Capital Market
Capital Market
•
• It is a market which deals with financial assetsIt is a market which deals with financial assets which have a long or
which have a long or indefinite maturity.indefinite maturity. •
• It is divided as :-It is divided as :-•
• Industrial Securities MarketIndustrial Securities Market •
• 1. Primary market 2. Secondary market1. Primary market 2. Secondary market •
• Govt. SecuritiesGovt. Securities •
• Long Term LoansLong Term Loans •
Importance
Importance
•
• Link between savers and those who needLink between savers and those who need money
money •
• Provides suitable return as it providesProvides suitable return as it provides profitable investment avenues
profitable investment avenues •
• Increases the National income by increasingIncreases the National income by increasing production in the economy
production in the economy •
• It leads to capital formation as it pools theIt leads to capital formation as it pools the small savings to meet investment demands small savings to meet investment demands
Primary Market
Primary Market
•
• It deals with new issues. It is also called NewIt deals with new issues. It is also called New Issue Market.
Issue Market. •
• There are 3 ways to raise capital:-There are 3 ways to raise capital:-•
• Public issuePublic issue •
• Right issueRight issue •
• Private placementPrivate placement
Different Instruments in capital
Different Instruments in capital marketmarket •
• Equity shares,Preference shares,Equity shares,Preference shares, •
Functions
Functions
•
• 1.origination 2.underwriting 3. distribution1.origination 2.underwriting 3. distribution •
• Origination:Origination: It refers to pre-issueIt refers to pre-issue analysis,investigation etc
analysis,investigation etc •
• A careful study of techenical,economic,andA careful study of techenical,economic,and financial viability.
financial viability. •
• These functions are done by merchantThese functions are done by merchant bankers
bankers and and commercial commercial banks. Ibanks. It t looks looks into:- into:-•
• The time of issueThe time of issue •
• Type of issueType of issue •
•
• UNDERWRITINGUNDERWRITING •
• It is an It is an agreement whereby the underwriteragreement whereby the underwriter promises to buy a specific no. Of shares in the promises to buy a specific no. Of shares in the event of under purchase
event of under purchase •
• DISTRIBUTIONDISTRIBUTION
It deals with selling of IPOs and SEOs through It deals with selling of IPOs and SEOs through brokers and agents.
Benefits of underwriting
Benefits of underwriting
•
• The co. is assured of IPOs or SEOs.The co. is assured of IPOs or SEOs. •
• The minimum subscription is assuredThe minimum subscription is assured •
• Automatic publicityAutomatic publicity •
• Public confidence is boosted if underwriter isPublic confidence is boosted if underwriter is a reputed one
a reputed one •
Methods Of Floating New Issues
Methods Of Floating New Issues
•
• Public IssuesPublic Issues •
• Offer for sellOffer for sell •
• Private PlacementPrivate Placement •
• Rights IssueRights Issue •
• Different Instruments in capital marketDifferent Instruments in capital market •
• Equity shares,Preference shares,Equity shares,Preference shares, •
•
• Primary marketPrimary market •
• Deals with newDeals with new instruments
instruments •
• IPOs,SEOs are mainIPOs,SEOs are main operations
operations •
• Less volatileLess volatile •
• Less riskyLess risky •
• More organizedMore organized •
• No role of stockNo role of stock exchange
exchange
•
• Secondary marketSecondary market •
• Deals with existingDeals with existing instruments
instruments •
• Regular trading inRegular trading in
different instruments different instruments •
• More volatileMore volatile •
• More riskyMore risky •
• Less organizedLess organized •
• Greater role of stockGreater role of stock exchange
Secondary market
Secondary market
•
• Market where securities are bought and soldMarket where securities are bought and sold •
• It may be It may be organized or unorganizedorganized or unorganized •
• When share are sold outside the stockWhen share are sold outside the stock exchange it is unorganized
exchange it is unorganized •
• SECONDARY MARKET Is Controlled throughSECONDARY MARKET Is Controlled through the following process
the following process •
• Recognition of stock exchangeRecognition of stock exchange •
• Application must be accompanied by copyApplication must be accompanied by copy of
Grant of recognition
Grant of recognition
•
• Rules Rules and bye and bye laws laws must ensure must ensure fair fair dealingdealing and protect the interest of
and protect the interest of investorsinvestors •
• It should be in the interest or trade and publicIt should be in the interest or trade and public interest
interest •
• Renewal Renewal application is application is to to be be filed filed 3 3 monthsmonths before expiry
before expiry •
• Recognition may be withdrawn by centralRecognition may be withdrawn by central govt. if it is not in the interest of trade or govt. if it is not in the interest of trade or public
Functions of Stock Exchange
Functions of Stock Exchange
•
• Marketability and liquidity to securitiesMarketability and liquidity to securities •
• Safety of fundsSafety of funds
•
• Ensures Ensures long long term term supply supply of fundof fund •
• Flow of capital to profitable venturesFlow of capital to profitable ventures •
• To motivate the company to improve the performanceTo motivate the company to improve the performance •
• Promotion of investmentsPromotion of investments •
• Reflection of business cycleReflection of business cycle •
• Marketing of new issuesMarketing of new issues •
Listing of Securities
Listing of Securities
•
• It means official permission for a security to be traded in aIt means official permission for a security to be traded in a stock exchange
stock exchange •
• It is compulsory for those companies which intend to issue aIt is compulsory for those companies which intend to issue a prospectus
prospectus •
• SEBI and financial Institution insist listing on anew SEBI and financial Institution insist listing on anew issueissue •
• ADVANTAGESADVANTAGES •
• Facilitates buying and selling of securitiesFacilitates buying and selling of securities •
• Ensures liquidityEnsures liquidity •
• Offers wide publicityOffers wide publicity •
•
• DisadvantagesDisadvantages •
• Leads to speculationLeads to speculation •
• DeDegrgradades ces comompapanyny’s r’s repepututatatioionn •
• Discloses vital information to Discloses vital information to competitocompetitorsrs •
• LISTING PROCEDURELISTING PROCEDURE •
• A company should submit the followingA company should submit the following documents
documents •
• Certified MOA and AOA ,prospectus or Certified MOA and AOA ,prospectus or statement in lieu of prospectus
statement in lieu of prospectus •
•
• Audited final accounts for last 5years or projected 5 yearsAudited final accounts for last 5years or projected 5 years •
• Copy of advertisement for offering in last 5yearsCopy of advertisement for offering in last 5years •
• Copies of agreement with managerial personnelCopies of agreement with managerial personnel •
• Details of dividend, bonus shares, rights shares Details of dividend, bonus shares, rights shares offered in lastoffered in last 10 years
10 years •
• Statements of arrears, interest and dividendStatements of arrears, interest and dividend •
• A brief history of company since its incorporationA brief history of company since its incorporation •
• Particulars Particulars regarding regarding its its capital capital structurestructure •
Criteria for listing
Criteria for listing
•
• The following conditions must be satisfied;-The following conditions must be satisfied;-•
• Minimum issued capital should be 3croresMinimum issued capital should be 3crores •
• The offer should appear in newspaper for at least 2 daysThe offer should appear in newspaper for at least 2 days •
• The company should have good goodwill so as to interestThe company should have good goodwill so as to interest public
public •
• The company must pay interest oh the excess applicationThe company must pay interest oh the excess application money if allotment is delayed by 10 weeks
money if allotment is delayed by 10 weeks •
• Promoter shares should not be transferredPromoter shares should not be transferred •
Listing obligation
Listing obligation
•
• Companies whose shares are listed haveCompanies whose shares are listed have certain obligations towards stock
certain obligations towards stock exchangeexchange
like;-•
• Date of board meeting, change in managerialDate of board meeting, change in managerial personnel ,change in capital structure ,reissue personnel ,change in capital structure ,reissue of any forfeited shares etc.
of any forfeited shares etc. •
• Any other information which is necessary forAny other information which is necessary for shareholders to appraise the company’s
shareholders to appraise the company’s position
Listing Agreement
Listing Agreement
•
• The stock exchange after scrutinizing theThe stock exchange after scrutinizing the application enters into a contract with the application enters into a contract with the
company. This is listing agreement and it lays company. This is listing agreement and it lays down certain conditions in order to protect down certain conditions in order to protect the interest of the investors
the interest of the investors •
BROKERS
BROKERS
•
• A broker is a middle man to transact on behalf A broker is a middle man to transact on behalf of non-members for a
of non-members for a commissioncommission •
• To deal with a stock exchange a broker mustTo deal with a stock exchange a broker must register with SEBI
register with SEBI •
• Qualifications to register as brokerQualifications to register as broker •
• Indian citizen with 21 years of ageIndian citizen with 21 years of age •
• Neither bankrupt nor convicted of offence orNeither bankrupt nor convicted of offence or fraud,
fraud, •
•
• He should not be engaged in any otherHe should not be engaged in any other business
business •
• He should not be a default of stock exchangeHe should not be a default of stock exchange •
• Registration of brokerRegistration of broker •
• Application should be submitted to SEBI viaApplication should be submitted to SEBI via stock exchange
stock exchange •
• Stock exchange should forward theStock exchange should forward the application with 30 days
application with 30 days •
•
• A broker can appoint a sub broker who is notA broker can appoint a sub broker who is not a member
a member •
• Sub brokers have to follow all the normsSub brokers have to follow all the norms which a broker has to do .
which a broker has to do . •
• KINDS OF BROKERKINDS OF BROKER •
• Jobber,Taraniwalas,Commission Agents,Jobber,Taraniwalas,Commission Agents, Authorized Clerks
Merchant Bankers
Merchant Bankers
•
• An institution engaged in the business of issueAn institution engaged in the business of issue management by making arrangements to
management by making arrangements to buying and selling of securities
buying and selling of securities •
• It deals only with funds to be raised in moneyIt deals only with funds to be raised in money or capital market
or capital market •
• They are management oriented and can takeThey are management oriented and can take risk
risk •
• Their activities are:-project counseling, capitalTheir activities are:-project counseling, capital restructuring, amalgamation, mergers,
restructuring, amalgamation, mergers, takeovers, underwriting
Registrars to Issue
Registrars to Issue
•
• They are appointed by co. in consultation toThey are appointed by co. in consultation to merchant bankers.
merchant bankers. •
• Help in identifying collection centers andHelp in identifying collection centers and opening accounts with banks
opening accounts with banks •
• Receive on regular basis the amount collectedReceive on regular basis the amount collected •
• Inform stock exchange regarding closure of Inform stock exchange regarding closure of issue
issue •
• Sort out the applications, groups them andSort out the applications, groups them and finalise allotment as approved by stock
•
• Refund amount within 70 days from closureRefund amount within 70 days from closure date
date •
• Makes arrangement for brokerage andMakes arrangement for brokerage and underwriting commission
underwriting commission •
• For appointment as registrar their registrationFor appointment as registrar their registration with SEBI is must
with SEBI is must •
• They should have adequate capital, storageThey should have adequate capital, storage
space, computers and should maintain proper space, computers and should maintain proper books of accounts
RECENT DEVELOPMENTS
RECENT DEVELOPMENTS
•
• Many steps have taken to reform stock market.Many steps have taken to reform stock market. some developments
some developments are;-•
• Regulation of IntermediariesRegulation of Intermediaries •
• Change in the management structureChange in the management structure •
• Prohibition of Inside TradingProhibition of Inside Trading •
• Transparency of accounting practicesTransparency of accounting practices •
• Setting up of credit rating agenciesSetting up of credit rating agencies •
• Introduction of electronic tradingIntroduction of electronic trading •
