is not mandatory.
• Brokers receive their commission from the issuing company
according to the rules and regulations.
• There is an agreement between the brokers and the issuing company.
• A broker must have thorough knowledge, professional competence
and integrity in order to carry out the overall functions required to
deal with an issue.
• The names and addresses of the brokers to the issue are disclosed in
the prospectus issued by the company to help investors make their
choice of the company in which to invest.
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 other intermediaries
• Sub-Broker is a person who intermediates between investors and
stockbrokers. He acts on behalf of a stockbroker as an agent or
otherwise to assist investors in buying /selling securities through a
stockbroker.
• Security Dealers purchase and sell government securities on the
stock exchange are known as Security Dealers. Each transaction has
to be separately negotiated.
• Depository is an entity where the securities of an investor are held in
electronic form.
• Portfolio Manager is a professional with expertise in the field of
capital as well as the money market. He studies the market and
adjusts the investment mix for his client on a continuing basis to
ensure safety of investment and reasonable returns on the
investment for his client.
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