Financial Markets

Financial Markets - Money market-Organized and Unorganized-Sub markets
Capital market- Primary market-IPO-FPO- NFO, Book Building-Right Issue-Private placement- Bonus issue-Buyback
Secondary Market-Stock exchanges- Role and functions of Stock Exchanges- BSE-NSE.
Regulatory authorities and their functions – RBI, SEBI

1. Financial Market Module 2 Prepared By: Mr. Mohammed Jasir PV Asst. Professor Dept. of MBA ICET, Mulavoor Contact: 9605 69 32 66

2. Syllabus Financial Markets - Money market-Organized and Unorganized-Sub markets Capital market- Primary market-IPO-FPO- NFO, Book Building-Right Issue-Private placement- Bonus issue-Buyback Secondary Market-Stock exchanges- Role and functions of Stock Exchanges- BSE-NSE. Regulatory authorities and their functions – RBI, SEBI

3. Market where entities market where entities can trade financial securities, commodities, at low transaction costs and at prices that reflect supply and demand. Financial Market

4. Cont... It is a place where funds from surplus units are transferred to deficit units. It is a market for creation and exchange of financial assets They are not the source of finance but link between savers and investors. Corporations, financial institutions, individuals and governments trade in financial products on this market.

5. Functions of Financial Market 1. Mobilisation of Savings & Channelize 2. To facilitate creation and allocation of credit and liquidity. 2. To serve as intermediaries for mobilisation of savings. 3. To help in the process of balanced economic growth. 4. To provide financial convenience. 5. To provide information and facilitate transactions at low cost. 6. To cater to the various credits needs of the business organisations

6. Classification of Financial Market On the basis of maturity of claims ( Money market & capital market) On the basis of seasoning of claim ( Primary market & secondary market) On the basis of structure or arrangements ( Organised markets & unorganised markets) On the basis of the type of financial claim ( Dept market & Equity market) On the basis of timing of delivery ( Cash / Spot market & Forward/Future market) Other Types Foreign exchange market, Derivatives market

7. Money Market Money market is a market for dealing with financial assets and securities which have a maturity period of upto one year. In other words, it is a market for purely short term funds. A market for dealing in monetary assets of short term nature, less than one year. Enables raising up of short term funds for meeting temporary shortage of fund and obligations and temporary deployment of excess fund. Major participant are: RBI and commercial banks

8. Cont... As per RBI definitions “ A market for short terms financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market”. Lending and borrowing of short term funds High liquidity and very short maturities are traded .

9. Features of Money Market?  Market for short term. No fixed geographical location. Major players are R.B.I., Commercial Banks, LIC, GIC, etc. Only dealing with maturity period less than one year . It is not a single homogeneous market, (it comprises of several submarket like call money market, acceptance & bill market) Transaction have to be conducted without the help of brokers.

10. Objective of Money Market? Equilibrium mechanism for short term surpluses and deficits Focal point for liquidity in economy Access to users of short term funds at reasonable cost To provide a place to employ short term surplus funds. To provide place for overcoming short term deficits. To enable the central bank to influence and regulate liquidity. To provide access to short-term funds to meet requirement quickly, adequately at reasonable cost.

11. Importance of Money Market Development of trade & industry. Development of capital market. ( influence the resource mobilisation and interest rate in the capital market) Smooth functioning of commercial banks .( investing their surplus funds in easily realisable assets) Effective central bank control to implement monitory policy. Formulation of suitable monetary policy. Source of finance to government.

12. Structure of Money Market ORGANISED STRUCTURE 1. Reserve bank of India. 2. DFHI (discount and finance house of India). 3. Commercial banks i . Public sector banks SBI Cooperative banks Nationalised banks ii. Private banks Indian Banks Foreign banks 4. Development bank IDBI, IFCI, ICICI, NABARD, GIC, UTI etc. UNORGANISED SECTOR 1. Indigenous banks 2 Money lenders 3. Chits 4. Nidhis

13. Organised Money Market Reserve bank of India. DFHI (discount and finance house of India). Commercial banks i . Public sector banks SBI Cooperative banks 20 nationalised banks ii. Private banks Indian Banks Foreign banks 4. Development bank IDBI, IFCI, ICICI, NABARD, LIC, GIC, UTI etc.

14. History of Banking In India Before independence After independence Nationalization Liberalization

15. 1770 – Bank of Hindustan * First bank India ( HO in Kolkata ) 1780 – New General Bank These banks were not profitable 1806 – Bank of Kolkata, later changed the name to Bank of Bengal in 1809 1840 – Bank of Bombay 1843 – Bank of Madras 1865 – Allahabad Bank (1 st Commercial Bank by British) 1881 – Oudh Commercial Bank (1 st Commercial Bank of India with limited liability) 1894 – Punjab National Bank (1 st Commercial Bank fully operated by Indian) History of Banking In India

16. 1905 Partition of Bengal 1906 – Bank of India 1906 – Canara Bank 1907 – Indian Bank 1908 – Bank of Baroda 1911 – Central Bank Of India ( 1 st Swadheshi Bank of India) Investment and Operations are Indian 1914 – 1918 1 st World War

17. 1919 – International Money Conference Took Self Financial Institution decision to financial control 27/01/1921 – IMPERIAL BANK OF INDIA e stablished in Mumbai by Imperial Bank of India Act of 1920.

18. The Imperial Bank was the biggest bank until 1935. Until the establishment of the Reserve Bank of India in 1935, the Imperial Bank performed certain central banking functions, although it was purely a commercial bank. It acted as the sole-banker to the Government.

19. Established via RBI Act, 1934 Started operations in April 1,1935 HO Kolkata, in 1937 shifted to Mumbai Recommended by Hilton Young Commission Started as a privately owned banks with no major govt ownership. RBI Nationalised on 01/01/1949 Banking companies act, 1949 was changed to Banking Regulation act, 1949 Banking Regulation act (Amendment), 1965 gave extensive powers to RBI as Central Banking authority of India. It was the 1 st bank to be Nationalized in 1949 It has 22 regional offices, most of them in state capitals Reserve Bank of India

20. First governor was Sir Osborne A.Smith (1 st April 1935 to 30 th June 1937) The First Indian Governor was “Sir Chintaman D.Deshmukh ”(11 th August 1943 to 30 th June 1949)

21. 01/07/1955 - Imperial Bank changed name to State Bank of India. Under the recommendation of Gorwala Commission For financial inclusion State Bank of India (SBI) is an Indian multinational, public sector banking and financial services company. It is a government-owned corporation headquartered in Mumbai, Maharashtra Largest bank in India with a 23% market share in assets, besides a share of one-fourth of the total loan and deposits market. State Bank of India

22. July 19 1969 – 14 major Banks were nationalised On April 15, 1980 another 6 banks were nationalised With nationalization of banks, the banking in India shifted from “Class Banking” to “Mass Banking” Nationalization of Banks

23. In the early 199s the Govt embarked on a policy of liberalization and gave licenses to small number of private banks, which came to be known as New Generation tech-savvy banks like Global Trust Bank, UTI Bank (Now Axis Bank), ICICI Bank and HDFC Bank LIBERALIZATION

24. RBI present governor (24 th ) is Urjit Patel , who took over from  Raghuram Rajan  on 4 September 2016.

25. Central Bank “It is a bank of banker” -- Samuelson “Bank which has monopoly over note issue” -- Vera Smith “Central bank is the government’s bank” -- Sayers

26. Structure of Banking in India Reserve Bank Commercial Bank Co-operative Bank -Public Sector Bank -State Co-op bank -Private Sector bank -Central Co-op Bank -Regional Rural Bank -Primary Co-op Soc

27. Organizational Structure Governor Deputy Governor Executive Directors Principal Chief General Manager Chief General Managers General Managers Deputy General Managers Asstt . General Managers Managers Asstt Managers Support staff

28. The key roles of the RBI are… Regulator and supervisor of the financial system Manager of Exchange control Issuer of currency Banker to the Government Bank to banks: maintains banking accounts of the scheduled banks Credit control mechanism.

29. Monetary Authority Formulates, implements and monitors the monetary policy Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors Regulator and supervisor of the financial system: Prescribes broad parameters of banking operations within which the country's banking and financial system functions Objective: maintain public confidence in the system, protect depositors interest and provide cost-effective banking services to the public Manager of Foreign Exchange Manages the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India

30. Issuer of Currency Issues and exchanges or destroys currency and coins not fit for circulation Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality Developmental Role Performs a wide range of promotional functions to support national objectives Related Functions Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker Banker to banks: maintains banking accounts of all scheduled banks

31. INSTRUMENTS OF CREDIT CONTROL Quantitative or General Methods Qualitative or Selective Methods Quantitative Qualitative Bank Rate  Selective Credit Control Open Market Operation(OMO)  Rationing of Credit Repo and Reverse Repo Ratio  Moral Persuasion Reserve Ratio (CRR)  Direct Action  Statutory Liquidity Ratio(SLR)

32. RBI also regulates the opening / installation of ATM RBI regulates the opening of branches by banks It ensures that all the N.B.F.C follow the KYC Guidelines Fresh currency notes for ATM are supplied by RBI Banker to the Government: Performs all banking function for the central and state governments and also act as their banker The reserve bank of India also regulates the trade of gold. (Currently 17 banks are involved in the trade of gold in India RBI has invited applications from more banks for direct import of gold to curb illegal trade in gold and increase competition in the market) It issues guidelines and directions for the commercial banks Related Functions

33. Discount And Finance House of India Ltd (DFHI) Set up in March 1988 by Reserve Bank of India with public sector banks and all India Financial Institutions To develop the money market To provide liquidity to money market instruments With the introduction of new money market instruments such as Certificates of Deposits and Commercial Paper, DFHI began dealing in these instruments as well. With effect from 1992-93, DFHI was authorised to deal in dated Government Securities. After DFHI was accredited as a Primary Dealer in February 1996, its operations significantly increased particularly in Treasury Bills and dated Government Securities.

34. DFHI opened its branches at Ahmedabad , Bangalore, Calcutta, Chennai, New Delhi and Hyderabad With a view to catering to the requirements of the small and medium sized institutions operating at these centre At the same time integrating the markets at these regional centre with main money market at Mumbai.

35. Unorganised Money Market Indigenous Banks Money lenders Unregulated Intermediaries

36. Indigenous Banks According to the Indian Central Banking Enquiry Committee, an indigenous banker or bank is defined as an individual or private firm which receives deposits, deals in hundies or engages itself in lending money. Private firms that receive deposits and give loans and thereby operate as banks As activities are not regulated properly ,they are unorganized segment Broadly classified into 4 groups- GUJRATI SHROFFS, MULTANI SHROFFS, CHETTIARS AND MARWARI KAYAS

37. A moneylender is a person or group who typically offers small personal  loans  at high rates of interest and is distinct from banks and financial institutions that typically provide such  loans . The high interest rates charged by them is justified in many cases by the risk involved. Moneylenders are those whose primary business is lending money. Many countries have laws in place that require moneylenders to be registered, and set limits on the interest rates that may be charged. For example, in India licensed moneylenders are governed by Money Lenders Acts of respective states Money Lenders

38. Unregulated Intermediaries FINANCE COMPANIES- gives loans to the retailers, artisans and other self-employed persons B) CHIT FUNDS- are saving institutions C) NIDHIS - operate in unregulated credit market and provide kind of mutual benefit funds

39. COMPONENTS / SUB MARKETS OF MONEY MARKET

40. Instrument of Money Market? A variety of instrument are available in a developed money market. In India till 1986, only a few instrument were available. They were Treasury bills Money at call and short notice in the call loan market. Commercial bills, promissory notes in the bill market.

41. New instrument Now, in addition to the above the following new instrument are available: Commercial papers. Certificate of deposit. Repo instrument Banker's Acceptance Repurchase agreement Money Market mutual fund

42. Treasury Bills (T-Bills) (T-bills) are the most marketable money market security. They are issued with three-month, six-month and one-year maturities. (91, 182 and 364 days) T-bills are purchased for a price that is less than their par (face) value; when they mature, the government pays the holder the full par value. T-Bills are so popular among money market instruments because of affordability to the individual investors.

43. Certificate of deposit (CD) A CD is a time deposit with a bank. Like most time deposit, funds can not withdrawn before maturity without paying a penalty. CD’s have specific maturity date, interest rate and it can be issued in any denomination. The main advantage of CD is their safety. Anyone can earn more than a saving account interest.

44. Commercial paper (CP) CP is a short term unsecured loan issued by a corporation typically financing day to day operation. CP is very safe investment because the financial situation of a company can easily be predicted over a few months. Only company with high credit rating issues CP’s.

45. Repurchase agreement (Repos) Repo is a form of overnight borrowing and is used by those who deal in government securities. They are usually very short term repurchases agreement, from overnight to 30 days of more. The short term maturity and government backing usually mean that Repos provide lenders with extreamly low risk. Repos are safe collateral for loans.

46. Banker's Acceptance A banker’s acceptance (BA) is a short-term credit investment created by a non-financial firm. BA’s are guaranteed by a bank to make payment. Acceptances are traded at discounts from face value in the secondary market. BA acts as a negotiable time draft for financing imports, exports or other transactions in goods. This is especially useful when the credit worthiness of a foreign trade partner is unknown.

47. Disadvantage of Money Market Purchasing power of your money goes down, in case of up in inflation. Absence of integration. No contact with foreign Money markets. Limited instruments. Limited secondary market. Limited participants.

48. Characteristic Features Of A Developed Money Market Highly organaised banking system Presence of central bank Availability of proper credit instrument Existence of sub-market Ample resources Existence of secondary market Demand and supply of fund

49. Capital Market Capital market is a market for financial assets which have a long or indefinite maturity. Unlike money market instruments the capital market instruments become mature for the period above one year. Institutions play the role of lenders in the capital market. Business units and corporate are the borrowers in the capital market. The market where investment instruments like bonds, equities and mortgages are traded is known as the capital market. The primal role of this market is to make investment from investors who have surplus funds to the ones who are running a deficit.

50. A market for long term funds Focus on financing of fixed investments Main participants are mutual funds, insurance organizations, foreign institutional investors, corporate and individuals.

51. Financial Instruments In Capital Markets The different types of financial instruments that are traded in the capital markets are: > Equity Instruments > Credit Market Instruments, > Insurance Instruments, > Foreign Exchange Instruments, > Hybrid Instruments And > Derivative Instruments.

52. Role Of Capital Market Mobilization of Savings  : Capital market is an important source for mobilizing idle savings from the economy. It mobilizes funds from people for further investments in the productive channels of an economy. 2. Capital Formation  : Capital market helps in capital formation. Capital formation is net addition to the existing stock of capital in the economy.  3. Provision of Investment Avenue  : Capital market raises resources for longer periods of time. Thus it provides an investment avenue for people who wish to invest resources for a long period of time. 

53. Cont... 4. Speed up Economic Growth and Development  : Capital market enhances production and productivity in the national economy by generation of employment and development of infrastructure. 5. Service Provision  : As an important financial set up capital market provides various types of services. It includes long term and medium term loans to industry, underwriting services, consultancy services, export finance, etc. These services help the manufacturing sector in a large spectrum.

54. Nature Of Capital Market The nature of capital market is brought out by the following facts: It deals in long-term securities It performs trade-off function It creates dispersion in business ownership It helps in capital formation It helps in creating liquidity It has two segments

55. Basic Capital Market Instruments

56. EQUITY SHARES According to the Companies Act 1956, equity shares are that part of the share capital of the company, which are not preference shares. They are called as ordinary shares or common stock or voting share. These shareholder are the real owner of the company. The return on equity shares depends on the performance profitability of the company.

57. Merits Of Equity Shares A permanent source of finance to the company No fixed rate of dividend Easy liquidity and marketability

58. Limitations Of Equity Shares No guarantee on returns to shareholders Loss of managerial control

59. Preference Shares Preference shares are known as preferred stock . Preference share capital has two priorities i.e., in the repayment of capital and payment of dividend . Preferred stocks usually carry no voting rigths .

60. Types Of Preference Share

61. Merits Of Preference Share Capital From Company’s point of view Hybrid security Absence of voting rights No dilution of control Fixed return

62. Limitations Of Preference Shares From Investor ’s point of view N ot secured N ot an attractive investment N o right to participate in the management

63. When a corporation is in need of fund in addition to share capital it borrows money by issuing debentures. The debenture holder gets interest which is fixed at the time of issue. DEBENTURES

64. Redeemable or irredeemable Convertible or non-convertible Secured or unsecured Bearer or registered TYPES OF DEBENTURES

65. MERITS OF DEBENTURES No loss of managerial control A Flexible source of finance Reduces burden of tax of the company

66. LIMITATION OF DEBENTURES Fixed rate on interest Companies may have to mortgage their assets N ot an attractive investment from company’s point of view.

67. BONDS Bonds are issued by public authorities, credit institutions, companies and super national institutions in the primary market. A bond is a negotiable certificate which entitles the holder of repayment of the principal sum plus interest. The most common process of issuing bonds is through underwriting.

68. TYPES OF BONDS Bearer bonds Registered bonds Callable bonds Convertible bonds Zero coupon bonds Fixed rate bonds

69. DIFFERENCE BETWEEN . EQUITY SECURITY DEBT SECURITY Owner of the company. Creditor of the company. Get Dividend only when company earns sufficient profits. Provides steady in come to the investors. Have voting rights. No voting rights. Not secured. Secured in nature. Share capital of the company. Borrowed capital of the company.

70. Types of Capital Market Industrial Securities Market a) Primary Market b) Secondary Market 2. Government Securities Market 3. Long Term Loan Market

71. 1. Industrial Securities Market As the very name implies, it is a market for shares and debentures of existing and new Corporate firms . Buying and selling of such instruments take place in the market. Eg. Equity shares or ordinary shares, Preference shares, Debentures or bonds.

72. It is a market where industrial concerns raise their capital or debt by issuing appropriate instruments. Subdivided into two. They are : Primary market Secondary market

73. Primary or New Issue Market Primary market is a market for new issues or new financial claims. Hence it is also called New Issue market. The primary market deals with those securities which are issued to the public for the first time. In the primary market, borrowers exchange new financial securities for long term funds. Thus, primary market facilitates capital formation.

74. Primary/new issue market A market for new issues i.e. A market for fresh capital. Provides the channel for sale of new securities, not previously available. Provides opportunity to issuers of securities; government as well as corporates . To raise resources to meet their requirements of investment and/or discharge some obligation. Does not have any organizational setup Performs triple-service function: origination, underwriting and distribution.

75. Features of Primary Market It is related with new issues It has no particular place It has various methods of float capital It comes before secondary market

76. Various Methods Of Float Capital

77. Companies (Private and Public) need capital either to increase their productivity or to increase their market reach or to diversify or to purchase latest modern equipments. Companies go in for IPO for funding and non funding needs and if they have already gone for IPO then they go for FPO. NFO AND BOOK BUILDING (

78. IPO: Initial Public Offering FPO: Further Public Offering The main thing a company does in either IPO or FPO is to sell the shares or debentures to investors.(the term investor here represents retail investors, financial institutions, government, high net worth individuals, banks etc).

79. Why IPOs and FPOs? For Funding Needs •Funding Capital Requirements for Organisational Growth •Expansion through Projects •Diversification •Funding Joint Venture and Collaborations needs •Funding Infrastructure Requirements, Marketing Initiatives and Distribution Channels •Financing Working Capital Requirements •Funding General Corporate Purposes •Investing in businesses through other companies •Repaying debt to strengthen the Balance Sheet •Meeting Issue Expenses

80. Continued… For Non-funding Needs Enhancing Corporate Stature Retention and incentive for Employees through stock options Provide liquidity to the shareholders

81. Issues Primarily, issues made by an Indian company can be classified as Public, Rights, Bonus and Private Placement. While right issues by a listed company and public issues involve a detailed procedure, bonus issues and private placements are relatively simpler.

82. Public issue Public issue: When an issue / offer of securities is made to new investors for becoming part of shareholders’ family of the issuer it Is called a public issue. Public issue can be further classified into Initial public offer (IPO) and Further public offer (FPO).

83. Initial public offer (IPO) Initial public offer (IPO): When an unlisted company makes either a fresh issue of securities or offers its existing securities for sale or both for the first time to the public, it is called an IPO. This paves way for listing and trading of the issuer’s securities in the Stock Exchanges.

84. IPO is a type of public offering where shares of stock in a company are sold to the general public, on a securities exchange, for the first time . Initial public offerings are used by companies to raise expansion capital. Details of the proposed offering are disclosed to potential purchasers in the form of a lengthy document known as a prospectus

85. Most companies undertake an IPO with the assistance of an investment banking firm acting in the capacity of an underwriter . Underwriters provide several services, including help with correctly assessing the value of shares (share price), and establishing a public market for shares (initial sale)

86. Further Public Offer (FPO) Further public offer (FPO) or Follow on offer: When an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, it is called a FPO. A company uses FPO after it has gone through the process of an IPO and decides to make more of its shares available to the public or to raise capital to expand or pay off debt.

87. Pricing in IPO and FPO During the IPO or FPO, the company offers its shares to the public either at fixed price or offers a price range, so that the investors can decide on the right price. The method of offering shares by providing a price range is called as book building method.

88. FIXED PRICE ISSUE: - When the issuer at the outset decides the issue price and mentions it in the offer document, it is commonly known as fixed price issue. BOOK BUILT ISSUE:-When the price of an issue is discovered on the basis of demand received from the prospective investors at various price levels, it is called as book built issue.

89. Advantages of IPO The financial benefit in the form of raising capital I ncreased public awareness of the company because IPOs often generate publicity by making their products known to a new group of potential customers. A n increase in market share for the company.

90. New Fund Offer - NFO Definition: A new fund offer (NFO) is the first time subscription offer for a new scheme launched by the asset management companies (AMCs). A new fund offer is launched in the market to raise capital from the public in order to buy securities like shares, govt. bonds etc. from the market.

91. NFO is similar to the initial public offer (IPO) with an attempt to raise capital from the market. NFOs are offered for a stipulated period. This means that the investors opting to invest in these schemes at the offer price (in most cases the offer price is fixed at Rs 10) can do so in this stipulated period only. After the NFO period, investors can take exposure in these funds only at the prevailing NAV.

92. Book building Book building  is a systematic process of generating, capturing, and recording investor demand for shares during an initial public offering (IPO), or other securities during their issuance process, in order to support efficient price discovery. During the IPO or FPO, the company offers its shares to the public either at fixed price or offers a price range, so that the investors can decide on the right price. The method of offering shares by providing a price range is called book building method. This method provides an opportunity to the market to discover price for the securities which are on offer.

93. Meaning of Book Building Book Building may be defined as a process used by companies raising capital through Public Offerings-both Initial Public Offers (IPOs) and Follow-on Public Offers (FPOs) to aid price and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer. The process is directed towards both the institutional investors as well as the retail investors. The issue price is determined after the bid closure based on the demand generated in the process.

94. Book Building in India: The introduction of book-building in India was done in 1995 following the recommendations of an expert committee appointed by SEBI under Y.H. Malegam . The committee recommended and SEBI accepted in November 1995 that the book-building route should be open to issuer companies, subject to certain terms and conditions. In January 2000, SEBI came out with a compendium of guidelines, circulars and instructions to merchant bankers relating to issue of capital, including those on the book-building mechanism.

95. Book Building Process The following are the important points in book building process: 1. The Issuer who is planning an offer nominates lead merchant banker(s) as ‘book runners’. 2. The Issuer specifies the number of securities to be issued and the price band for the bids. 3. The Issuer also appoints syndicate members with whom orders are to be placed by the investors. 4. The syndicate members put the orders into an ‘electronic book’. This process is called ‘bidding’ and is similar to open auction. 5. The book normally remains open for a period of 5 days. 6. Bids have to be entered within the specified price band. 7. Bids can be revised by the bidders before the book closes.

96. 8. On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels. 9. The book runners and the Issuer decide the final price at which the securities shall be issued. 10. Generally, the number of shares is fixed; the issue size gets frozen based on the final price per share. 11. Allocation of securities is made to the successful bidders. The rest bidders get refund orders.

97. Right Issue A  rights issue  is a dividend of subscription  rights  to buy additional securities in a company made to the company's existing security holders. When the  rights  are for equity securities, such as shares, in a public company, it is a non-dilutive pro rata way to raise capital. A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. More specifically, this type of issue gives existing shareholders securities called “rights," which, well, give the shareholders the right to purchase new shares at a discount to the market price on a stated future date. The company is giving shareholders a chance to increase their exposure to the stock at a discount price.

98. But until the date at which the new shares can be purchased, shareholders may trade the rights on the market the same way that they would trade ordinary shares. The rights issued to a shareholder have a value, thus compensating current shareholders for the future dilution of their existing shares' value. Troubled companies typically use rights issues to pay down debt, especially when they are unable to borrow more money. But not all companies that pursue rights offerings are shaky. Some with clean balance sheet use rights issues to fund acquisitions and growth strategies. For reassurance that it will raise the finances, a company will usually, but not always, have its rights issue underwritten by an investment bank.

99. A Private Placement A private placement is the sale of securities to a relatively small number of select investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual fund, insurance companies and pension fund. A private placement is different from a public issue, in which securities are made available for sale on the open market to any type of investor.

100. Private placement  (or non-public offering) is a funding round of securities which are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors. PIPE  (Private Investment in Public Equity) deals are one type of private placement.  SEDA  (Standby Equity Distribution Agreement) is also a form of private placement. They are often a cheaper source of capital than a public offering.

101. Bonus Issue Definition:  Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns. These are company's accumulated earnings which are not given out in the form of dividends, but are converted into free shares.

102. The basic principle behind bonus shares is that the total number of shares increases with a constant ratio of number of shares held to the number of shares outstanding. For instance, if Investor A holds 200 shares of a company and a company declares 4:1 bonus, that is for every one share, he gets 4 shares for free. That is total 800 shares for free and his total holding will increase to 1000 shares.

103. Buyback Share repurchase (or stock  buyback ) is the re-acquisition by a company of its own stock. It represents a more flexible way (relative to dividends) of returning money to shareholders. The company either retires the repurchased  shares  or keeps them as treasury stock, available for re-issuance.

104. By reducing the number of  shares  outstanding on the market,  buybacks  increase the proportion of  shares  owned by enduring investors. A company may feel its shares  are undervalued and buy them back to provide investors with a return, and because the company is bullish on its current operations.

105. Secondary Market-Stock exchange

106. Secondary Market-Stock exchange It is what most people typically think of as the "stock market," though stocks are also sold on the primary market when they are first issued. The national exchanges, such as the  New York Stock Exchange  ( NYSE ) and the  NASDAQ , are secondary markets. Definition:  This is the market wherein the trading of securities is done. Secondary market consists of both equity as well as debt markets. 

107. 'Secondary Market' Description:  Securities issued by a company for the first time are offered to the public in the primary market. Once the IPO is done and the stock is listed, they are traded in the secondary market. The main difference between the two is that in the primary market, an investor gets securities directly from the company through IPOs, while in the secondary market, one purchases securities from other investors willing to sell the same. Equity shares, bonds, preference shares, treasury bills, debentures, etc. are some of the key products available in a secondary market. SEBI is the regulator of the same.

108. Characteristics of a Stock Exchange 1. It is an organized capital market. 2. It may be incorporated or non-incorporated body (association or body of individuals). 3. It is an open market for the purchase and sale of securities. 4. Only listed securities can be dealt on a stock exchange. 5. It works under established rules and regulations. 6. The securities are bought and sold either for investment or for speculative purpose.

109. Secondary market/ stock market A market for old/existing securities. A place where buyers and sellers of securities can enter into transactions to purchase and sell shares, bonds, debentures etc. Enables corporates , entrepreneurs to raise resources for their companies and business ventures through public issues. Has physical existence Vital functions are: Nexus between savings and investments Liquidity to investors Continuous price formation

110. Features of Secondary Market It creates liquidity It comes after primary market It has A particular place It encourages new investments Buyback of Shares

111. Economic Functions of Stock Exchange Ensures liquidity to capital: Continuous market for securities Mobilisation of savings Capital formation: Economic developments: Evaluation of securities Safeguards for investors: Investors’ Barometer of economic conditions Platform for public debt Helps to banks Pricing of securities

112. NSE & BSE

113. Board of Directors Mr. Ravi Narain   National Stock Exchange of India Limited Managing Director Ms. Chitra Ramkrishna   National Stock Exchange of India Limited Joint Managing Director [Shareholder Director ]

114. Type : Stock Exchange Location : Mumbai , India Founded : 1992 Owner : National Stock Exchange of India Limited Currency : INR No.of  listings : More than 2000 Website : www.nse-india.com

115. Mile Stones November 1992 Incorporation April 1993 Recognition as a stock exchange October 1995 Became largest stock exchange in the country April 1996 Launch of S&P CNX Nifty November 1997 Best IT Usage award by Computer Society of India. May 1998 Launch of NSE's Web-site: www.nse.co.in

116. February 2000 Commencement of Internet Trading June 2000 Commencement of Derivatives Trading (Index Futures) January 2002 Launch of Exchange Traded Funds (ETFs) June 2007 NSE launches derivatives on Nifty Junior & CNX 100. August 2008 Launch of Currency Derivatives November 2009 Launch of Mutual Fund Service System February 2010 Launch of Currency Futures on additional currency pairs

117. INTRODUCTION The national stock exchange of India was promoted by leading financial institution at the order of government of India and was incorporated in November 1992 as a tax paying company. In April 1993,it was recognized as a stock exchange under the securities contract(Regulation) Act, 1956…NSE commenced operation in June 1994 The capital market segment of the NSE commenced operation in November 1994 ,while operation in the derivatives segment in June 2000

118. PURPOSE Establishing a National wide trading facility for all type of securities. Ensuring equal access to investor all over the country through an appropriate communication network. Providing for a Fair, efficient and transparent securities market using electronic Trading system. Enabling shorter Settlement cycles. Meeting up with international benchmark and standard

119. Trading schedule Trading takes place on all days of the week except Saturdays & Sundays. The market timings are as follows: (1) Pre-open session (Regular) Order entry & modification Open: 09:00 hrs Order entry & modification Close: 09:08 hrs* *with random closure in last one minute. Pre-open order matching starts immediately after close of pre-open order entry. (2) Pre-open Session for IPO and Relist Securities Order entry & modification Open: 09:00 hrs Order entry & modification Close: 09:45 hrs* *with random closure in last one minute. Pre-open order matching starts immediately after close of pre-open order entry.

120. (3) Regular trading session Normal Market Open: 09:15 hrs Normal Market Close: 15:30 hrs Block deal session is held between 09:15 hrs and 09:50 hrs. (4) The Closing Session is held between 15.40 hrs and 16.00 hrs. The Exchange may also extend, advance or reduce trading hours when its deems fit and necessary.

121. ADVANTAGES OF NSE Wider accessibility Screen based trading Non-disclosure of the trading members identity Transparent transaction Matching of orders Trading in dematerialized form

122. ROLE of NSE Raising capital for businesses Mobilizing savings for investment Facilitating company growth Profit sharing Corporate governance indicator of the economy

123. Indices NSE has launched several stock indices, including: S&P CNX Nifty(Standard & Poor's CRISIL NSE Index) CNX Nifty Junior CNX 100 (= S&P CNX Nifty + CNX Nifty Junior) S&P CNX 500 (= CNX 100 + 400 major players across 72 industries) CNX Midcap (introduced on 18 July 2005 replacing CNX Midcap 200)

124. Markets Currently, NSE has the following major segments of the capital market: Equity Futures and Options Retail Debt Market Wholesale Debt Market Currency futures MUTUAL FUND STOCKS LENDING & BORROWING

125. Eligibility Criteria for Listing IPOs by Companies The paid up equity capital of the applicant shall not be less than Rs. 10 crores and the capitalisation of the applicant’s equity shall not be less than Rs. 25 crores The Issuer shall have adhered to conditions precedent to listing as emerging from inter- aliance from Securities Contracts (Regulations) Act 1956, Companies Act 1956, Securities and Exchange Board of India Act 1992. At least three years track record.

126. Certifications NSE also conducts online examination and awards certification, under its programmes of NSE's Certification in Financial Markets (NCFM). Currently, certifications are available in 19 modules, covering different sectors of financial and capital markets. Branches of the NSE are located throughout India.

127. Board of Directors Non-Executive Chairman : Mr. S. Ramadorai Public Interest Director Vice Chairman  Tata Consultancy Services Ltd 

128. About Original named as “The Native Share & Stock Brokers Association” Established : 1875  Location : mumbai work on bid-ask quote In 1995 its fully computerized system (screen-based system) In 1996 SEBI permitted BSE to extend its BOLT network outside of mumbai .

129. About 5,092 listed companies  total market capitalization of around 59 trillion Rupees currently ranking around number four in terms of annual transactions. SENSEX is major index of BSE SENSEX comprise 30 scripts from different sectors. Other important indices originating from the Bombay exchange include the BSE 100, BSE 500, BSEPSU, BSEMIDCAP, BSESMLCAP, and BSEBANKEX.

130. BSE Hours of Operation Beginning of the Day Session: 8:00 - 9:00 Login Session: 9:00 - 9:15 Trading Session: 9:15 - 15:30 Position Transfer Session: 15:30 - 15:50 Closing Session: 15:50 - 16:05 Option Exercise Session: 16:05 - 16:35 Margin Session: 16:35 - 16:50 Query Session: 16:50 - 17:35 End of Day Session:17:35 

131. Various stock exchange in India Bombay Stock Exchange (BSE) National Stock Exchange of India (NSE) Indian Commodity Exchange (ICEX) United Stock Exchange of India (USE) Multi Commodity Exchange (MCX) Over the Counter Exchange of India (OTCEI) Inter-connected Stock Exchange of India (ISE) Madras Stock Exchange (MSE) Ahmedabad Stock Exchange (ASE) Bhubaneshwar Stock Exchange ( BhSE )

132. Cochin Stock Exchange (CSE) Hyderabad Stock Exchange (HSE) Calcutta Stock Exchange (CSE) Delhi Stock Exchange (DSE) Bangalore Stock Exchange Madhya Pradesh Stock Exchange, Indore Jaipur Stock Exchange (JSE) Magadh Stock Exchange, Patna UP Stock Exchange (UPSE) Vadodara Stock Exchange,Vadodara (VSE)