You are on page 1of 100

Indian Financial System

Click to edit Master subtitle style

4/15/12

Prof Rashmi

11

Objectives

Capital Market Instruments Primary Market Operations The Instruments Role of SEBI and Merchant Bankers Stock exchanges in India National Stock Exchange Stock Holding Corporation of India E- trading Index and future trading Stock market operations Book building
Prof Rashmi 22

4/15/12

Lenders & Borrowers

4/15/12

Prof Rashmi

33

Functions of Financial System

The Savings Function Liquidity Function Payment Function


Risk Function Policy Function

4/15/12

Prof Rashmi

44

Indian Financial System


Formal Informal (Organise (Unorgani d) sed) Moneylenders, Regulat Local bankers, Financial ors Traders, Institution SEBI, Landlords, s RBI, Pawn brokers (Intermedi Insuranc Banking Non Mut IRDA aries) Instituti e and Banking ual Housing ons Instituti Fun Schedul Schedul ons NonDevelop Finance ds ed Banking ment cos. ed Commer Cooper Finance Finance All India Financial Other cial cos.State level Instituti ative Institutions: IFCI, IDBI, SIDBI, Institutions InstitutionsBanks NABARD, Exim Bank ons Banks Prof Rashmi SFCs, IDFC, : ECGC, DICGC 4/15/12 55
SIDCs

Indian Financial System


Financi Formal al (Organis Instrum ed) ents Term Prima Secon : ry dary Short Securi Securi Time , ties ties Equity, Medi Preferen Deposi ts, MF um ce, Debt units, Long & Insura various combina nce policie tions s 4/15/12 Prof Rashmi Financ ial Servic Deposito es ries Custodia l Credit, Factorin g, Forfaitin g, Merchan t Banking, Leasing, HP, Informal (Unorgan ised

66

Indian Financial System


Formal (Organi sed Capit al Equit Mark et y Mark et Informal (Unorga nised Mone y Treasury Mark Bills, et Call money market, Commercia CP, Primar l Bills,Second y CD, Term ary 77 Segme money Segme

4/15/12

Debt Mar Private ket Corporate Debt, PSU Bond Primar Second market, y ary Prof Govt. Rashmi

Indian Financial System


Equity Market Prim Seconda ary ry -NSE -Public Mark Market -BSE et issues -OTCEI - Private -ISE Dome Internati -Regiona placemenonal stic l t Mark market stock et exchang es
4/15/12 Prof Rashmi

Derivati ves - Exchange Market Traded Futures and Options Inde Stoc x k

88

Notes to the flow charts:


IDBI : Industrial Development Bank of India IFCI : Industrial Finance Corporation of India SIDBI : Small Industries Development Bank of India IDFC: Infrastructure Development Finance Co. Ltd. IIBI : Industrial Investment Bank of India NABARD : National Bank for Agriculture and Rural Development EXIM Bank: Export- Import Bank of India SFC: State Financial Corporation SIDC: State Industrial Development Corporation ECGC: Export Credit Guarantee Corporation of 4/15/12 Prof Rashmi 99 India

Basic elements of a wellfunctioning financial system

A strong legal and regulatory environment Stable money Sound public finances and public debt management A central bank

4/15/12

Prof Rashmi

1010

Financial System Designs

A financial system is a vertical arrangement of a well-integrated chain of financial markets and institutions that provide financial intermediation.
Classification of Financial Structure and Level of Development of Select Economies
Extent of Development Bank- based Market-based

Developed

4/15/12

Underdeveloped

Japan, Germany, US, UK, France , Italy Singapore, Malaysia, Korea Argentina, Brazil, Mexico, Pakistan, Sri Philippines, Prof Rashmi 1111 Lanka, Turkey

Nature and Role of Financial Institutions (Intermediaries) and Financial Markets Financial Institutions provide three transformation services: Liability, asset and size transformation by mobilization of funds and their allocation

4/15/12

Prof Rashmi

1212

Session 2: Introduction to Capital Markets

4/15/12

Prof Rashmi

1313

Financial Markets

Money Market Capital Market Government Securities

4/15/12

Prof Rashmi

1414

Functions of a Capital Market


Mobilise long-term savings to finance long-term investments Provide risk capital in the form of equity to entrepreneurs Encourage broader ownership of productive assets Provide liquidity to investor to sell financial assets

4/15/12

Prof Rashmi

1515

Capital Markets
Capital markets deal in long term sources of funds with a maturity period of more than one year. Types of Capital Markets: Primary Markets Secondary Markets
Prof Rashmi 1616

4/15/12

Primary Markets
v

Primary market helps companies in raising funds through issue of securities like shares and debentures. Capital issues were controlled by Capital Issue Control Act, 1947.

4/15/12

Prof Rashmi

1717

Nature of Fund Raising:Domestic: Equity issues by - Corporates (primary issues) - Financial intermediaries (secondary issues) Government (primary issues) - Corporates (primary issues) - Financial intermediaries (secondary issues)
-

Debt instruments by

External: Equity issues through issue of: Debt instruments through Other External Borrowings: Foreign Direct Investment (FDI) Foreign Institutional Investments Non- Resident Indian 4/15/12 deposits (NRI) - in Equity and Debt form - in the form of portfolio investments - in the form of short-term and medium Prof term deposits Rashmi 1818
-

Global Depository Receipts (GDR) American Depository Receipts (ADR)

- External Commercial Borrowings (ECB)

4/15/12

Prof Rashmi

1919

Eliminates the risk of bad deliveries and fake or forged shares. This was introduced by SEBI with effect from Jan 15, 1998. SEBI has also set up a working group comprising National Securities Depositories Ltd. and various market participants like custodians, brokers, stock exchanges, etc.

Dematerialisation of Shares

4/15/12

Prof Rashmi

2020

Dematerialisation of Shares

Conversion of physical certificates into dematerialised holdings at the request of investor is called dematerialisation Only shares registered in the name of account holder are accepted for dematerialisation at NSDL

4/15/12

Prof Rashmi

2121

Dematerialisation

Dematerialisation is the process by which an investor can get physical certificate converted into electronic balances maintained in its account with the participant in the NSDL system. Depository Participant (DP) is the agent of the depository and is the interface between the depository and the investor.

4/15/12

Prof Rashmi

2222

Diagrammatic presentation of Demating of Securities


7. Intimatio 1. Dep. n Req. 4. DRF & Form DEPOSITORY Cert. REGISTRA and PARTICIPANT 3.Dem certific R at 6. ates 2. Updati Req. Demat 5. on req. DEPOSITORY and Confirma Bal tion and updation
4/15/12 Prof Rashmi 2323

INVESTOR

Depositories

Depository system provides for Dematerialization of securities, custody and trading in electronic form The Depositories Act, 1996 introduced a legal frame work for the establishment of multi depositories to hold securities in scrip less form

4/15/12

Prof Rashmi

2424

Depositories Act, 1996 (adopted on 20/09/95)

Depository means a company formed and registered under the Cos Act, 1956 and which has been granted a certificate of registration u/s-s (1A) of Sec 12 of the SEBI Act, 1992 Depositories must be registered with the SEBI
Prof Rashmi 2525

4/15/12

Depositories in India

4/15/12

Prof Rashmi

2626

National Securities Depositories Ltd. (NSDL)

First depository in the country. Sponsored by UTI, NSE, SBI, HDFC Bank and Citibank. It is a public ltd. co managed by the Board of Directors Governed by its bye-laws and business operations are regulated by its business rules

4/15/12

Prof Rashmi

2727

Functions of NSDL

NSDL effects settlement of securities traded on the exchanges It carries out settlement of trades not done on the stock exchange (off- market trades) NSDL facilitates pledging/ hypothecation of dematerialised securities
Prof Rashmi 2828

4/15/12

Services offered by NSDL

It offers a host of services to the investors through the network of Depository Participants (DP) Maintenance of beneficial holdings through DPs The NSDL maintains accounts of investor holdings through its DPs The DPs provide a statement of holding of each of their clients which is similar to such documents provided by a commercial bank

4/15/12

Prof Rashmi

2929

Structure/ Design of NSDL


NSDL
Issuer/ R & T agent
Clearing Member Depositor y Participan t

Clearing Corporation

Stock Exchange

Trading Member

Investo r
3030

4/15/12

Prof Rashmi

contractnote.htm

4/15/12

Prof Rashmi

3131

Rematerialisation

The conversion of dematerialised securities back into physical certificates is called Rematerialisation Rematerialisation is optional on the part of the investor and can be done on the request of investor, any time after the same have been dematerialised

4/15/12

Prof Rashmi

3232

Rematerialisation
DEPOSITOR Y (NSDL) DEPOSITOR Y PARTICIPAN T

REGISTRAR AND TRANSFER AGENT

BENEFICIAL OWNER (INVESTOR)

4/15/12

Prof Rashmi

3333

Rolling Settlement

Major reform introduced by SEBI, which has terminated the badla system or the carry over trading system w.e.f. July 2,2001. Badla is a speculative system which allows an investor to carry over his transaction of a particular stock to the next settlement cycle without cash settlement in the current cycle.
Prof Rashmi 3434

4/15/12

Rolling Settlement and Badla

Major reforms in the recent times is the introduction of Rolling Settlement It is a system of settling transactions in a fixed number of days after the trade is agreed Badla system, also known as carry over trading system or forward trading system was allowed only on the BSE in India
Prof Rashmi 3535

4/15/12

Introduction of the Rolling Settlement


Rolling settlement system replaced the badla system from 2, July 2001. By 2 Jan 2002, all scrips were brought under the compulsory rolling mode In the cash market there is now a compulsory rolling settlement, which will be done on a daily basis i.e. each trading day will be taken as if it is a settlement When an investor buys shares he will have to pay for them and when he sells them he will have to give delivery With this new system all the settlement days of all exchanges will become the same 4/15/12 Prof Rashmi 3636

All transactions in all groups of securities in the equity segment and fixed income securities listed on BSE are required to be settled on T +2 basis (w.e.f April 1, 2003) A T+ 2 settlement cycle means that the final settlement of transactions done on T (i.e. trade day) by exchange of monies and securities between the buyers and sellers respectively takes place on second business day (excluding Sat, Sun and exchange traded holidays) after the trade day T+2 : By 11 am Pay in of securities and funds By 1.30 pm Pay out of securities 4/15/12 Prof Rashmi 3737 and funds

Compulsory Rolling Settlement

Advantages of Rolling Settlement


4/15/12

The basic advantage of rolling system over the badla system is its simplicity The badla system was non-transparent and unregulated and the investors exposure to risk and fraud was very high. The investor had to keep track of different stocks as they had different settlement systems With rolling settlement, the investor has to merely keep track of the day of purchase/ sale of scrips as all the scrips are settled in the same format on all trading screens It improves the price discovery process as the settlement process is standardised and the participants can focus more on market outcomes
Prof Rashmi 3838

Book building A new issue mechanism in India (Primary market)

Following the inefficient functioning of the capital market system, an alternative method called bookbuilding method is slowly becoming popular in India The essence of the tender/ book building method is that the pricing of the issues is left to the investors by which the demand for the proposed issue is elicited and built-up
Prof Rashmi 3939

4/15/12

The Book Building process


During the process on both the NSE and BSE, investors can watch the book being built. This helps the investor to know the market price It offers investors the opportunity to bid collectively and it then uses the bids to arrive at a consensus price The issuer company first of all appoints a book runner, i.e. a merchant banker The book runner prepares and submits the draft documents to SEBI and obtains an acknowledgement card The issuer and the book runner decide to 4/15/12 Prof Rashmi offer shares at a price within a specified 4040

The Book Building process


Offers regarding the demand for securities at different price levels are invited from syndicate members brokers, merchant bankers, underwriters, financial institutions, mutual funds and others The advertisement should mention the opening and closing dates for the bids. A bid is usually open for a minimum of five working days Based on the bids received, the issuer arrives at a final cut-off rate and the final allocation in consultation with the bookrunner and the lead manager 4/15/12 final prospectus is filed with the ROC Prof Rashmi 4141 The

Difference between shares offered through book building and offer of shares through normal public issues Features
Pricing

Fixed price process


Price at which securities are offered /allotted is known in advance to the investor

Book building process


Price at which securities will be offered/ allotted is not known in advance to the investor. Only an indicative price range is known Demand for the securities offered can be known everyday as the book is built

Demand

Demand for the securities offered is known after the closure of the issue

Payment

Payment is made at the Payment only after time of subscription allocation wherein refund is given after allocation
Prof Rashmi 4242

4/15/12

Book Building Guidelines


The concept of book building assumed significance in India as the SEBI approved, w.e.f. Nov 1, 1995; the use of the process in pricing new issues The SEBI issued guidelines under which the option of 100 percent book building was available to those issuer companies which are to make an issue of capital of and above Rs 25 crore Bharti Televentures was the first 100 per cent book building issue. It raised Rs 834 crore through 100 percent book-building in 2001-02. ICICI was the first to price its debt issue through book-building. Other companies 4/15/12 Prof Rashmi 4343 such as IPCL, Hindalco and HUDCO used

Moving Price Band concept


SEBI reintroduced the moving price band concept in book built IPOs Price band includes the floor price and the cap price PNB issues price band was Rs 350-390. Rs 350 is the floor price and Rs 390 is the cap price The spread between the floor and the cap of the price band should not be more than 20% The cap should not be more than 120% of the floor price This price band denotes the range of bidding 4/15/12 Prof Rashmi 4444 Investors can bid at any price between Rs

Guidelines for Book building


A book built issue shall offer not less that n 50% to the qualified institutional buyers (QIBs) and not less than 25% to the retail investors The rest may be allotted to the non-institutional buyers or high net worth individuals Note: QIB public financial institution, scheduled commercial banks, mutual funds, foreign institutional investors, etc A retail individual investor is one who applies or bids for securities of or for a value of not more than Rs 1,00,000 (higher than this he is a higher net worth individual) The registrar then ensures that the demat credit or refund as applicable is completed within 15 days of the closure of the issue. 4/15/12 Prof Rashmi 4545 Listing on stock exchange is done within 7 days

Capital Market Reforms (a conclusion)


Stock markets moved to the T+2 system from April 1, 2003 The SEBI intends to move to T+1 The move towards T+1 is part of the capital market reforms initiated by the SEBI, especially after the stock market scams The rolling settlement system of share transactions prevents speculations in between the settlement periods Movement to the T+1 system, requires real time gross settlement in banking transactions. This would ensure that the banking transactions are settled within a day 4/15/12 Prof Rashmi 4646

Capital markets & its operAtions


Click to edit Master subtitle style SESSION 3

4/15/12

Prof Rashmi

4747

On Line IPOs
The on-line issue of shares is carried out via the electronic network of the stock exchanges The guidelines for online issue of shares are incorporated in a SEBI Disclosure and Investor Protection Guidelines, 2000 The guidelines clearly state that public issue can be made either through the online system or through the existing banking channels The company has to comply with sections 55-68A of the Companies Act, 1956 and Disclosure and Investor Protection 4/15/12 4848 guidelines Prof Rashmi

Disclosure and Investor Protection Guidelines


Under online system, a company has to comply with sections 55-68A of the Cos Act, 1956 (Prospectus and allotment and other matters relating to issue of shares and debentures) This system reduces the time taken for the issue process and securities get listed within 15 days from the closure of the issue Allotment of securities should be made not later than 15 days from the closure of the issue, failing which interest @ 15% should be paid to investors Corporates planning an IPO can reduce their stationery, printing and other expenses The investor also benefits as the system 4/15/12 Prof Rashmi 4949

Initial Public Offering (IPOs)

IPO is an offering of either a fresh issue of securities or an offer for sale of existing securities, or both by an unlisted company for the first time to the public IPO enables listing and trading of the issuers securities To enable the investors to take informed decisions and to protect their interests, SEBI has laid down stringent entry norms

4/15/12

Prof Rashmi

5050

Eligibility norms laid down by SEBI for entities raising funds through an IPO Entry Norm I Entry Norm II Entry Norm III
For companies Issue shall be Project is desiring to tap through a book appraised and the primary building route participated to market- net with at least 50% the extent of 15% tangible assets of of the issue to be by FIs / at least Rs 3 crs mandatorily scheduled for 3 full years allotted to QIB commercial failing which the banks of which at money shall be least 10% comes refunded from the appraiser Distributable The minimum Minimum postprofits in at least post issue face issue capital shall 3 out of value capital be Rs 10 crores
4/15/12 Prof Rashmi

5151

Are IPOs creators of wealth? always profitable. Subscribing to new issues is not

Some of the IPOs have, in fact, robbed the investors of their wealth Out of 107 issues in 2007-08 only 86 companies reported positive returns, while the remaining companies reported negative returns for their investors Stocks like global Broadcast News Ltd gained above 88% returns Some other stocks listed below their offer price and incurred losses- e.g. Orbit corporation reported a loss of nearly 19% From the period June to Sept 2009, Indian companies raised Rs 13,000 crores through the IPO route, including the IPOs of Adani Power, Oil India and NHPC Source: Portfolio organizer, investing has become a riskier proposition for IPO Dec 2009, pp 11 4/15/12 Prof Rashmi 5252 retail investors in the recent years

Retail Investor response to IPOs


2007 2009

Company Total Name issue size (Rs cr) Reliance Power Edelweiss

No. of times retail subscrip tion 10,260. 9.02 00 691.84 20.00

Compan Total No. of y Name issue times size retail (Rs subscrip cr) tion Pipavav 512.00 2.89 Shipyard 1.70 3.10 3.09 5353

Oil India 2,777. 00 Mundra 1771.00 13.00 NHPC 6,048. Port Source: Data compiled from 00 Business India Aries Agro 58.50 Prof 6.42 Jindal 84.37 4/15/12 Rashmi

Primary Issues
Primary Issues
Public Issue IPO first time offer of sale Right s Issue Private Placement

Follo w on publi c offeri ng

4/15/12

Prof Rashmi

An offer of sale of existin g securit ies

Privat e Place ment

Prefere ntial issue

QIP (for list ed Cos )


5454

Rights Issue

Rights issue is a offer of new securities by a listed company to its existing shareholders on a prorata basis Rights issues shall be kept open for at least 30 days and not more than 60 days

4/15/12

Prof Rashmi

5555

Private Placement Market

Private placement refers tot the direct sale of newly issued securities by the issuer to a small number of investors through merchant bankers These investors are selected clients such as financial institutions, Corporates, banks and high net-worth individuals
Prof Rashmi 5656

4/15/12

Share of Public sector and Private sector in Private Placement market


Year Share of Private sector (in %) Share of Public sector (in %)

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07


4/15/12

36 44 37 42 42 44 58
Prof Rashmi

64 56 63 58 58 56 42
5757

Issue Mechanism
Public Issue Rights issue Bonus Issue Private Placement Market Bought out deals -( Reliance Capital and Finance Trust acquired one lakh shares of Neilcon Ltd. at Rs 20 premium)

4/15/12

Prof Rashmi

5858

Private Placement Market


Direct sale by a public/private co. of shares/ debentures to UTI, LIC, GIC, State Finance Corporations, Pension and Insurance Funds. Intermediaries are Credit rating agencies and trustees like ICICI and Merchant Bankers. Maximum time frame for private placement is 2/3 months. Private placement can be made of promoters quota but not with 4/15/12 Prof Rashmi 5959 unrelated investors.

Bought - out -deals

Company places its Equity shares to a sponsor/ merchant banker who offloads the shares at an appropriate time. The sponsor is also an intermediate investor. Bought out deals are known as Angels in UK. Entered the Indian corporate world with the Co-nick Alloys (India) offer for sale at a premium sponsored by ICICI.
Prof Rashmi 6060

4/15/12

Methods of Offer of Boughtout deals


COMPANY SPONSOR OTCEI MERCHANT BANKER STOCK EXCHANGE

PUBLIC ISSUE
4/15/12 Prof Rashmi 6161

Role of Merchant Bankers

Investors can be benefited by a compulsory requirement to have merchant bankers rated by authorized rating agencies. These rating agencies evolve their own norms, including post-listing appreciation/ depreciation in prices of securities handled by the merchant bankers.

4/15/12

Prof Rashmi

6262

Measures taken by SEBI are:

Computerization of Stock Exchanges (introduction of OTCEI and NSE and subsequently to BSE). Expansion of trading terminals of stock exchanges. Dematerialised trading paperless trading by setting up National Securities Depository Ltd. Securities lending scheme improves the efficiency of the settlement system.

4/15/12

Prof Rashmi

6363

Merchant Bankers

Merchant banker means any person who is engaged in the business of issue management by making selling, buying arrangements or acting as manager, consultant, adviser or rendering corporate advisory service. All issues should be managed by at least one lead merchant banker .
Prof Rashmi 6464

4/15/12

Merchant Bankers

The lead manager shall continue to be associated with the issue till the subscribers have received the share or debenture certificates or refund of excess application money. A merchant banker shall disclose to the Board his responsibilities with regard to the management of the issue. Also, he has to give all information relating to his activities as a manager, underwriter, consultant or adviser to an issue.
Prof Rashmi 6565

4/15/12

Government Securities

Central Government securities State Government securities Securities guaranteed by Central Government for All India Financial Institutions like IDBI, ICICI, IFCI, etc Securities guaranteed by State Government for state institutions like state electricity boards and housing boards Treasury bills issued by RBI
Prof Rashmi 6666

4/15/12

Government Securities Form


Stock Certificates Promissory Notes Bearer Bonds Other Forms


Treasury Bills National Defense/National Savings/National Deposit Certificates Deposit Certificates Annuity Certificates Annuity Deposit Certificates Zamindari Abolition Compensation Bonds and Rehabilitation Grant Bonds Social Security Certificates Capital Investment Certificates.
Prof Rashmi 6767

4/15/12

Government Securities Investors

Commercial banks Financial institutions (FIs) Large corporate bodies Reserve Bank of India Foreign Institutional Investors
Prof Rashmi 6868

4/15/12

Stock Exchanges
Two leading stock Exchanges in IndiaBSE & NSE. Function of stock exchange is raising of capital through floating of issues. BSE was recognized by the Government of India on Aug 31, 1957 under the Securities Contracts (Regulations) Act, 1956. Companies which seek listing on BSE have to have a minimum issued capital of Rs 3 crores. Also, such companies should have a 4/15/12 Prof Rashmi profitability record of at least 3 years. 6969

Trading system on BSE

BSE computerized its trading system by introducing BOLT (Bombay on line trading) on 14/03/95. BOLT provides a quote driven automatic trading facility. This system allows retention and matching of orders against one another where no quotes exists in the system for a particular scrip. It improves the price competitive character of the market. Securities on the BSE have been divided into five categories: Group A, Group B (B1 and B2) Group C, Group F and Group Z. B1 are well traded scrips in the B group while B2 are not well traded.
Prof Rashmi 7070

4/15/12

Price Indices

4/15/12

BSE Sensitivity Index (Sensex) and the BSE National Index (Natex). The BSE Sensex was introduced on 1/1/86 with the base year of 1978-79. The BSE Sensex consists of only 30scrips which are highly sensitive to market fluctuations. BSE National Index was set up in the year 198889 with the base year of 1983-84. Natex covers 100 actively traded scrips of major stock exchanges. The BSE introduced two new indices, i,e, the BSE National Index- 200 and Dollax with the base year of 1989-90. Dollax presents the current as well as the base year values in dollar terms.
Prof Rashmi

7171

National Stock Exchange

The Pherwani Committee recommended the setting up of a model National Stock Exchange at New Bombay. The NSE was recognized by the Government of India as a public limited company owned by IDBI and other financial institutions like ICICI, IFCI, GIC , LIC, SBI, Stock Holding Corporation of India. It was set up to establish a nation-wide trading for equities and debt instruments.
Prof Rashmi 7272

4/15/12

Trading Segments of NSE

The NSE set up two segments- the Wholesale Debt Market (WDM) segment which commenced trading on June 30, 1994 and the Capital Market segment (CM) which started on Nov 3, 1994. The WDM segment deals with pure debt instruments such as Government securities, treasury bills, public sector bonds, corporate debentures, commercial paper, bank bonds, etc.
Prof Rashmi 7373

4/15/12

Trading system of NSE


National Stock Exchange for Automated trading. This is a fully automated screen based trading system. It operates on a price-time priority, is order driven and hides the identity of the trading parties.

4/15/12

Prof Rashmi

7474

Price Index of NSE


This is reflected through the NSE- 50 index popularly called Nifty. It comprises 50 scientifically selected scrips having market capitalization of Rs 5 billion each. It was introduced on April 22, 1996 with the base year of Nov 3, 1995 to reflect market movement more accurately. The Nifty Junior Index (Mid cap Index) and the Dollar denominated Nifty (Defty) was introduced. The Mid Cap Index was introduced with the explicit objective of measuring the performance of stocks in the mid-cap range on Jan 1, 1997.
Prof Rashmi 7575

4/15/12

Stock Exchanges

Auction market in shares and other securities. Persons at Stock Exchanges: Bull - buyer (Optimistic view) Bear seller (Pessimistic view) Transactions commence with placement of order.
Prof Rashmi 7676

a) b)

q)

4/15/12

Types of Orders

Limit Orders Best Rate Order Immediate or Cancel Order Limited Discretionary Order Stop Loss Order Open Order

4/15/12

Prof Rashmi

7777

Delivery of Share Certificates

Spot Delivery Hand Delivery Specified Delivery

4/15/12

Prof Rashmi

7878

Depository system in India

4/15/12

Depository is an entity which holds securities in the form of electronic accounts in the same way as a bank holds money. This eliminates the need to deliver physical certificates on sale and transfer. All exchange and transfer takes place in the electronic form. All settlement activity takes place through a depository. The investor has to open an account with the depository through a Depository participant. They issue debit instructions for delivery of securities to their accounts. For receipt of delivery of securities to their accounts they issue a credit instruction.
Prof Rashmi 7979

Advantages of a Depository

It is speedier and delay in transfer of securities is eliminated. It avoids a lot of paper work. The buyer gets exemption from stamp duty on transfer of securities. The company can save substantial amount on printing certificates, postage expenses and legal compliances.

4/15/12

Prof Rashmi

8080

International Capital Markets

4/15/12

Prof Rashmi

8181

International Capital Markets


Factors for development of such markets: 1) Avoidance of taxes by investors in their own countries 2) To ensure protection against depreciating home currencies. 3) Emergence of new technologies in the area of financial services. 4) Development and deregulation of financial markets.
4/15/12 Prof Rashmi 8282

American Depository Receipts

4/15/12

Depository receipts issued by a company in the USA is known as ADRs. Such receipts have to be issued in accordance with the provisions stipulated by the Securities and Exchange Commission of USA, which are very stringent. An ADR is generally created by the deposit of the securities of a non- United States company with a custodian bank in the country of incorporation of the issuing company. ADRs are United States dollar denominated and are traded in the same way as are the securities of United States company.
Prof Rashmi

8383

Global Depository Receipts


Depository receipts may trade freely in the overseas markets, either on a foreign stock exchange or over-the-counter market, or among a restricted group such as Qualified Institutional Buyers (QIBs). Through the issue of depository receipts, companies in India have been able to tap global equity market to raise foreign currency funds by way of equity. A GDR issue has been able to fetch higher prices from international investors. As a result of introduction of GDRs a considerable foreign investment has flown into 4/15/12 Prof Rashmi 8484 India.

Markets of GDRs

GDRs are sold primarily to institutional investors. Demand is dominated by emerging market funds. Switching by foreign institutional investors from ordinary shares into GDRs is likely. Major demand is also in UK, USA (Qualified Institutional Buyers), South East Asia (Hong Kong, Singapore), and to some extent continental Europe (principally France and Switzerland).
Prof Rashmi 8585

4/15/12

Stock Market operations on International Level

The Government of India has formulated a scheme for allowing Indian companies to issue equity shares or convertible bonds in the International markets after Government approval. Companies must have good financial track record at lest for a period of three years, market price stability and good industry prospects. Euro issues offer tremendous advantages to Indian issuers. Investors are aiming to diversify their portfolios internationally. The merchant banker plays an important role in organizing a Euro issue.
Prof Rashmi 8686

4/15/12

International Equity Instruments


Global Depository Receipts: Instrument in the form of depository receipt/ certificate created by Overseas Depository Bank outside India and issued to NRIs.

American Depository Receipts: Dollar denominated negotiable certificate and represents publicly traded Equities of Non-US companies. 4/15/12 Prof Rashmi 8787

Participants
Borrowers/Issuers(Corporates, Financial Institutions, banks and Govt. Bodies) q Lenders and Investors (Banks chief lenders of Euro Loans; Institutional Investors subscribers of ADRs and GDRs) q Intermediaries: a) Lead Managers b) Underwriters c) Custodians

Prof Rashmi

4/15/12

8888

Forex Markets
v

Exchange rate:- Rate at which one currency can be converted into another currency. Quoted in two ways: * Direct Quote * Indirect Quote

4/15/12

Prof Rashmi

8989

Participants in Forex Markets

Exporters Importers Commercial Banks Central Banks.

4/15/12

Prof Rashmi

9090

Authorized Dealers

Banks Certain Financial Institutions State and Urban Co-op Banks Scheduled Commercial Banks

4/15/12

Prof Rashmi

9191

Authorized Money Changers


v

Deal in foreign currency subject to certain restrictions. Two categories: 1) Full-fledged Money changers 2) Restricted Money changers.

4/15/12

Prof Rashmi

9292

Derivatives Market
v

A financial derivative is a product derived from the market of an underlying asset. Derivative refers to a variable which has been derived from another variable. They are designed to manage risks.

4/15/12

Prof Rashmi

9393

Types of Derivatives
Futures Agreement to buy or sell a specific amount or a commodity or financial instrument at a particular price on a stipulated date in the future. q Options Right (not an obligation) to buy/ sell an underlying asset at a stated date at a stated price.

4/15/12 Prof Rashmi 9494

Participants

Hedgers Speculators Arbitrageurs

4/15/12

Prof Rashmi

9595

Financial Institutions

Industrial Development Bank of India Industrial Finance Corporation of India Industrial Investment Bank of India Export and Import Bank of India State Financial Corporations State Industrial Development Corporations

4/15/12

Prof Rashmi

9696

Investment Institutions

Life Insurance Corporation of India General Insurance Corporation Unit Trust of India Mutual Funds

4/15/12

Prof Rashmi

9797

Banks

4/15/12

Prof Rashmi

9898

Liberalization

4/15/12

Prof Rashmi

9999

NBFCs

Investment Trusts or Investment Companies Nidhis or Mutual Benefit Funds Merchant Banks Hire-purchase Finance Companies Lease Finance Companies Housing Finance Institutions Venture Capital Funds, and Factors or Factoring Companies
Prof Rashmi 100

4/15/12