Capital Market for Business Profess Service

Unit - I - Securities, types of securities, equities - fixed income OTC products

1. Capital Marketing for Business Process
Service
III B.Com. BPS
Unit -I
V Semester
Capital Markets for Business Process Services 1
Dr.D. Moorthy
Head & Associate Professor
Dept. of Commerce –BPS
Sri Ramakrishna College of Arts &
Science, (Autonomous)
Coimbatore –641 006.
Tamil Nadu

2. Security
The term "security" refers to a multitude of
different investments, such as stocks, bonds,
investment contracts, notes, and derivatives.
For example, a security can represent
ownership in a corporation in the form of
stock, a creditor relationship with a
governmental body or corporation in the form
of a bond, or rights to ownership in the form
of anoption.
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3. Capital Markets for Business Process Services 3

4. Types of Securities
1.Bonds -corporations, municipalities, or governments
2. Treasury Securities -including Treasury bills (T-bills), Treasury
notes (T-notes), and Treasury bonds (T-bonds)
3. Municipal Bonds -issued by state or local governments to
finance public projects
4. Corporate Bonds –Bonds issued by corporations to raise
capital for business activities
5. Mortgage-Backed Securities (MBS) -Securities that are
backed by a pool of mortgages.
6. Certificates of Deposit (CDs) -Time deposits offered by
banks with a fixed interest rate.
7. Preferred Stock -A type of equity that pays fixed
dividends and has priority over common stock in the event
of a liquidation.
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5. Features of Securities Market
1.Demand for funds
2. Instruments –issue of Financial instruments –shares,
debentures and bonds
3. Supply of funds –Individuals, institutions, banks and industrial
financial institutions.
4. Ideal conduit –Transmission of savings of surplus units to
deficit units which demand long term funds.
5. Economic growth –Promoting savings and investments,
6. Price Mechanism –Active capital market ensures optimal
allocation of scarce financial resources
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6. Debt Market
The market where funds are borrowed and
lent is known as ‘debt market’.
Arrangements are made in such a way that
the borrowers agree to pay the lender the
original amount of the loan (called the
principal) plus some specified amount of
interest.
Example : Car Loan, House loan etc..
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7. Global Financial Markets
Financial markets that are integrated and
operated worldwide by using uniform trading
practices are known as ‘Global Financial Markets’.
Under the global financial market dispensation, it
is possible for firm to raise funds in International
arenas.
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8. Factors
1. Deregulation –Deregulation or liberalization of
markets –key financial centers of the world.
2. Science and Technology –Monitoring world
markets, executing orders, and analyzing financial
opportunities.
3. Institutionalization –Retailing to increased
institutionalization of investors.
4. Competition –force Government to deregulate
various aspects of their financial markets.
5. Information flow –free and unrestricted flow of
market information around the world
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9. Over the Counter (OCT)
The term over-the-counter is a way of trading
securities otherwise than on an organized stock
exchange.
Trading of securities is carried out by the brokers,
dealers scattered over different locations and
regions, with the help of a communication
network including telephone, telegraphs, tele
typewriter, telex, fax and computers.
Communication network links every dealer –
broker, helps arrive at the prices and allow
investors to select among the competing market
makers.
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10. Equity
Equity, referred to asshareholders' equity
(or owners' equity for privately held companies),
represents the amount of money that would be
returned to a company's shareholders if all of the
assets were liquidated and all of the company's
debt was paid off in the case of liquidation.
In the case of acquisition, it is the value of
company sales minus any liabilities owed by the
company not transferred with the sale.
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11. Fixed Income
Fixed incomerefers to any type
ofinvestmentunder which the
borrower or issuer is obliged to make
payments of a fixed amount on a fixed
schedule. For example, the borrower
may have to payinterestat a fixed rate
once a year and repay the principal
amount on maturity.
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12. Derivatives
Derivativesare financial instruments whose
value is derived from the value of an
underlying asset, index, or rate. They are
commonly used for hedging risk or for
speculative purposes. The main types of
derivatives include futures, options, swaps,
and forwards.
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13. Over-the-counter
Over-the-counter(OTC) products refer to financial
instruments that are traded directly between two
parties, outside of formal exchanges.
These products are customized to fit the specific
needs of the counterparties involved.
OTC markets are decentralized, and transactions
are typically conducted via broker-dealers or
through direct negotiation.
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14. OTC PRODUCTS
1. Listed equity (Exclusive) : The shares can be
broughand sold at any of the members/ dealer’s
office all over India.
2. Listed debt : Debentures and Bonds
3. Gilts :The securities issued by the central
government and state government are called Gilts.
Government of India dated securities, Treasury Bills
and Special securities are traded in this segments.
4. Permitted Securities :There are the secutities
listed on other exchanges, which are permitted for
trading on OTCEI.
5. Listed Mutual funds :Listed mutual funds are
units of mutual funds that are listed on OTCEI.
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15. Meaning of Financial Markets
A Financial Market is referred to space, where selling
and buying of financial assets and securities take place.
It allocates limited resources in the nation’s economy.
It serves as an agent between the investors and
collector by mobilisingcapital between them.
In a financial market, the stock market allows investors
to purchase and trade publicly companies share.
The issue of new stocks are first offered in the primary
stock market, and stock securities trading happens in
thesecondary market.
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16. Participants in Financial Markets
1.Banks
2.Hedge funds
(Ahedge fundis a limited partnership of privateinvestors, whose money is managed by
professional fund managers who engage inactive investingstrategies. Apart fromstock picking,
fund managers may useleverageand trade non-traditional assets to beat benchmark returns.)
3.Mutual funds
4.Wealthy Individuals
5.Participants may enter on the supply side, providing
capital in the form of investments, or on the demand
side, borrowing capital.
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17. Financial Regulators
Federal and state governments have a numerous
of agencies in place that regulate and
overseefinancial marketsand companies. These
agencies each have a specific range of duties and
responsibilities that enable them to act
independently of each other while they work to
accomplish similar objectives.
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18. Key Points
Regulatory bodies are established by governments or
other organizations to oversee the functioning and
fairness of financial markets and the firms that engage in
financial activity.
The goal of regulation is to prevent and investigate fraud,
keep markets efficient and transparent, and make sure
customers and clients are treated fairly and honestly.
Several different regulatory bodies exist from the Federal
Reserve Board which oversees the commercial banking
sector to FINRA and the SEC which monitor brokers and
stock exchanges.
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19. The Federal Reserve Board
TheFederal Reserve Board(FRB) is one of the most
recognized of all the regulatory bodies. As such, the "Fed"
often gets blamed for economic downfalls or heralded for
stimulating the economy.
It is responsible for influencing money,liquidity, and
overall credit conditions. Its main tool for
implementingmonetary policyis itsopen market
operations, which control the purchase and sale ofU.S.
Treasurysecurities and federalagency securities.
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20. Office of Thrift Supervision
TheOffice of Thrift Supervision(OTS) was established in
1989 by the Department of Treasury through the Financial
Institutions Reform, Recovery and Enforcement Act of
1989.
It is funded solely by the institutions it regulates. The OTS
was similar to the OCC except that it regulated federal
savings associations, also known as thrifts or savings and
loans.
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21. Office of the Comptroller of the Currency
One of the oldest federal agencies, theOffice of the
Comptroller of the Currency (OCC)was established in
1863 by the National Currency Act.1
Its main purpose is to supervise, regulate, and provide
charters to banks operating in the U.S. to ensure the
soundness of the overall banking system.
This supervision enables banks to compete and provide
efficient banking andfinancial services.
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22. Federal Deposit Insurance Corporation
TheFederal Deposit Insurance Corporation(FDIC) was
created by theGlass-SteagallAct of 1933
to provide insurance on deposits to guarantee the safety
of funds kept by depositors at banks.
Its mandate is to protect up to $250,000 per depositor.
Thecatalystfor creating the FDIC was the run on banks
during theGreat Depressionof the 1920s.
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23. Commodity Futures Trading Commission
TheCommodity Futures Trading Commission(CFTC) was
created in 1974 as an independent authority to regulate
commodityfuturesandoptionsand other related
derivatives markets and to provide for competitive and
efficient market trading.
It also seeks to protect participants from market
manipulation, investigates abusive trading practices and
fraud, and maintains fluid processes for clearing.
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24. Financial Industry Regulatory Authority
TheFinancial Industry Regulatory Authority
(FINRA) was created in 2007 from its predecessor,
theNational Association of Securities Dealers (NASD).
FINRA is considered a self-regulatory organization (SRO)
and was originally created as an outcome of theSecurities
Exchange Act of 1934
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25. State Bank Regulators
State bank regulators operate similarly to the OCC, but at
the state levelfor state-chartered banks. Their oversight
works in conjunction with the Federal Reserve and the
FDIC.
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26. State Insurance Regulators
State regulators monitor, review and oversee how the
insurance industry conducts business in their states. Their
duties include protecting consumers, conducting criminal
investigations and enforcing legal actions.
They also provide licensing and authority certificates,
which require applicants to submit details of their
operations. (For a directory of specific state agencies
visitwww.insuranceusa.com.)
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27. State Securities Regulators
These agencies augment FINRA and the SEC for matters
associated withregulationin the state's securities
business. They provide registrations forinvestment
advisorswho are not required to register with the SEC and
enforce legal actions with those advisors.
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