Capital Market Instrument

1. Ownership securities Debenture

2. Creditor ship securities
Very common term
used in stock market
Ownership Securities
3. Ordinary Or Equity shares
4. Preference shares Share having No face
5. No- par stock value. It issue
6. Differed shares without mention
7. Sweat equity face value

Issue to the
promotor of
company or called
founder share
Issue to employ at
discount or in
against of bonus
Preference share

Name it self say preference

1. Preference of Dividend
2. Repayment of capital at the time of liquidity of company

Type of Preference share

3. Cumulative preference share ----- Dividend Claim
4. Non- Cumulative Preference share ----No Dividend Claim
5. Redeemable Preference share ----Capital paid at the time of liquidity
6. Irredeemable Preference share --- Capital Not paid at the time of liquidity
7. Participating preference share --- participate in the surplus of profit of company
8. Non- participating Preference share ---Not participating profit
9. Convertible preference share ---convert this holding into equity share
10. Non Convertible Preference share – Not Convert into equity share
Primary Market With Example
An initial public offering, or IPO, is an example of a primary market. These trades provide an opportunity for
investors to buy securities from the bank that did the initial underwriting for a particular stock. Other types
of primary market offerings for stocks include private placement and preferential allotment

Secondary Market
The secondary market is where investors buy and sell securities they already own. It is what most people typically
think of as the "stock market," though stocks are also sold on the primary market when they are first issued.

Government Securities Market

Government securities are instrument Issued by central government, semi government bodies, public sector
corporation and financial institute (IDBI, IFCI, SFC)

Feature of Government securities

1. safest as regards of payment
2. Dividend given on time
3. Interest given on time
4. Repayment of principal amount
Trading Mechanism of Government securities Market (GSM)
1. Direct sale of securities by PDO (Public Debt office of the RBI)
2. Through SGL account (Security General ledger account by RBI)
3. By Bank Receipt (BR)

Risk Involvement in holding Government securities

Liquidity risk is usually lower for government securities than for corporate securities. These are just some of
the risks that are associated with an investment in securities. Individual securities will have their own
individual risks. It is critical that investors understand the effect that these risks can have on their
investments.

Security Market Risk

Market risk is the possibility of an investor experiencing losses due to factors that affect the overall
performance of the financial markets in which he or she is involved. Market risk, also called "systematic risk
," cannot be eliminated through diversification, though it can be hedged against in other ways. Sources of
market risk include recessions, political turmoil, changes in interest rates, natural disasters and terrorist
attacks. Systematic, or market risk tends to influence the entire market at the same time.
Re-Investment Risk

Reinvestment risk refers to the possibility that an investor will be unable to reinvest cash flows

Liquidity Risk

Liquidity risk occurs when an individual investor, business, or financial institution cannot meet its short-term debt obligations.
The investor or entity might be unable to convert an asset into cash without giving up capital and income due to a lack of
buyers or an inefficient market. Liquidity Risk in Financial Institutions, Financial institutions depend upon borrowed money to
a considerable extent, so they're commonly scrutinized to determine whether they can meet their debt obligations without
realizing great losses, which could be catastrophic. Institutions, therefore, face strict compliance requirements and stress tests
to measure their financial stability.
 Role of Capital Market Regulators

Proper Allocation of Funds:

Capital Market is an important platform for allocating idle savings from the people to productive channels of
an economy. It puts the idle funds in proper investment.

Formation of capital:
Capital market helps in the formation of capital by adding capital to the existing capital in the economy. This
helps in the expansion of capital in the economy

Platform for Investment:

Capital market raises resources for longer periods of time. Thus it provides an investment avenue for people
who wish to invest resources for a long period of time. It provides suitable interest rate returns also to
investors. Instruments such as bonds, equities etc. definitely provide diverse investment avenue for the
public.

Accelerates Economic Development:

The financial requirements of the businesses are met by the capital market regulators as it makes funds
available for the longer period. Capital market regulators also helps in the research and development. This
results in increasing the productivity of the economy.

Provides Service:
Capital Market regulators provides various services like medium and long-term loans consultancy services.
 Market participants in the capital markets

Stock Exchange Stock exchange is the prime facilitator of trading services between the traders and brokers on a
regular basis while it also facilitates the listing of new shares from a company. There can be multiple exchanges in
any country to facilitate the services. Stock exchanges provide complete transparency to the traders, investors and
the general public, and a government regulator oversees the activities of a stock exchange. ASIC supervises the
activities of stock exchanges in Australia.
Retail Investors Retail investors are commonly referred to as individual investors or non-professional investors.
These investors are mostly involved in the buying & selling of securities, mutual funds or Exchange traded funds
. These investors trade on securities through brokers, and the capital invested by retail investors is relatively low
against institutional investors.
Institutional Investors An institutional investor is an organization that invests the capital on behalf of other
investors; the scale of operations of these investors is mainly large. These investors possess specialized knowledge
and resources than an individual investor, and maybe special rights as well. It should be noted that these investors
have a high-risk appetite, and these investors also favour investments in derivatives, unlike retail investors.
Regulators The regulators are the safe keeper of the ethics in any economy or business. In capital markets; these
regulators play an essential role in safeguarding the interests of the investors while closely supervising the market
activities and investigations. A market regulator closely watches the capital movements, while also investigates
matters for potential unfairness.
Brokers A broker can be an individual person, or a company acting as an agent in executing trades on behalf of
clients; these clients may include retail & institutional investors as well. Generally, brokers charge a commission while
executing any trade, and sometimes also provide insights on market, investments and intelligence to the customers
while dealing in securities. There are different types of credentials required in different jurisdictions to become a broker.
Custodians Custodians are one of the most important market participants in the capital market, as they hold the
customer’ securities to minimise the risk of theft of loss. Custodians hold financial securities mostly fixed income &
equities, facilitate the post-trade activities, which include delivery and receipt of financial security for consideration or
capital. Mainly, these organisations include big banks offering custodian services to investors.
Depositories As the name suggests depositâ these organisations facilitate the deposit or storage. Depository
participant or Depository holds the security while assisting in the trading of securities, and these organisations also
provide services like transferring of shares from one investor account to another. Depositories also provide clearing
services like Depository Trust & Clearing Corporation (DTCC) in the USA. Clearing House Electronic Subregister
System (CHESS) by ASX provides clearing services in Australia while Central Securities Depository (CSD) provides
depository services in Australia.
Rating Agencies A rating agency or a credit rating agency assesses the ability to repay the principal and interest of
any company or government on their debts. These agencies provide ratings on the basis of the financial strength of
any entity, and these ratings are widely used by the market to interpret the credibility of the issuer.