Capital Market.ppt

capital market

1. CAPITAL MARKET
ItreferstoamarketforLongTermCapital.It
involvesallthefacilitiesandinstitutional
arrangementsforborrowingandlendingLong
TermCapital.Thatis,itisthemarketforbuying
andsellinglongtermfinancialinstruments.

2. CAPITAL MARKET
*CapitalMarketactsaconnectinglinkbetween
thosewhohavefundsandthosewhoneed
fundsandchannelsthesavingsoftheformerto
meettheneedsofthelatter.
*Capitalmarketactsasintermediarybetween
thesaversandinvestors.

3. FACTORS AFFECTING THE CAPITAL
MARKET
Anumberoffactorsaffectthecapitalmarket
suchas
Government,fiscal,andindustrialpolicies.
Generaleconomicconditionsprevailingina
countrywithparticularreferencetoindustrial
productionandprofitability.
Trendsinthemoneymarketwithaparticular
referencetopriceandsavingssituationsfrom
timetotime.

4. *Demandforcapitalfrompublicand
privatesectorsfordevelopmental
expendituresbywayofnewissueof
industrial securities.
*Investorspreferenceforliquidityand
forwardlookingexpectationsas
reflectedinthepatternofyieldsand
movementsinpricesofsecuritiesin
secondarymarkets.

5. FUNCTIONS OF CAPITAL MARKET
Capitalmarketfacilitatesgrowthinsavingsand
mobilizesthesameforinvestmentpurposes.
Itprovidesfundstotheborrowerswithdeficitsby
connectingthelenderswithsurpluseswiththeformer.
Ithelpsthecorporatesectortoexpand,growand
diversifyandtherebyitfacilitatesgrowthofoutputand
incomeintheeconomyofthenation.
Atpresent,corporateenterprisesareallowedfreelyto
enterintothecapitalmarketandraiseanyamountof
fundstheywant.
Besides,theycanpricetheirsecuritiesfreelyasperthe
SEBIguidelines.

6. PLAYERS IN THE CAPITAL MARKET
TheplayersintheCapitalMarketcanbe
discussedundertwocategories:
PrimaryMarket
SecondaryMarket
ThemajorplayersinthePrimaryMarketin
Indiainclude:

7. * Merchant Bankers
* Collecting Bankers
* Registrar to Issues
* Brokers
* Auditors
* Underwriters
* Advertising Agencies
* Printers
* Solicitors
* Sub-under writers
* Mailing Agents

8. MerchantBankers:Theyactaslead
managersandco-managerstotheissue.
CollectingBankers:TheyareInchargesof
collectingcash/DD/Chequeandalso
receivingtheapplication.
RegistrartoIssues:Heisresponsiblefor
allotmentanddespatchofshare
certificatesfortheallottees.Theyhave
toattendthecomplaintsofthe
investors.

9. Brokers,Sub-Brokers,UnderWritersand
Sub-Underwriters:Theyengagein
marketingtheissueandworkforgiving
assuranceastothesuccessoftheissue.
Printers,Advertisers,MailingAgents,
SolicitorsandAuditors:Theyarethe
intermediariesinthenewissuesmarket
andeachonehastheirownpartto
performcertainfunctionandmakethe
newissuesecuritiesasuccess.

10. MAJOR PLAYERS IN THE SECONDARY
MARKET
The Major players in the Secondary market
are as follows:
Brokers
Jobbers
Dealers
Badla Financiers
Arbitrageurs

11. BROKERS
They act on behalf of non members
and not for themselves. They are
merely a commission agents. They
are paid a commission on the
purchase and sales made through
them.

12. JOBBER
They act for themselves. He is not
an agent of non members. He buys
and sells security in his own name.

13. ARBITRAGEURS
Theyinvolveinintermarketdeals
foraprofitthroughdifferencein
pricesbetweentwomarketssay
MumbaiandChennai.

14. SECURITY DEALERS
Theyspecializeinthebuyingand
sellingofgiltedgedsecuritiesissued
byCentral/State/Quasi-Government
agencieslikeEB,HousingBoards,
MunicipalCorporations,PortTrusts
andFinancialInstitutions.They
operateincloseliaisonwithRBIand
CommercialBanksandLIC.

15. IMPORTANCE OF CAPITAL MARKET
•It plays a vital role in mobilizing savings and
channelizing them in to productive
investments for the development of trade,
commerce and industries. (i.e. The Capital
Market helps in Capital Formation and
economic development of the country)
•It provides incentives to savers in the form of
interest/dividend and transfer funds to
investor.

16. •It provides a market mechanism for those who
have savings and to those who need funds for
productive investments. Such an arrangement
help the capital market to divert resources
from wasteful and unproductive channels to
productive investments.
•It deals in ordinary shares, stocks, debentures,
and bonds of corporation and securities of the
Government.

17. •Thefundswhichflowintothecapitalmarket
comefromsavers.
•Variousinstitutionssuchasbanks,
developmentbanksgivequantitativeand
qualitativedirectiontotheflowfundsand
bringrationalallocationofresources.Thisis
donebyconvertingfinancialassetsinto
productivephysicalassets.Thisresultsinthe
developmentofbusiness.
•Capitalmarketisthesourcefromwhichlong
termcapitalisraisedforthesettingupand
sustainedgrowthofcompanies.

18. •Itreadilyprovidesmoneyfornew/existing
ventures.
•Italsohelpsinvestorstotradeintheirshares
andmaintaintheliquidityofinvestments.
•Itprovidesreadyandcontinuousmarketfor
securities.
•Itintegratesthedemandandsupplyof
securitiesinaneffectivemannerand
determinesthepriceforsecuritieseverynow
andthen.

19. Investors form the back bone of the corporate
sector
Growth of capital market –attracts public –
they invest in corporate securities –creates
demand –for shares and debentures –at
present mega issues launched –by new
companies .
It is most attractive source of raising in funds.

20. CAPITAL MARKET INSTITUTIONS
CCIL –Clearing Corporation of India Ltd
SEBI –Securities and Exchange Board of India
SHCIL –Stock Holding Corporation of India Ltd
NSDL –National Securities Depository Ltd.
OTCEI –Over The Counter Exchange of India
NSEIL –National Stock Exchange of India Ltd.

21. REGULATION OF CAPITAL MARKET
The following regulatory authorities regulate
Stock Exchanges:
Securities Contracts (Regulation) Act 1956
SEBI
Governing Board of Stock Exchanges
Capital Issues (Control) Act 1947
Companies Act 1956

22. SEBI
TheGovernmentfelttheneedtosetuparegulatory
bodytoensureinvestorprotectionandpromotion,and
growthofvibrantsecuritiesmarket.TheSEBIwas
constitutedasanadministrativearrangementon12
th
April,1988asaresultestablishedasastatutorybodyon
21
st
February,1992.RegulationoftheIndiansecurities
marketrequiredtheSEBItosimultaneouslyperform
bothdisciplinaryanddevelopmentalroles.Thetwo
rolesoughttobecomplementaryandcarefully
synthesized.Thedisciplinarydimensioninvolves
providingfordisincentivesandpenaltiesforerrantand
unfairbehaviorwhichharmthemarket.The
developmentdimensionisapositiveaspectthat
involvesprovidingincentivestomarketparticipantsto
engageinaconstructiverole.

23. OBJECTIVES OF SEBI
AccordingtothepreambleoftheSEBI
Act1992,theobjectivesofSEBIare
threefold;
Toprotecttheinterestoftheinvestorsin
securities
Topromotethedevelopmentof
securitiesmarketinIndia
Toregulatethesecuritiesmarket.

24. ORGANIZATION OF SEBI
The SEBI organizes its affairs through a board. The
board consists of the following members:
oA Chairman
o2 members from amongst the officials of the Ministry
of the Central Government dealing with Finance and
Administration of the Companies Act,1956
o1 member nominated by the RBI from among its
official
o5 other members, nominated by the Central
Government, of whom at least 3 shall be whole time
members.

25. DEPARTMENTS OF SEBI
Under its internal
administrativearrangements,
SEBIisdividedintovarious
departmentsinorderto
concentrateonvariousaspects
ofthesecuritiesmarket.These
departmentsareasfollows:

26. •Primary Market Departments
•Secondary Market Departments
•Venture Capital Departments
•Mutual Funds Departments
•Collective Investment Schemes Department
•Takeover Department
•Legal Department
•Foreign Institutional Investors Department
•Depositories Department
•Derivatives Department
•Investigation, Enforcement And Surveillance
Department

27. FUNCTIONS OF SEBI
AccordingtotheSEBIAct1992,theMain
functionsofSEBIare:
Regulatingthesecuritiesmarket
Recognitionandregulationofthestockexchanges
Registeringandregulatingtheworkingofvarious
intermediariesincludingmerchantbankers,
registrars,sharetransferagents,stockbrokers,sub
brokers,debentureholders,bankerstotheissue,
underwriters,portfoliomanagers,etc.

28. Registeringandregulatingthefunctioningof
depositories,custodiansanddepository
participants
Registrationofforeigninstitutionalinvestors
Registeringandregulatingtheworkingof
venturecapitalfunds,mutualfundsandother
collectiveinvestmentschemesincluding
plantationschemes
Promotionandregulationofself-regulatory
organizations
Prohibitingfraudulentandunfairtradepractices
relatingtothesecuritiesmarket
Prohibitinginsidertradinginsecurities.

29. Regulatingsubstantialacquisitionofsharesand
takeoverofcompanies
Promotinginvestoreducationandtrainingof
intermediaries
Conductingresearchrelatingtosecuritiesmarket
Callinformation,undertakeinspection,conduct
inquiriesandorderauditofstockexchanges,
intermediaries,mutualfundsoranyotherperson
associatedwiththesecuritiesmarket.
Performthefunctionsandexercisethepowersof
thecentralgovernmentundertheSCRAct1956.
ThesepowershavenowbeendelegatedtoSEBI

30. POWERS OF SEBI
Forthepurposeofregulationofthesecurities
market,SEBIhasbeenvestedwithallthe
powersofacivilcourtaspercodeofcivil
procedures,1908.Thepowersinclude;
Thediscoveryandproductionofanybooksof
accountsandotherdocuments.
Summoningandenforcingtheattendanceof
personsandexaminingthemonoath.
Inspectionofanybooks,registersandother
documents.

31. Toinspectanybooks,register,andother
documentsandrecordsofalistedcompanyor
apubliccompany(notbeinganyofthe
intermediariesmentionedabove)intendingto
getitssecuritieslistedonastockexchange
wheretheBoardsuspectsthecompanyof
indulgingtoinsidertradingorfraudulentand
unfairtradepracticesrelatedtothesecurities
market.
Issuingcommissionfortheexaminationof
witnessesordocuments

32. Duringaninvestigationorapendingenquiry,
inordertoprotecttheinterestsofinvestorsor
thesecuritiesmarket,theBoardmay,
–Suspendtradingofastockinastockexchange
–Restrainpersonsfromaccessingthesecuritiesmarketand
prohibitanypersonassociatedwiththesecuritiesmarketto
buy,sellordealinsecurities
–Suspendanyofficebearerofanystockexchangeorself
regulatoryauthority
–Impendandretaintheproceedsorsecuritiesofany
transactionsunderinvestigation*
–Attachafterthespecifiedpurposes,foraperiodnot
exceedingonemonth,thebankaccount(s)orany
intermediaryorpersonassociatedwiththesecuritiesmarket
inamatterinvolvingviolationoftheprovisionsofSEBIAct*
–Directanyintermediaryorpersonassociatedwithsecurities
marketnottodisposeoforalienateanassetformingpastof
anytransactionunderinvestigation.*

33. Theboardmaytakeanyofthemeasuresin*
thesecasesinrespectofanylistedcompany
intendingtogetitssecuritieslisted,whereit
suspectsthecompanytobeindulgingininsider
tradingorfraudulentandunfairtradepractices
relatingtothesecuritiesmarket.
Withrespecttoprospectus,offerdocumentsand
advertisementssolicitingmoney,theBoardmay
fortheprotectionofinvestors,
-specifybyregulations
^Mattersrelatingtoissueofcapital,transferof
securitiesandmattersincidentalthereto.
^Themannerinwhichsuchmattersare
disclosed

34. -Specify by special orders
^Prohibitanycompanyfromissuing
prospectus,anyofferdocumentorissue
advertisements,solicitingmoneyforissueof
securities.
^Specifytheconditionssubjecttowhich
thesedocumentscanbeissued.
TheBoardmayspecifytherequirementsfor
listingandtransferofsecurities.
Inadditiontotheabove,theother
powersofSEBIare:

35. •Levypenaltiesforcertainoffenses
•Levyfeesandothercharges
•Issueorders/directionsintheinterestof
investorsororderlydevelopmentfsecurities
market.However,suchorderscanbeissued
onlyafterconductofaninquiry.
•Hearappealsbycompaniesagainstthe
decisionofstockexchangestorefuselistingof
theirsecurities.
•Suspendorcanceltheregistrationofany
intermediary.

36. APPEAL AGAINST SEBI ORDER
AnypersonaggrievedbyanorderofSEBIcan
fileanappealpetitiontotheCentral
Government.Suchappealhastobefiled
within30daysfromthedateof
communicationoftheorder.However,the
CentralGovernmentmayextendtheperiodby
afurther15daysifitissatisfiedthatthe
appellanthadsufficientcausefornot
preferringtheappealwithin30days.

37. ACHEIVEMENTS OF SEBI
Itsachievementscanbelistedoutasbelow;
Guidelinesondisclosureandinvestor
protectionissuedandclarifiedfromtimeto
time.
Properdisclosuretoinvestorsthrough
prospectusmadeobligatory
Guidelinesformerchantbankersissued
Advertisingcodeformutualfunds.

38. Mutualfundsrequiredpublishingbalance
sheets
Takeovercodebeingfinalized
Draftguidelinesonsharetransferagentsand
registrarstoanissue
Portfoliomanagementserviceguidelines
Draftguidelinesoninsidertrading,takeover
bids,etc.
Stockinvestschemetoeliminatedelayed
refunds.
BSEpersuadedtopassaresolutionadmitting
corporatemembers.

39. Proposedthattheexchangestakepercentage
oftheissueamountasdepositfrom
companiesseekinglisting
BSEmadetopublicizeoutstandingtrading
positiononsomescrip's.
Suggesteddetailingbrokerage/commissionin
contractnotes
Registeredanumberofinvestorassociations
Setupselfregulatoryorganizationslikethe
AssociationofMerchantBankersofIndia.
TotalBanonforwardtrading.

40. Commencedregistrationofintermediaries
associatedwiththestockexchange
Issuingguidelinesforforeigninstitutional
investorsforportfolioinvestmentsinIndia
Guidelinesforleadmanagersforinterse
allocationofresponsibilitiesissued.
FormatforreportingtoSEBIbycompaniesfor
public/rightissuesdrafted.
Aseriesofadvertisementsarebeingissuedto
educateandenlighteninvestingpublic.

41. Further,itisrequiredthatallsecurityexchanges
submitadetailedreportonthevolumeturnover
inthesecuritiesandtheoutstandingpositionof
transactionsinsecuritiestoSEBIsoastomonitor
asecurity’smarket.SEBIistakingactivesteps
withrespecttoinvestorprotectionbyidentifying
themtoredressinvestors’grievancespromptly.It
hasaskedtheCompanyLawBoardtoprosecute
thecompaniesdelayingsharetransfersand
therebyreducingthefloatingstockand
increasingshareprices.Thuswecansaythat
establishmentofSEBIisawelcomemoveinthe
historyofstockdealingsinIndia.

42. GOVERNING BOARD OF STOCK
EXCHANGES
Thegoverningbodyofarecognizedstock
exchangehaswidegovernmentaland
administrativepowers.Itisthedecision
makingbody.Ithasthepower,subjectto
Governmentalapproval,tomake,amendand
suspendtheoperationoftherules,bye-laws
andregulationsoftheexchanges.Italsohas
completejurisdictionoverallmembersandin
practice,itspowerofmanagementand
controlisalmostabsolute.

43. POWERS OF THE GOVERNING BOARD
OF STOCK EXCHANGES
Undertheconstitution,thegoverningbodyhasthefollowing
powers;
oToadmitandexpelmembers
oTowarn,censure,fineandsuspendmembersandtheir
partners,attorneys,remisers,authorizedclerksand
employees
oToapprovetheformationanddissolutionofpartnershipsand
appointmentofattorneys,remisersandauthorizedclerks
oToenforceattendanceandinformation
oToadjudicatedisputesandimposepenalties
oTodeterminethemodeandconditionsofstockexchange
businessandregulatestockexchangetradinginallitsaspects,
and
oTosupervise,directandcontrolallmattersandactivities
affectingthestockexchanges.

44. ORGANISATION OF BSE
TheorganizationofBSEisexplainedhereforan
understanding.InBSE,themembersonrollelect;
16membersasDirectorsinGoverningBoardin
BSE
TheyelectaPresident,VicePresidentand
Treasurer
GovernmentappointsExecutiveDirectoronthe
recommendationofGoverningBoard
3RepresentativesfromGovernment,3frompublic
and1fromRBIontheBoardtorepresenttheir
interest.

45. CAPITAL ISSUES CONTROL ACT, 1947
•Allthecapitalissuesmadein
thecountrywerecontrolled
andregulatedbytheAct.
•Itwasabolishedin1992and
powersweretransferredto
SEBI.

46. COMPANIES ACT, 1956
•InIndiaalltheCompaniesaregovernedby
CompaniesAct.
•TheactRegulatesthecompanyactivitiessoasto
achievehealthygrowthofcapitalmarketand
protectinvestors.
•Thecompanyartethemajorborrowersoffunds
fromcapitalmarketbywayofissuingsecurities.
•Itconsistsof600sectionsandunimaginableto
discussallthesectionsrelatingtoregulationof
capitalmarket.

47. Letusdiscusssomeoftheimportant
provisionsoftheAct,relatingtothecapital
marketactivitiesofcorporateenterprises.
Provisions relating to types of companies
Transferability of shares
Prospectus
Allotment against new issue
Payment of dividends
Minimum subscriptions

48. MONEY MARKET
Itisamarketforshortterm
(uptooneyear)moneyand
financialassetsthatarenear
substitutesformoney
(Convertibleintocashwith
minimumtransactioncost)

49. FEATURES OF MONEY MARKET
LIQUIDITY.
EMERGE AS A NATIONAL MARKET.
IMPERSONAL IN CHARACTER.
RELATIVELY PURE COMPETITION.
TRUE MONEY MARKET GIVES SCOPE FOR
ARBITRAGE.
NEW INSTRUMENTS WERE INTRODUCED.
LARGE FUNDS WERE TRADED IN MONEY MARKET.

50. MONEY MARKET INSTRUMENTS
Call money market
Inter bank term money market
Treasury bills
Commercial paper
Certificate of deposits
Commercial bills
Inter bank participation certificate
Inter corporate deposit
Repo

51. DISTINCTION BETWEEN CAPITAL
MARKET AND MONEY MARKET
S.No CAPITAL MARKET Money Market
1Thereisaclassificationbetween
primaryandsecondarymarket
Nosuchdivisionisthere,however
slowlyasecondarymarketis
greaterformiscomingupin
moneymarketalso.
2ItProvidesfundsforlongterm
requirements
Itprovidesfundsforshortterm
requirements
3Onlyfewinstrumentsarethere.
Viz.,sharesanddebentures
Moreinstrumentsarethere
4Playersincapitalmarketare
generalinvestors,brokers,
merchantbankers,Registrarsto
issue,underwriters,corporate
investors,bankers,etc.
TheplayersareBankers,RBI,and
Government.