We have different options to channelize our savings. a)Banks
a)Financial Markets
Slide 3
Banks - A bank is a financial institution and a financial
intermediary that accepts deposits and channelize those deposits
into lending activities either directly or through capital markets.
Financial Market - A financial market is a market where financial
assets are bought or sold. Financial Assets are Shares, Debentures
and Bonds etc.
Slide 4
SAVERS FINANCIAL MARKETS INVESTORS HouseholdBusiness Firms
CONCEPT OF FINANCIAL MARKET
Slide 5
Functions of Financial Markets 1.Mobilization of savings and
channelizing them into most productive use. 2.Facilitates price
discovery. 3.Provide liquidity to financial assets. 4. Reduce cost
of transaction.
Slide 6
Classification of Financial Markets Unorganized Market
Organized Market Money Market Capital Market Secondary
MarketPrimary Market Govt. Securities Long-term Loans Industrial
Securities Certificates of Deposits Treasury Bills Commercial Bills
Call Money
Slide 7
Money Market Money Market is the market where transactions are
made for Short term securities. Features of money market Short term
market High safety High liquidity Fewer investors
Slide 8
It is a market for short term funds which deals in monetary
assets whose period of maturity is up to one year. In it short term
debt instruments that are highly liquid are issued and traded
actively everyday. Money market securities are usually sold in
large denominations. They have low default risk They mature in one
year or less from their issue date Meaning
Slide 9
Reserve Bank of India Commercial Banks Non-Banking Finance
Companies State Governments Large Corporation Houses Mutual
Funds.
Slide 10
It is an instrument of short-term borrowing by the Government
of India maturing in not less than one year. They are issued by RBI
on behalf of the Central Government to meet its short-term
requirements. They are issued at a price which is lower than their
face value and repaid at par. They are issued for a period of 14 to
364 days.
Slide 11
It is a short-term unsecured promissory note, negotiable and
transferable by endorsement and delivery with a fixed maturity
period i.e. 15 days to one year. It is an alternative to bank
borrowing for large companies that are generally considered to be
financially strong. It is sold at discount and redeemed at
par.
Slide 12
It is a short term finance repayable on demand, with a maturity
period of one day to fifteen days, used for inter-bank
transactions. Call money is a method by which banks borrow from
each other to be able to maintain the cash reserve ratio. The
interest rate paid On call money loans is known as the call
rate.
Slide 13
A commercial bill is a bill of exchange used to finance the
working capital requirements of business firm. It is a short- term,
negotiable, self-liquidating instrument which is used to finance
the credit sales of firms. The seller (drawer) of the goods draws
the bill and the buyer (drawee) accepts the bill. On being
accepted, it becomes a marketable instrument and is called a trade
bills. These bills can be discounted with a bank if the seller
needs funds before the bill matures.
Slide 14
INSTRUMENTS OF MONEY MARKET Call Money call money is short term
finance used for inter bank Transactions with maturity period of
one to fifteen days. Commercial Bills The holder of a trade bill
has the liberty to retain Till the date of maturity or they can
discount these bills with bank, If they are in need of funds,
before the maturity date of these bills. When Trade bills are
accepted by the commercial banks,they are known as Commercial
bills. Treasury bills-T-bills are instruments for short term
borrowing issued by Govt. of India.Their maturity is less than one
year. They are freely transferable. These are issued by RBI on
behalf of central govt. Certificate of deposit- It refers to short
term instruments issued by Commercial to the individual,corporation
and companies.
Slide 15
Types of Capital Market a)Primary Market-It is a new issue
market. b) Secondary Market It deals with the purchase and sale of
existing securities.
Slide 16
Capital Market Long Term Funds Raised by Government Corporates
Trading Instruments used Shares Debts Derivatives Units of Mutual
Funds
Slide 17
Debt Market Debt Contract One Party lends to another Party
Predetermined Interest Rates and Term Participants Banks Financial
Institutions Mutual Funds Insurance Companies etc. Instruments
Government Securities (G-Secs) Public Sector Units Bonds Corporate
Securities
Slide 18
Stock and Shares Stock Capital raised by corporations Through
issue and distribution of shares Share Signifies ownership in the
company A company might have thousands of Shareholders Which
company issued shares for the first time in the world??? The Dutch
East India Company in 1602
Slide 19
Primary vs. Secondary Markets Primary Markets Newly issued
securities sold by the issuer (e.g., a company sells bonds to pay
for a manufacturing plant) Usually no commission to buyer (seller
pays full commission) Secondary Markets Issuer not involved, all
trades between investors
Slide 20
It is a market for new securities issued. In the primary market
the security is purchased directly from the issuer.market
securities securityissuer
Slide 21
Features of Primary Features Of Primary Market are:- 1. This is
the market for new long term capital. The primary market is the
market where the securities are sold for the first time. Therefore
it is also called New Issue Market (NIM). 2. In a primary issue,
the securities are issued by the company directly to investors. 3.
The company receives the money and issue new security certificates
to the investors. 4. Primary issues are used by companies for the
purpose of setting up new business or for expanding or modernizing
the existing business. 5. The primary market performs the crucial
function of facilitating capital formation in the economy. 6. The
new issue market does not include certain other sources of new long
term external finance, such as loans from financial institutions.
Borrowers in the new issue market may be raising capital for
converting private capital into public capital; this is known as
going public.
Slide 22
Methods of issuing securities in the Primary Market 1. Private
Placement of Shares 2. Initial Public Offer; 3. Rights Issue; 4.
Preferential Issue. 5. e.Ipo
Slide 23
Private Placement of Shares Raising of capital via private
organizations rather than public placement. The result is the sale
of securities to a relatively small number of investors. The
examples of the private placement are: shares of Cyberspace Infosys
are privately placed to the UTI, GIC and LIC.
Slide 24
Initial Public Offer When a company issues common stock to the
public for the first time. They are often issued by smaller,
younger companies seeking capital to expand, but can also be done
by large privately-owned companies looking to become publicly
traded. In an IPO, the issuer may obtain the assistance of an
underwriting firm, which helps it determine what type of security
to issue (common or preferred), best offering price and time to
bring it to market. IPOs can be a risky investment. For the
individual investor, it is tough to predict what the stock will do
on its initial day of trading and in the near future since there is
often little historical data with which to analyze the company.
Also, most IPOs are of companies going through a transitory growth
period, and they are therefore subject to additional uncertainty
regarding their future value.
Slide 25
Right Issue of Shares When a company gives the right to an
existing share holder to buy a specified number of new shares from
the firm at a specified price, within a specified time period. A
right issue, is offered to all existing shareholders. Rights are
often transferable, allowing the holder to sell them on the open
market.
Slide 26
Preferential Issue Preference shares, is typically a higher
ranking stock than voting shares, and its terms are negotiated
between the corporation and the investor. voting shares Preferred
stock usually carry no voting rights but may carry superior
priority over common stock in the payment of dividends and upon
liquidation. Preferred stock may carry a dividend that is paid out
prior to any dividends to common stock holders. Preferred stock may
have a convertibility feature into common stock. Preferred
stockholders will be paid out in assets before common stockholders
and after debt holders in bankruptcy. Terms of the preferred stock
are stated in a "Certificate of Designation". dividend
Slide 27
E-IPO A company can also issue capital to public through the
online system of the stock exchange. The appointment of various
intermediaries by the issuer includes a prerequisite that such
members/registrars have the required facilities to accommodate such
an online issue process.
Slide 28
Stock Exchange Place where the shares are traded BSE NSE BSE
Bombay Stock Exchange Oldest Stock Exchange in Asia Sensex
Sensitive Index Index of 30 Actively traded Companies NSE National
Stock Exchange Incorporated in 1992 Nifty Index of 50 Actively
traded Companies
Slide 29
Other exchanges Regional Stock Exchanges Ahmedabad Stock
Exchange Calcutta Stock Exchange Over the counter market (OTC)
OTCEI
Slide 30
Structure of Indian Financial System: GOI Ministry of Finance
RBISEBI DepositoriesCompanies Broker Dealers Clearing Corporations
Stock Exchanges Mutual Funds Banks Registrar of Companies Merchant
Bankers Registrar & Transfer Agents Primary Dealers GOI Dept of
Co. Affairs Depository Participants
Slide 31
WHAT IS STOCK MARKET STOCK MARKET IS A PLACE WHERE SECURITIES-
SHARES,DEBENTURES,BONDS ARE TRADED STOCK MARKET HAS TWO BASIC
ELEMENTS 1.CORPORATE/ COMPANY NEED - FOR FUNDS 2.INVESTOR NEED - TO
GAIN PROFITS STOCK INVESTMENTS ARE MADE IN 1.COMPANY SHARES 2.OTHER
SECURITIES 3.DERIVATIVES
Slide 32
MECHANISM OF STOCK MARKET STOCKS ARE LISTED & TRADED ON --
STOCK EXCHANGES STOCK EXCHANGES ARE SPECIALIZED ENTITIES,WHICH
TRANSPARENTLY BRINGS BUYERS & SELLERS TOGETHER EXAMPLES:
1.UNITED STATES OF AMERICA - NYSE,NASDAQ 2.EUROPE - LONDON STOCK
EXCHANGE ETC. 3.INDIA - NSE,BSE AND REGIONAL EXCHANGES ACTUAL
TRADES ARE BASED ON ---- AUCTION MARKET PARADIGM
Slide 33
TRADING TRADING IS EXCHANGE OF SECURITIES BETWEEN BUYERS AND
SELLERS BUYERS ---- BID X PRICE SELLERS---- ASKS Y PRICE WHEN X=Y
---- SALE ON MATCHING PRICE ON FIRST COME FIRST SERVE BASIS ORDERS
ARE EXECUTED THROUGH A PROFESSIONAL AT STOCK EXCHANGE __ (BROKER)
BROKERS ARE REGISTERD TO OPERATE ON STOCK EXCHANGES REGISTRATION
PROCESS INVOLVES VARIOUS CRITERIA LIKE FINANCIAL STRENGTH &
TRACK RECORD ETC. BROKERS REFER THEIR REG. NO. ALONGWITH REGULATORY
AUTH. NO. --LIKE S.E.B.I. NO.ETC. TO BUYERS.
Slide 34
STOCK EXCHANGE
Slide 35
STOCK STOCK EXCHANGES The word stock means fraction of the
capital of the company and the word exchange means a place for
purchasing and selling something. That means stock exchange is a
market where there is a trading in stock of different
companies.
Slide 36
The securities contracts act, 1956 has defined stock exchange
as on association, organisation or body of individuals,where
incorporated or not, established for the purpose of
assisting,regulating and controlling business in buying, selling
and dealing in securities.
Slide 37
OBJECTIVES AND FUNCTIONS OF STOCK EXCHANGE Ready Market :Stock
exchange provides ready and continuous market where investors can
convert their money into securities and securities into money
easily and quickly Ready Market :Stock exchange provides ready and
continuous market where investors can convert their money into
securities and securities into money easily and quickly. Evaluation
of Securities Stock exchange helps in determining the prices of
various securities that reflect their real worth. Evaluation of
Securities : Stock exchange helps in determining the prices of
various securities that reflect their real worth.
Slide 38
Protection of Investors :Stock exchange ensures fair dealings
and safety of funds due to government control of the working of
stock exchanges. Mobilisation of savings : Stock exchange helps in
mobilizing surplus funds of individuals and institutions by
investment in securities. Capital formation: Stock exchange not
only mobilises the existing saving but also includes people to save
and invest their money in industrial securities which yield higher
return.
Slide 39
Economic barometer : Stock exchange is a very sensitive
barometer of business conditions in the country. Price trends on
the stock exchange reflect the economic climates in the country.
Regulations of company management : Stock exchange through its
rules and regulations exercises control on the functioning of the
company.
Slide 40
TRADING PROCEDURE ON STOCK EXCHANGE Till a few years ago
trading on a stock exchange took place through a public outcry or
auction system. This has been replaced by an online screen based
electronic trading system as almost all exchange have become
electronic. Trading has, therefore, shifted from the stock market
floor to brokers office where trades are executed through a
computer.Brokers are members of stock exchange through whom trading
of securities is done. They are intermediaries between the buyers
and sellers.
Slide 41
A companys securities can be traded on a stock exchange only if
they are listed or quoted on it. Companys have to fulfill a
stringent set of requirements to get their securities listed on
stock exchange. This ensures that the interest of the shareholders
is adequately looked after. Transactions on a stock exchange may be
carried out on either cash basis or a carry over basis. The carry
over basis is also called badla and is a unique feature of Indian
stock markets, particularly BSE.
Slide 42
NATIONAL STOCK EXCHANGE (NSE)
Slide 43
NATIONAL STOCK EXCHANGE OF INDIA The National Stock Exchange is
the latest, most modern technology driven exchange. It was
incorporated in 1992 and was recognized as a stock exchange in
April 1993. It started operations in 1994,with trading as the whole
sale debt market segment. Subsequently,it launched the capital
market segment in November, 1994 as a trading platform for equities
and the futures and options segment in June 2000 for various
derivative instruments. NSE has set up on a nation -wide-fully
automated screen based trading system.
Slide 44
OBJECTIVES OF NSE Establishing the nationwide trading facility
for all types of securities. Ensuring equal access to investors all
over the country through an appropriate communication network.
Providing a fair,efficient and transparent securities market using
electronic trading system. Enabling shorter settlement cycles and
book entry settlements. Meeting international benchmarks and
standards.
Slide 45
Slide 46
SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)
Slide 47
SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) T he securities
and exchange board of India was established by the government of
India on 12 April 1988 as an interim administrative body to promote
orderly and healthy growth of securities market and for investors
protection. It was to function under the over all administrative
control of the Ministry of Finance of the Government of India.
Slide 48
The SEBI was given a statutory status on 30 January 1992
through an ordinance. The ordinance was later replaced by the Act
of Parliament known as the Securities and Exchange board of India
Act, 1992.
Slide 49
SENSEX
Slide 50
SENSEX Sensex (Bombay Stock Exchange Sensitive Index) goes up
and down all times and seems to be very important part of business
and economic news. The SENSEX is the bench mark index of BSE. Since
the BSE has been the leading exchange of the Indian Secondary
Market, the Sensex has been an important indicator of the Indian
Stock Market. It is most frequently used indicator while reporting
on the state of the market.
Slide 51
An index has just one job: to capture the price movement. The
Stock Index reflects the price movement of the shares while a bond
index captures the manner in which bond prices go up or down. If
the Sensex rises it indicates the market is doing well. Since Stock
are supposed to reflect what companies expect to earn in the
future, a rising index indicates that the investors expect better
earning from companies. It is also a measure of state of the Indian
Economy. If the Indian companies are expected to do well, obviously
the economy should do well too.
Slide 52
The Sensex, launched in 1986 is made up of 30 of the most
actively traded stock in the market. In fact, they account for half
the BSEs market capitalization.
Slide 53
STOCK MARKET TERMINOLOGY BROKERAGE:COMMISSION OF BROKER FOR
PURCHASE/SALE TRANSACTION(MAX.2.5% OF TRADE VALUE)
DEMATERIALISATION:PROCESS OF CONVERSION OF PHYSICAL /PAPER SHARES
TO ELECTRONIC SHARES.ELECTRONIC SHARE BALANCE(DEMAT ACCOUNT) IS
MAINTAINED ON HIGHLY SECURE SYSTEMS AT DEPOSITORY ---e.g. NSDL/CSDL
IN INDIA ORDER DRIVEN TRADING:TRADING INITIATED BY BUY/SELL ORDERS
FROM INVESTORS/BROKERS SCREEN BASED TRADING:BUYING/SELLING
SECURITIES THROUGH COMPUTERS WHERE MATCHING OF TRADE IS MADE BY A
STOCK EXCHANGE COMPUTER(ONLINE TRADING) SETTLEMENT:SCRIPWISE
NETTING OF TRADES BY BROKER AFTER THE TRADING IS OVER
CLEARING:PROCESS OF SETTLEMENT OF TRANSACTIONS OF MEMBERS THROUGH
MULTILATERAL NETTING SETTLEMENT GUARANTEE:GUARANTEE PROVIDED BY
CLEARING CORPORATION FOR SETTLEMENT OF ALL TRADES EVEN IF A PARTY
DEFAULTS TO DELIVER SECURITIES/PAY CASH
Slide 54
TERMINOLOGY TRADING FOR DELIVERY:TRADING WITH INTENTION TO
DELIVER SHARES, PAYMENT FOR THE DEAL HAS TO BE MADE ON THE SAME
/NEXT DAY SQUARE OFF DEALS: A POSITION WHICH IS SETTLED WITHIIN THE
SAME TRADING DAY BY SQUARING OFF THE BUY/SELL ORDER PAY-IN:
DESIGNATED DAY ON WHICH THE SECURITIES/FUNDS ARE PAID IN BY THE
MEMBERS TO THE CLEARING HOUSE OF THE EXCHANGE PAY-OUT: DESIGNATED
DAY ON WHICH SECURITIES/FUNDS ARE DELIVERED/PAID-OUT TO THE MEMBERS
BY THE CLEARING HOUSE OF THE EXCHANGE PRICE BAND:THE DAILY/WEEKLY
PRICE LIMITS WITHIN WHICH PRICE OF A SECURITY IS ALLOWED TO
RISE/FALL CIRCUIT BREAKERS:MECHANISM BY WHICH EXCHANGES TEMPORARILY
SUSPENDS THE TRADING IN A SECURITY WHEN ITS PRICES ARE VOLATILE AND
TEND TO BREACH THE PRICE BAND FORWARD TRADING:TRADING WHERE
CONTRACTS TRADED TODAY ARE SETTLED AT SOME FUTURE DATE AT PRICES
DECIDED TODAY OVER THE COUNTER TRADING:TRADING IN THOSE STOCKS
WHICH ARE NOT LISTED ON A STOCK EXCHANGE(THOUGH LISTED ON
OTCEI)
Slide 55
TERMINOLOGY(CONT.) INSIDER TRADING:TRADING IN A COMPANYS SHARES
BY A CONNECTED PERSON HAVING NON-PUBLIC,PRICE SENSITIVE INFORMATION
e.g. EXPANSION PLANS,TAKEOVER BIDS ETC. PRICE RIGGING:WHEN A
PERSON/GROUP OF PERSONS ACTS TO ARTIFICIALLY INCREASE/DECREASE THE
PRICE OF A SECURITY JUMBO CERTIFICATE:A SINGLE COMPOSITE SHARE
CERTIFICATE FORMED BY CONSOLIDATING/AGGREGATING A LARGE NO. OF
MARKET LOTS MARKET LOTS: MINIMUM NUMBER OF SHARES OF A PARTICULAR
SECURITY THAT MUST BE TRANSACTED ON A EXCHANGE.MULTIPLES OF THE
MARKET LOT MAY ALSO BE TRANSACTED.IN DEMAT SCRIPS THE MARKET LOT IS
1SHARE TRANSFER DEED:A FORM USED FOR EFFECTING TRANSFER OF
SHARES/DEBENTURES DULY SIGNED/STAMPED BY
TRANSFEROR&TRANSFEREE.(ELECTRONIC SHARES ARE AUTOMATICALLY
TRANSFERRED BY DEPOSITORY DUE TO AUTHORISATION BY INVESTOR)
REMATERIALISATION OF SHARES:A PROCESS FOR CONVERSION OF ELECTRONIC
SHARES HELD IN A DEPOSITORY TO PHYSICAL FORM
Slide 56
SEBI was established to regulate the functions of securities
market with the view to promoting the orderly and healthy
development, to provide the adequate rotation to investors and to
create and environment to facilitate mobilization of adequate
protection through to the securities market. The regulatory body
for the investment market in India. The purpose of this board is to
maintain stable and efficient markets by creating and enforcing
regulations in the market place. It was resoluted in the year 1988
but it made a statutory body in the year 1992.
Slide 57
Functions of SEBI The SEBI has three following functions: 1.
Protective functions. 2. Development functions. 3. Regulatory
functions.
Slide 58
Protective Functions 1. It checks price rigging by prohibiting
unfair trade practices in the securities market. It keeps a watch
on the operators so that they may not inflate the market price for
the securities. It check fraudulent practices by the companies
entering the market with fresh issues of securities, for instance,
it takes stem action against the directors of a company of the
prospectus contents misleading statements to induce the purchase of
securities by the investors. The SEBI has taken several steps to
educate the investors. In fact investors education is an important
function of the SEBI.
Slide 59
Development Functions 1. It has made optional the underwriting
of new issues. It has permitted interest trading through the
registered stock brokers. It undertakes programs for the training
of intermediaries in the securities market.
Slide 60
Regulatory Functions It regulates business in the securities
market by enforcing its rules and regulations. It registers and
regulates the working of the collective investment scheme including
the mutual funds. It promotes and regulates self regulatory
organizations.
Slide 61
INVESTORS GUIDELINES INVESTOR RIGHTS RIGHT TO GET 1.THE BEST
PRICE 2.PROOF OF PRICE/BROKERAGE CHARGED 3.MONEY/SHARES ON TIME
4.SHARES THROUGH AUCTION WHERE DELIVERY IS NOT RECEIVED 5.SQUARE UP
AMOUNT WHERE DELIVERY NOT RECEIVED IN AUCTION RIGHT FOR REDRESSAL
AGAINST FRAUDULENT PRICE UNFAIR BROKERAGE DELAYS IN RECEIPTS OF
MONEY/SHARES INVESTOR UN FRIENDLY COMPANIES INVESTOR OBLIGATIONS
THE OBLIGATION TO SIGN A PROPER MEMBER- CONSTITUENT/SUB-BROKER-
CLIENT AGREEMENT POSSESS A VALID CONTRACT OR PURCHASE/SALE NOTE
DELIVER SECURITIES WITH VALID DOCUMENTS AND PROPER SIGNATURES THE
OBLIGATION TO ENSURE TO MAKE PAYMENT ON TIME TO DELIVER SHARES ON
TIME TO SEND SECURITIES FOR TRANSFER TO THE COMPANY ON TIME TO DEAL
ONLY WITH S.E.B.I. REGISTERED TRADING MEMBERS AND SUB-BROKERS
Slide 62
REGULATORY BODIES OF INDIA MARKET REGULATORS SECURITIES AND
EXCHANGE BOARD OF INDIA(S.E.B.I.) DEPTT.OF COMPANY AFFAIRS,GOVT.OF
INDIA RESERVE BANK OF INDIA GRIEVANCES REDRESSAL SECURITIES AND
EXCHANGE BOARD OF INDIA(S.E.B.I.) DEPTT.OF COMPANY AFFAIRS,GOVT.OF
INDIA STOCK EXCHANGE REDRESSAL FORUMS CONSUMER DISPUTES REDRESSAL
FORUMS COURTS OF LAW
Slide 63
OFFICES OF S.E.B.I. OFFICES HEAD OFFICE MITTAL COURT,B WING,1
ST. FLOOR,224,NARIMAN POINT,MUMBAI- 400021 NORTHERN REGIONAL OFFICE
BLOCK NO.1,RAJENDRA BHAWAN,RAJENDRA PLACE,DISTT. CENTRE,NEW
DELHI-110008 EASTERN REGIONAL OFFICE FMC FORTUNA,5 TH
FLOOR,234/3A.AJC BOSE ROAD,KOLKATA-700020 SOUTHERN REGIONAL OFFICE
3 RD FLOOR,D,MONTE COLONY,TTK ROAD,ALWERPET,CHENNAI-600018
JURISDICTION GUJARAT,MAHARASHTRA, MADHYA
PRADESH,GOA,DAMAN-DIU,DADRA AND NAGAR HAVELI HARYANA,HIMACHAL
PRADESH,JAMMU&KASHMIR,PUNJAB, RAJASTHAN,UTTAR PRADESH,DELHI AND
CHANDIGARH ASSAM,BIHAR,MANIPUR,MEGHALAYA, NAGALAND,ORISSA, WEST
BENGAL,SIKKIM,ARUNACHAL PRADESH,MIZORAM,TRIPURA, ANDMAN&NICOBAR
ANDHRA PRADESH,KARNATAKA,KERALA,TAMILNADU, PONDICHERRY,LAKSHDWEEP
AND MINICOY ISLANDS