Various Markets & Its Features • Development of securities market in India • Regulation of securities Market • Primary market • Secondary market • Trading and settlement • Clearing and settlement procedures Covering in Lesson
Existence of buyers and sellers • Existence of price for every asset • Allocation of resources • Existence of regulatory mechanism Essential Features of a Market
Breadth • Depth • Information arbitrage efficiency • Fundamental valuation efficiency • Full insurance efficiency • Operational efficiency • Allocational efficiency Properties of efficient market
Securities market • Equity Market • Debt Market • Government securities Market (gilt securities) • Corporate Securities • Money Market • Derivative Market • Options Market • Futures Market • Foreign exchange market Classification of markets
Primary Market: it deals in the issuance of new securities and bring the savers and users of capital together. Secondary Market: it is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold. It provide liquidity to the investors. It helps the players to keep transaction cost very low. Functions of the market
1875 BSE established as 'the native Share and Stock Brokers Association‘ • 1956 BSE became the first stock exchange to be recognized under the Securities Contract Act. • 1993 NSE recognized as a stock exchange. • 2000 Commencement of Internet trading at NSE. • 2000 NSE commences derivatives trading (Index futures) • 2001 BSE commences derivatives trading • 29 August 2008 NSE started trading in currency derivatives Milestones in development of Indian Stock Market
Objectives: • To protect the interest of the investors in securities • To promote the development of securities market in India • To regulate the securities market Securities and exchange board of India
Important Functions of SEBI • Regulating the business in stock exchanges and any other securities markets • Recognition and regulation of the stock exchanges • Registering and regulating the working of the depositories [participants], custodians of securities, foreign institutional investors, credit rating agencies • Registration of FII • Registering and regulating the working of venture capital funds and collective investment schemes, including mutual funds • Promotion and regulation of Self regulatory organization. • Prohibiting fraudulent and unfair trade practices relating to securities markets • Conducting research relating to securities market.
Departments of SEBI 1)MARKET INTERMEDIARIES REGULATION AND SUPERVISION DEPARTMENT (MIRSD) 2) MARKET REGULATION DEPARTMENT (MRD) 3) DERIVATIVES AND NEW PRODUCTS DEPARTMENT (DNPD) 4) CORPORATION FINANCE DEPARTMENT (CFD) 5) INVESTMENT MANAGEMENT DEPARTMENT (IMD) 6) INTEGRATED SURVEILLANCE DEPARTMENT (ISD) 7) INVESTIGATIONS DEPARTMENT (IVD) 8) ENFORCEMENT DEPARTMENT (EFD) 9) LEGAL AFFAIRS DEPARTMENT (LAD) 10 ) ENQUIRIES AND ADJUDICATION DEPARTMENT (EAD) 11) OFFICE OF INVESTOR ASSISTANCE AND EDUCATION (OIAE). 12 ) GENERAL SERVICES DEPARTMENT (GSD) 13)RESEARCH AND TRAINING DEPARTMENT (RTD). 14) OFFICE OF THE CHAIRMAN (OCH) 15) THE REGIONAL OFFICES (RO’s)
PRIMARY EQUITY MARKET • PUBLIC ISSUE • RIGHTS ISSUE • PRIVATE PLACEMENT • PREFERENTIAL ALLOTMENT
Reverse Book Building The reverse book building is an efficient price discovery mechanism of de-listing of securities, which is provided for capturing the sell orders on online basis from the shareholders through respective BRLM.
Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. SEBI’s role in Secondary Markets NSCCL Listing of Securities Secondary Market
Provide liquidity to securities; • Mobilize savings for economic development; • Protect interest of investors by ensuring full disclosures Objectives of the listing
Initial listing—First time listing • Listing of public issue - Listing of additional shares or debentures of already listed entity. • Listing of rights issue of shares and debentures • Listing of Bonus issue of shares • Listing of shares issued on amalgamation, mergers etc. Types of the Listing
Screen based system started by NSE which is followed by BSE and other regional stock exchanges • NSE has an order driven system • OTCEI is a quote • BOLT (BSE Online trading) is a mix of order driven and quote driven system Trading and settlement
Market timings • Trading Process • Locating a broker • Placement of an order • Order sent to stock exchange • Order is executed. Trading and settlement
Dematerialization • Account transfer and recognition • Corporate actions • Pledge and hypothecation • Linkages with clearing system Functions of Depository
A depository participants is an agent of the depository and intermediaries between the depository and the investors. • A DP has to register with SEBI to offer depository related services. Depository participants (DP)
Investor approach DP to open an account. • Then he has to submit the shares in physical form to DP for dematerialization. • DP will intimate the NSDL about the investor’s intention and then submit the share certificates to the registrar and transfer agent. • On confirming the genuineness of certificates the registrar destroys them and sends the confirmation of dematerialization of shares to NSDL. Process of dematerialization
Filling up transfer deeds and lodging the same with the company for transfer is not necessary. • There would not be any bad deliveries. • Exemptions from paying stamp duty on transfer of shares. • Shares purchased in electronic form will be transferred to the investor’s name within a day of completion of settlement. • Faster payment on sale of shares • No scope for forgery of share certificates Advantage of the depository system
A group • B1 Group (medium Sized, Inconsistent profit, less liquidity) • B2 Group (Small companies, very low trading, poor in profit generation) • Z Group (non compliance, poor companies) • F Group (debt Market) Category of shares at BSE
LIMIT ORDER BOOK Shares Buyside Sellside 500 501 502 503 504 505 506 507 508 509 510 511 512 Limit Price
TYPES OF ORDERS • Limit Order • Those who place limit order • supply liquidity • Market Order • Those who place market order • demand liquidity
SETTLEMENT •Security transactions are settled through electronic delivery facilitated by depositories • Presently, the settlement of all trades is a rolling settlement on a T+2 basis
In case of sale:- BO will give delivery instruction through Delivery Instruction Slip (DIS) to DP to debit his account and credit the broker’s account. Such instruction should reach the DP’s office at least 24 hours before the pay-in, failing which, DP will accept the instruction only at the BO’s risk. ETF An ETF is a basket of securities that is traded on the stock exchange, akin to a stock. So, unlike conventional mutual funds, ETFs are listed on a recognised stock exchange. Their units can be bought and sold directly on the exchange, through a stockbroker during the trading hours.
Circuit Breakers In case of a 10% movement of either of these indices, there would be a 1-hour market halt if the movement takes place before 1 p.m. In case the movement takes place at or after 1 p.m. but before 2.30 p.m. there will be a trading halt for ½ hour. In case the movement takes place at or after 2.30 p.m. there will be no trading halt at the 10% level and the market will continue trading. In case of a 15% movement of either index, there will be a 2-hour market halt if the movement takes place before 1 p.m. If the 15% trigger is reached on or after 1 p.m. but before 2 p.m., there will be a 1 hour halt. If the 15% trigger is reached on or after 2 p.m. the trading will halt for the remainder of the day. In case of a 20% movement of the index, the trading will be halted for the remainder of the day.
Circuit filters On individual stocks When applied to individual stocks, circuit filters are known as price bands or price filters. There are no circuits on the 30 stocks included in the Sensex or the 50 included in the Nifty. The filter bands are in the range of 2%, 5%, 10% and 20%.
Buy back of shares Buyback is the reverse of issue of shares by a company. In buy back, company offers to take back its shares owned by the investors at a specified price; this offer can be binding or optional to the investors.
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