Indian Financial System

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Objectives
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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
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Lenders & Borrowers

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Functions of Financial System  The Savings Function Liquidity Function Payment Function Risk Function  Policy Function    4/15/12 Prof Rashmi 44 .

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.Indian Financial System Formal Informal (Organise (Unorgani d) sed) Moneylenders. ed Commer Cooper Finance Finance All India Financial Other cial cos. s RBI. Exim Bank ons Banks Prof Rashmi SFC’s.State level Instituti ative Institutions: IFCI. IDBI. SIDBI. Landlords. Regulat Local bankers. Institutions InstitutionsBanks NABARD. DICGC 4/15/12 55 SIDC’s . Financial ors Traders. : ECGC. IDFC. Institution SEBI.

Medi Preferen Deposi ts. Merchan t Banking. Forfaitin g. Informal (Unorgan ised 66 . ties ties Equity. HP. Long & Insura various combina nce policie tions s 4/15/12 Prof Rashmi Financ ial Servic Deposito es ries Custodia l Credit. Leasing. Debt units. MF um ce.Indian Financial System Financi Formal al (Organis Instrum ed) ents Term Prima Secon : ry dary Short Securi Securi Time . Factorin g.

Term ary 77 Segme money Segme 4/15/12 Debt Mar Private ket Corporate Debt. y ary Prof Govt. et Call money market. PSU Bond Primar Second market. Rashmi . Commercia CP. Primar l Bills.Indian Financial System Formal (Organi sed Capit al Equit Mark et y Mark et Informal (Unorga nised Mone y Treasury Mark Bills.Second y CD.

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 .Indian Financial System Equity Market Prim Seconda ary ry -NSE -Public Mark Market -BSE et issues -OTCEI .

 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  .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.

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 .

Sri Philippines. Brazil. Classification of Financial Structure and Level of Development of Select Economies Extent of Development Bank. France .based Market-based Developed 4/15/12 Underdeveloped Japan. Pakistan. UK. Malaysia. Mexico. Italy Singapore. Germany.Financial System Designs  A financial system is a vertical arrangement of a well-integrated chain of financial markets and institutions that provide financial intermediation. Turkey . US. Korea Argentina. Prof Rashmi 1111 Lanka.

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

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Session 2: Introduction to Capital Markets

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Financial Markets

Money Market Capital Market Government Securities

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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 .

Types of Capital Markets: Primary Markets Secondary Markets Prof Rashmi 1616 Ø Ø 4/15/12 .Capital Markets Capital markets deal in long term sources of funds with a maturity period of more than one year.

Capital issues were controlled by Capital Issue Control Act. 4/15/12 Prof Rashmi 1717 .Primary Markets v v Primary market helps companies in raising funds through issue of securities like shares and debentures. 1947.

Financial intermediaries (secondary issues) Government (primary issues) .Corporates (primary issues) .Nature of Fund Raising:Domestic: Equity issues by .Resident Indian 4/15/12 deposits (NRI) .in the form of short-term and medium Prof term deposits Rashmi 1818 - Global Depository Receipts (GDR) American Depository Receipts (ADR) .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.in Equity and Debt form .in the form of portfolio investments .External Commercial Borrowings (ECB) .

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1998. This was introduced by SEBI with effect from Jan 15. Dematerialisation of Shares 4/15/12 Prof Rashmi 2020 . stock exchanges.   Eliminates the risk of bad deliveries and fake or forged shares. etc. SEBI has also set up a working group comprising National Securities Depositories Ltd. and various market participants like custodians. brokers.

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 .

Depository Participant (DP) is the agent of the depository and is the interface between the depository and the investor.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. 4/15/12 Prof Rashmi 2222 .

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

Depositories   Depository system provides for Dematerialization of securities. 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 . custody and trading in electronic form The Depositories Act.

1956 and which has been granted a certificate of registration u/s-s (1A) of Sec 12 of the SEBI Act.Depositories Act. 1996 (adopted on 20/09/95)   Depository means a company formed and registered under the Co’s Act. 1992 Depositories must be registered with the SEBI Prof Rashmi 2525 4/15/12 .

Depositories in India 4/15/12 Prof Rashmi 2626 .

(NSDL)    First depository in the country. Sponsored by UTI. NSE. SBI. It is a public ltd. HDFC Bank and Citibank. 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 .National Securities Depositories Ltd.

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
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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 DP’s 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

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

Clearing Corporation

Stock Exchange

Trading Member

Investo r
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any time after the same have been dematerialised 4/15/12 Prof Rashmi 3232 .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.

Rematerialisation DEPOSITOR Y (NSDL) DEPOSITOR Y PARTICIPAN T REGISTRAR AND TRANSFER AGENT BENEFICIAL OWNER (INVESTOR) 4/15/12 Prof Rashmi 3333 .

Prof Rashmi 3434 4/15/12 .e.2001.Rolling Settlement   Major reform introduced by SEBI. 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. which has terminated the badla system or the carry over trading system w. July 2.f.

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 .

all scrips were brought under the compulsory rolling mode  In the cash market there is now a compulsory rolling settlement. 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  . which will be done on a daily basis i. By 2 Jan 2002.e. July 2001.Introduction of the Rolling Settlement Rolling settlement system replaced the badla system from 2.

30 pm – Pay out of securities 4/15/12 Prof Rashmi 3737 and funds  Compulsory Rolling Settlement . trade day) by exchange of monies and securities between the buyers and sellers respectively takes place on second business day (excluding Sat.f April 1.e. 2003)  A T+ 2 settlement cycle means that the final settlement of transactions done on T (i. Sun and exchange traded holidays) after the trade day  T+2 : By 11 am – Pay in of securities and funds By 1.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.

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 investor’s exposure to risk and fraud was very high. 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 . The investor had to keep track of different stocks as they had different settlement systems With rolling settlement.

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 .Book building – A new issue mechanism in India (Primary market)   Following the inefficient functioning of the capital market system.

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.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  . investors can watch the book being built.The Book Building process During the process on both the NSE and BSE. i.

The Book Building process Offers regarding the demand for securities at different price levels are invited from syndicate members – brokers. A bid is usually open for a minimum of five working days  Based on the bids received. underwriters. mutual funds and others  The advertisement should mention the opening and closing dates for the bids. 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  . merchant bankers. financial institutions.

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 .

It raised Rs 834 crore through 100 percent book-building in 2001-02. w. 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. 1995. Other companies 4/15/12 Prof Rashmi 4343 such as IPCL. Nov 1.  ICICI was the first to price its debt issue through book-building. Hindalco and HUDCO used  .Book Building Guidelines The concept of book building assumed significance in India as the SEBI approved.f.e.

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 issue’s 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.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. 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. 4/15/12 Prof Rashmi 4545 Listing on stock exchange is done within 7 days  .00. scheduled commercial banks. mutual funds.

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. This would ensure that the banking transactions are settled within a day 4/15/12 Prof Rashmi 4646  . requires real time gross settlement in banking transactions.Capital Market Reforms (a conclusion) Stock markets moved to the T+2 system from April 1. 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.

Capital markets & its operAtions Click to edit Master subtitle style SESSION 3 4/15/12 Prof Rashmi 4747 .

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.On Line IPO’s 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. 1956 and Disclosure and Investor Protection 4/15/12 4848 guidelines Prof Rashmi  .

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.Disclosure and Investor Protection Guidelines Under online system. a company has to comply with sections 55-68A of the Co’s Act. printing and other expenses  The investor also benefits as the system 4/15/12 Prof Rashmi 4949  . failing which interest @ 15% should be paid to investors  Corporates planning an IPO can reduce their stationery.

SEBI has laid down stringent entry norms 4/15/12 Prof Rashmi 5050 .Initial Public Offering (IPO’s)    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 issuer’s securities To enable the investors to take informed decisions and to protect their interests.

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 .

including the IPOs of Adani Power. 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. Orbit corporation reported a loss of nearly 19%  From the period June to Sept 2009.000 crores through the IPO route. in fact. pp 11 4/15/12 Prof Rashmi 5252 retail investors in the recent years . investing has become a riskier proposition for  IPO Dec 2009.g.e. Oil India and NHPC Source: Portfolio organizer. Indian companies raised Rs 13. Are IPO’s creators of wealth? always profitable. robbed the investors of their wealth  Out of 107 issues in 2007-08 only 86 companies reported positive returns. Subscribing to new issues is not Some of the IPOs have.

00 Compan Total No.09 5353 Oil India 2.37 4/15/12 Rashmi .10 3.260. Port Source: Data compiled from 00 Business India Aries Agro 58.84 20.048.42 Jindal 84.00 13.02 00 691.50 Prof 6.Retail Investor response to IPOs 2007 2009 Company Total Name issue size (Rs cr) Reliance Power Edelweiss No.00 NHPC 6. of times retail subscrip tion 10.00 2.70 3. of y Name issue times size retail (Rs subscrip cr) tion Pipavav 512. 9.89 Shipyard 1. 00 Mundra 1771.777.

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 .

Corporates. banks and high net-worth individuals Prof Rashmi 5656 4/15/12 .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.

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 .

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

out -deals     Company places its Equity shares to a sponsor/ merchant banker who offloads the shares at an appropriate time. Prof Rashmi 6060 4/15/12 . Entered the Indian corporate world with the Co-nick Alloys (India) offer for sale at a premium sponsored by ICICI. The sponsor is also an intermediate investor. Bought out deals are known as Angels in UK.Bought .

Methods of Offer of Boughtout deals COMPANY SPONSOR OTCEI MERCHANT BANKER STOCK EXCHANGE PUBLIC ISSUE 4/15/12 Prof Rashmi 6161 .

including post-listing appreciation/ depreciation in prices of securities handled by the merchant bankers. 4/15/12 Prof Rashmi 6262 .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.

Expansion of trading terminals of stock exchanges.Measures taken by SEBI are:     Computerization of Stock Exchanges (introduction of OTCEI and NSE and subsequently to BSE). 4/15/12 Prof Rashmi 6363 . Dematerialised trading – paperless trading by setting up National Securities Depository Ltd. Securities lending scheme improves the efficiency of the settlement system.

All issues should be managed by at least one lead merchant banker . buying arrangements or acting as manager. adviser or rendering corporate advisory service. consultant. Prof Rashmi 6464 4/15/12 .Merchant Bankers   Merchant banker means any person who is engaged in the business of issue management by making selling.

Prof Rashmi 6565 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. he has to give all information relating to his activities as a manager. A merchant banker shall disclose to the Board his responsibilities with regard to the management of the issue. Also. consultant or adviser to an issue. underwriter.

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      Central Government securities State Government securities Securities guaranteed by Central Government for All India Financial Institutions like IDBI.

Prof Rashmi 6767 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.

Government Securities Investors  Commercial banks Financial institutions (FIs) Large corporate bodies Reserve Bank of India Foreign Institutional Investors Prof Rashmi 6868     4/15/12 .

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

It improves the price competitive character of the market.Trading system on BSE       BSE computerized its trading system by introducing BOLT (Bombay on line trading) on 14/03/95. Prof Rashmi 7070 4/15/12 . B1 are well traded scrips in the B group while B2 are not well traded. This system allows retention and matching of orders against one another where no quotes exists in the system for a particular scrip. Group F and Group Z. BOLT provides a quote driven automatic trading facility. Securities on the BSE have been divided into five categories: Group A. Group B (B1 and B2) Group C.

e.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. the BSE National Index. Dollax presents the current as well as the base year values in dollar terms. The BSE introduced two new indices. BSE National Index was set up in the year 198889 with the base year of 1983-84. Prof Rashmi 7171 . Natex covers 100 actively traded scrips of major stock exchanges.200 and Dollax with the base year of 1989-90. i.

The NSE was recognized by the Government of India as a public limited company owned by IDBI and other financial institutions like ICICI. Prof Rashmi 7272 4/15/12 . GIC .National Stock Exchange    The Pherwani Committee recommended the setting up of a model National Stock Exchange at New Bombay. LIC. Stock Holding Corporation of India. It was set up to establish a nation-wide trading for equities and debt instruments. IFCI. SBI.

Trading Segments of NSE   The NSE set up two segments. 1994 and the Capital Market segment (CM) which started on Nov 3.the Wholesale Debt Market (WDM) segment which commenced trading on June 30. bank bonds. Prof Rashmi 7373 4/15/12 . corporate debentures. commercial paper. The WDM segment deals with pure debt instruments such as Government securities. treasury bills. etc. 1994. public sector bonds.

is order driven and hides the identity of the trading parties. This is a fully automated screen based trading system. It operates on a price-time priority. 4/15/12 Prof Rashmi 7474 .Trading system of NSE    National Stock Exchange for Automated trading.

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. The Nifty Junior Index (Mid cap Index) and the Dollar denominated Nifty (Defty) was introduced. Prof Rashmi 7575 4/15/12 . It comprises 50 scientifically selected scrips having market capitalization of Rs 5 billion each.50 index popularly called Nifty.Price Index of NSE      This is reflected through the NSE. 1995 to reflect market movement more accurately. It was introduced on April 22. 1996 with the base year of Nov 3.

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

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

4/15/12 Prof Rashmi 8080 . postage expenses and legal compliances.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.

International Capital Markets 4/15/12 Prof Rashmi 8181 .

4) Development and deregulation of financial markets. 3) Emergence of new technologies in the area of financial services. 4/15/12 Prof Rashmi 8282 .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.

United States company with a custodian bank in the country of incorporation of the issuing company.American Depository Receipts     4/15/12 Depository receipts issued by a company in the USA is known as ADR’s. which are very stringent. ADR’s are United States dollar denominated and are traded in the same way as are the securities of United States company. Such receipts have to be issued in accordance with the provisions stipulated by the Securities and Exchange Commission of USA. An ADR is generally created by the deposit of the securities of a non. Prof Rashmi 8383 .

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

Switching by foreign institutional investors from ordinary shares into GDR’s is likely. Prof Rashmi 8585 4/15/12 . and to some extent continental Europe (principally France and Switzerland). Major demand is also in UK. South East Asia (Hong Kong. USA (Qualified Institutional Buyers). Demand is dominated by emerging market funds. Singapore).Markets of GDR’s     GDR’s are sold primarily to institutional investors.

Investors are aiming to diversify their portfolios internationally. Prof Rashmi 8686 4/15/12 . Euro issues offer tremendous advantages to Indian issuers. Companies must have good financial track record at lest for a period of three years. The merchant banker plays an important role in organizing a Euro issue.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. market price stability and good industry prospects.

 American Depository Receipts: Dollar denominated negotiable certificate and represents publicly traded Equities of Non-US companies.International Equity Instruments Global Depository Receipts: Instrument in the form of depository receipt/ certificate created by Overseas Depository Bank outside India and issued to NRI’s. 4/15/12 Prof Rashmi 8787  .

Participants Borrowers/Issuers(Corporates. Bodies) q Lenders and Investors (Banks – chief lenders of Euro Loans. banks and Govt. Financial Institutions. Institutional Investors – subscribers of ADR’s and GDR’s) q Intermediaries: a) Lead Managers b) Underwriters c) Custodians  Prof Rashmi 4/15/12 8888 .

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

Two categories: 1) Full-fledged Money changers 2) Restricted Money changers. v 4/15/12 Prof Rashmi 9292 .Authorized Money Changers v Deal in foreign currency subject to certain restrictions.

They are designed to manage risks. v v 4/15/12 Prof Rashmi 9393 . Derivative refers to a variable which has been derived from another variable.Derivatives Market v A financial derivative is a product derived from the market of an underlying asset.

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 .

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