15. Renders safe keeping services: both banks and depository provide safe keeping services. Banks provides safe custody of cash and locker facility for keeping valuable articles to its clients. Depositories also provide safe keeping of shares, debentures, bonds, government securities, mutual fund units to its clients.
20. Account is operated by power of attorney: a person under power of attorney can operate the account.
21. Customers are entitled to get statement s of accounts
22. Nomination facility : customer can nominate any person to whom account will be transferred in case of death of the person
23.
24.
25. The issuer is the co. which issues the securities. It maintains a register for recording the names of the registered owners of securities and the depositories. The issuer sends a list of shareholders who opt for the depository system. And only those co.’s can issue the securities which are registered under stock exchanges
27. Beneficial owner is a person whose name is recorded as such with a depository. It means a person who is engaged in buying and selling of securities issued by the companies and is registered his/ her securities with the depository in the form of book entry. And he/ she has all the rights and liabilities associated with the securities
29. Dematerialization: It is a process of conversion of physical share – certificate into electronic – form. So, when a shareholder uses the dematerialization facility, company take back the shares, through depository – system and equal numbers of shares are credited in his account in e-form.
55. IntermediaryChapter- 8<br />DEMAT & REMAT<br />DEMATERIALISATION<br />DefinitionDematerialisation is the process of converting physical shares (share certificates) into an electronic form. Shares once converted into dematerialised form are held in a Demat account.Dematerialisation Process<br />An investor having securities in physical form must get them dematerialised, if he intends to sell them. This requires the investor to fill a Demat Request Form (DRF) which is available with every DP and submit the same along with the physical certificates. Every security has an ISIN (International Securities Identification Number). If there is more than one security than the equal number of DRFs has to be filled in. <br />The whole process goes on in the following manner:<br />i) Appointing DP<br />Any investor who intends to transact through depository system has to engage one depository participant (DP). He can approach a DP of his choice and open an account with him just like one opens an account with a bank. Investor gets an identification number called Client ID (just as one gets ones bank account number) which serves as a reference point for all his transactions with D.P.<br />Every investor before getting his holding dematerialised has to enter into an agreement with the depository through a participant. This step is necessary whether investor already has securities or securities are yet to be issued in a fresh issue. The investor contracts only with that depository which accepts his security in ‘depository mode’ since it is not necessary that all eligible securities must be in depository mode and with all the depositories. The decision on whether or not to hold securities within the depository mode and if in depository mode, with which depository or participants, would be entirely with the investor.<br />ii) Request for ‘Demat’<br />After any agreement is entered for getting securities dematerialised and his account is opened, the investor makes an application to depository participants in form called ‘Dematerialisation Request Form’ (DRF) to be provided by the DP and hands over his share certificates duly cancelled by writing’ surrendered for dematerialisation’ to them for demat. The DP will accept certificates registered only in investor’s name.<br />The request for dematerialisation with the depository participants is sent to the depository through depository network with which DP is connected.<br />Simultaneously DP submits the securities certificates to the issuer company or it’s Registrar of transfer.<br />iii) Approach the Company or Registrar of Transfer<br />The depository will electronically intimate the issuer or its ‘Registrar and transfer agent’ of the dematerialisation request. The issuer or the ‘Registrar and transfer<br />Agent’ has to verify the validity of the security certificates as well as the fact that the DRF has been made by the person recorded as a member in its Register of Members. If the issuer or its Registrar is satisfied, it dematerialises the scrip and updates its record.<br />iv) Confirmation of Demat<br />The Registrar to transfer or the concerned company when satisfied with the case of demat has to inform the depository of the completion of dematerialisation authorising an electronic credit for that security in favour of the investor.<br />v) Crediting the Client’s Account<br />DP credits investor’s account with the number of shares so dematerialised and thereafter investor hold the securities in electronic form. If there is rejection of demat request then such credit is not given. After crediting the account, the client is sending the necessary information in form of a statement like we get bank statement after bank transactions.<br />Demat Account<br />DefinitionDemat account is a safe and convenient means of holding securities just like a bank account is for funds. Today, practically 99.9% settlement (of shares) takes place on demat mode only. Thus, it is advisable to have a Beneficiary Owner (BO) account to trade at the exchanges.<br />Benefits Of Demat Account<br />A safe and convenient way of holding securities (equity and debt instruments both). <br />Transactions involving physical securities are costlier than those involving dematerialised securities (just like the transactions through a bank teller are costlier than ATM transactions). Therefore, charges applicable to an investor are lesser for each transaction. <br />Securities can be transferred at an instruction immediately. <br />Increased liquidity, as securities can be sold at any time during the trading hours (between 9:55 AM to 3:30 PM on all working days), and payment can be received in a very short period of time. <br />No stamp duty charges. <br />Risks like forgery, thefts, bad delivery, delays in transfer etc., associated with physical certificates, are eliminated. <br />Pledging of securities in a short period of time. <br />Reduced paper work and transaction cost. <br />Odd-lot shares can also be traded (can be even 1 share). <br />Nomination facility available. <br />Any change in address or bank account details can be electronically intimated to all companies in which investor holds any securities, without having to inform each of them separately. <br />Securities are transferred by the DP itself, so no need to correspond with the companies. <br />Shares arising out of bonus, split, consolidation, merger etc. are automatically credited into the demat account of the investor. <br />Shares allotted in public issues are directly credited into demat account of the applicants in quick time. <br />Opening a Demat Accountto start dealing in securities in electronic form, one needs to open a demat account with a DP of his choice. An investor already having shares in physical form should ensure that he gets the account opened in the same set of names as appearing on the share certificate; otherwise a new account can be opened in any desired pattern by the investor.<br />Opening a Demat
![A PROJECT REPORT ON DEPOSITORY<br /> <br />In partial fulfilment of the degree in Master of Business Administration<br />(MBA).<br />Project submitted to:Submitted By:<br />Pooja M.KohliHiresh Ahluwalia<br />Executive director (officiating)MBA 3rd semester<br />Ludhiana stock exchangeDAVIET, Jalandhar<br />Preface<br />This project report pertains to the making of summer training project of M.B.A curriculum.<br />The purpose of this project is to make the students gain thorough knowledge of the topics given to them. I learned a lot about the topic after putting in much hard work in collecting the information regarding the topic allotted, which will be of a great use in future.<br />It cannot be said with certainty that full justification has been done to the topic in the few pages presented here, but I have tried my best to cover as much as possible about “depository “in this report.<br />DECLARATION<br />This project titled “Depository” is submitted in partial fulfilment of the requirement for the award of degree of “Master of Business Administration” of Punjab Technical University, Jalandhar.<br />This compilation of project is done by Hiresh Ahluwalia .This project work has been done for MBA only and none of this research work has been submitted for any other degree.<br />The assistance and help during the execution of the project has been fully acknowledged.<br />Hiresh Ahluwalia<br />Acknowledgement <br />I take this opportunity to express my deep gratitude to all my seniors who helped and guided me to complete this project in time.<br />I am extremely thankful to Mrs .Pooja M. Kohli, executive director (officiating), Ludhiana stock exchange, for assigning me the project “Depository“, and also taking a keen interest and rendering valuable help that ultimately proved to be very helpful in the successful completion of my project.<br />I am also very thankful to Mr.Sadhu Ram, coordinator of the training programme, who in spite of his busy schedule, provided me invaluable guidance and has shown utmost interest in imparting this training.<br />Index<br />,[object Object],Chapter-1<br />About Ludhiana stock exchange:<br />About Ludhiana stock exchange:<br />The Ludhiana Stock Exchange Limited was established in 1981, by Sh. S.P. Oswal of Vardhman Group and Sh. B.M. Lal Munjal of Hero Group, leading industrial luminaries, to fulfil a vital need of having a Stock Exchange in the region of Punjab, Himachal Pradesh, Jammu & Kashmir and Union Territory of Chandigarh. Since its inception, the Stock Exchange has grown phenomenally. The Stock Exchange has played an important role in channelizing savings into capital for the various industrial and commercial units of the State of Punjab and other parts of the country. The Exchange has facilitated the mobilization of funds by entrepreneurs from the public and thereby contributed in the overall, economic, industrial and social development of the States under its jurisdiction.<br />Ludhiana Stock Exchange is one of the leading Regional Stock Exchange and has been in the forefront of other Stock Exchange in every spheres, whether it is formation of subsidiary for providing the platform of trading to investors, for brokers etc. in the era of Screen based trading introduced by National Stock Exchange and Bombay Stock Exchange, entering into the field of Commodities trading or imparting education to the Public at large by way of starting Certification Programmes in Capital Market.<br />The vision and mission of Stock Exchange is: <br />quot;
Reaching small investors by providing services relating to Capital Market including Trading, Depository Operations etc. and creating Mass Awareness by way of education and training in the field of Capital Market.To create educated investors and fulfilling the gap of skilled work force in the domain in Capital Market.quot;
<br />Further, the Exchange has 295 members out of which 162 are registered with National Stock Exchange as Sub-brokers and 121 with Bombay Stock Exchange as sub-brokers through our subsidiary. <br />DETAILS OF PRESIDENTS AND VICE PRESIDENTS<br />LSE SALUTES ITS PRESIDENT/ CHAIRMEN VICE PRESIDENT/ VICE CHAIRMEN PRESIDENTS/ CHAIRMEN Sr. No. Name of the person Tenure 1 Sh. S.P. Oswal 16.08.1983 to 27.07.1986 2 Sh. B.M. Lal Munjal 28.07.1986 to 15.10.1989 3 Sh. V.N. Dhiri 16.10.1989 to 30.10.1992 30.09.1998 to 04.10.2000 4 Sh. G.S. Dhodi 31.10.1992 to 22.12.1993 5 Sh. Jaspal Singh 23.12.1993 to 05.10.1995 01.10.1996 to 29.09.199806.10.2001 to 01.07.2002 6 Sh. M.S. Gandhi 06.10.1995 to 30.09.1996 7 Sh. R.C. Singal 05.10.2000 to 05.10.2001 8 Dr. B. B. Tandon, Chairman 25.06.2007 to 10.12.2007 9 Sh. S.P. Sharma, Chairman 15.07.2007 to 23.09.2008 10 Sh. Jagmohan Krishan 23.09.2008 to 29.09.2009 11Prof Padam Parkash Kansal 30.09.2009 to till dateVICE PRESIDENTS/ VICE CHAIRMEN Sr. No. Name of the person Tenure 1 Sh. Rajinder Verma 14.07.1984 to 08.08.1987 2 Sh. B.K. Arora 09.08.1987 to 15.10.198931.10.1992 to 22.12.1993 3 Sh. G.S. Dhodi 28.10.1991 to 30.10.1992 4 Sh. B.S. Sidhu 16.10.1989 to 27.10.199123.12.1993 to 05.10.1995 5 Sh. D.P. Gandhi 06.10.1995 to 26.09.1997 6 Sh. M. S. Sarna 27.09.1997 to 29.09.1998 7 Sh. T.S. Thapar 30.09.1998 to 04.10.2000 8 Sh. Tarvinder Dhingra 05.10.2000 to 05.10.2001 9 Dr. Rajiv Kalra 06.10.2001 to 01.07.2002 10 Sh. D.K. Malhotra, Vice Chairman 025.06.2007 to 10.12.2007 11 Sh. Jagmohan Krishan, Vice Chairman 15.07.2007 to 23.09.2008 12 Sh. Ravinder Nath Sethi 23.09.2008 to 08.10.2008 13 Prof Padam Parkash Kansal 09.10.2008 to 29.09.2009 14Sh. Joginder Kumar 30.09.2009 to till date<br />Governance and management:<br />LSE has a strong governance and administration, which encompasses a right balance of Industry Experts with highest level educational background, practicing professionals and independent experts in various fields of Financial Sector. The administration is presently headed by Sr. General Manager CUM Company Secretary and team of persons having in-depth knowledge of Secretarial, Legal and Education & Training.The Governing Board of our Exchange comprises of eleven members, out of which two are Public Interest Directors, who are eminent persons in the fields of Finance and Accounts, Education, Law, Capital Markets and other related fields, Six are Shareholder Directors, and Three are Broker Member Director and the Exchange has four Statutory Committees namely Disciplinary Committee, Arbitration Committee, Defaults Committee and Investor Services Committee. In addition, it has advisory and standing committees to assist the administration.LSE has a Code of Conduct in place that governs the elected Board Members and the Senior Management Team. The same is monitored through periodic disclosure procedures. The Exchange has an Ethics Committee, which looks into any issue of conflict of interest and has in place general code of conduct for the Senior Officials.The composition of the Governing Board is as under:-<br />Composition of the Governing Board<br />Sr. No. Name of Director Category 1 Prof. Padam Parkash Kansal Chairman (Shareholder Director) 2 Sh. Joginder Kumar Vice Chairman(Shareholder Director) 3 Sh. Rajinder Mohan Singla Shareholder Director 4 Sh. Satish Nagpal Shareholder Director 5 Sh. Vikas Batra Shareholder Director 6 Sh. Varun Chhabra Shareholder Director 7 Dr. Raj Singh Registrar of Companies (Public Interest Director) 8 Sh. Ashwani Kumar Public Interest Director 9 Sh. V.P. Gaur Public Interest Director 10 Sh. Jaspal Singh Trading member Director 11 Sh. Sunil Gupta Trading Member Director 12 Sh. Sanjay Anand Trading member Director <br />,[object Object],Infrastructure and asset base at Ludhiana stock exchange<br />The Exchange building is situated at Feroze Gandhi Market, Ferozepur Road, Ludhiana. It is a six storeyed building, which is centrally air-conditioned. The building has 262 rooms, which are located on various floors ranging from second to fifth. The first floor of the building houses the administrative office and rooms from second to fifth floors have been leased out to brokers. The first floor also has canteen and banking facilities. Investor Service Centre is also located at first floor which houses a well-equipped library and view-terminals to provide “live” rates of NSE and BSE to investors. Investors are also provided with Cable TV for the purpose of viewing the latest happenings in the Capital Market and around. Basement of the building has air-conditioning plant and Generators to provide air-conditioned environment and twenty-four hours power back up. The Exchange has also an additional plot of land measuring 2333 sq. yards in the prime location of city, to enhance its infrastructure and source of income. Status of subsidiary – LSE Securities LimitedDue to Nation-wide reach of bigger Stock Exchanges, the trading volumes at Ludhiana Stock Exchange declined and ultimately, the trading stopped in February, 2002, but the Stock Exchange converted the threat of bigger Exchanges into opportunities and acquired the corporate membership of these exchanges through its subsidiary company i.e. LSE Securities Limited. We have now been providing Trading Platforms of Bigger Stock Exchanges to the Investors of the region. The vast network of Brokers of the Exchange is servicing millions of Investors. The subsidiary company is also providing depository services in the State of Punjab and Himachal Pradesh. The allied services like PAN Service Centre, Investor Service Centres are also being provided at major locations of the region. The turnover of subsidiary is highest amongst all the subsidiaries of Regional Stock Exchanges. The growth of subsidiary is swift and it has been providing a range of services to the public at large such as Trading, Depository, and IPO bidding collection Centre.The Company in its continuous endeavour to provide qualitative services to its valued clients, has started e-broking trading services for its clients, thereby increasing the geographical reach of the company.LISTING OF SECURITIES OF COMPANIES AT LUDHIANA STOCK EXCHANGEAt present, Ludhiana Stock Exchange has 330 listed companies, out of which 214 are regional and 116 are Non-regional. The total listed capital of aforesaid companies is Rs. 3168.91 Crores approx. The market capitalization of the said companies is more than Rs. 3372.34 crores. The Stock Exchange is covering the vast investor base through the listing of above said companies, which are situated in the region comprising of Punjab, Himachal Pardesh, Jammu & Kashmir, and Chandigarh. Despite the fact, the implementation of SEBI (Delisting of Securities) guidelines, 2003 has resulted into the Delisting of good companies listed at Exchange, however still there are leading Companies listed with our Exchange, notable among them are United Breweries Limited, Vardhman Acrylics Limited, SMC global securities limited, Himachal Futuristic Communications Limited etc. Ludhiana Stock Exchange has facilitated the capital generation for agro based industries as Punjab is an agricultural led economy. It will continue to do so, once it gets approval for a tie up with bigger Exchanges for commencing trading operations. <br />INVESTOR RELATED SERVICES<br />The Exchange has been providing a variety of services for the benefit of investing public. The services include Investor Service Centres, Investor Protection fund and Investor Educational Seminars. (i).Investor Service Centres The Exchange has set-up Investor Service Centres at various DP branches of its subsidiary for providing information relating to Capital Market to the general public. The Centres subscribe to leading economic, financial dailies and periodicals. They also store the Annual Reports of the companies listed at the Stock Exchange. The Investor Service Centres are also equipped with a Terminal for providing “live” rates of trading at NSE and BSE. A large number of the investors visit the centres to utilize the services being provided by the Exchange. (ii).Investor Awareness Seminars The Exchange has been organizing Investor Awareness Seminars for the benefit of Investors of the region comprising State of Punjab, Himachal Pradesh, Jammu & Kashmir, Chandigarh and adjoining areas of Haryana and Rajasthan. This massive exercise of organizing Investor Awareness Seminars has been launched as a part of Securities Market Awareness Campaign launched by SEBI in January, 2003. The Exchange apprises the investors about Do’s and Don’ts to be observed while dealing in Securities Market. Till date, Exchange has organized more than 200 workshops in the region mentioned above. (iii).Website of the Exchange: www.lse.co.in The Exchange has its own website with the domain name www.lse.co.in. The website provides valuable information about the latest market commentary, research reports about companies, daily status of International markets, a separate module for Internet trading, information about listed companies and brokers and sub-brokers of the Exchange and its subsidiary. The website also contains many useful links on portfolio management, investor education, frequently asked questions about various topics relating to Primary and Secondary Market, information about Mutual Funds, Financials of the Company including Quarterly Results, Share Prices, Profit and Loss Accounts, Balance Sheet and Many More. The website also contains daily Technical Charts of various scripts being traded in BSE and NSE<br />EDUCATIONAL INITIATIVES OF EXCHANGE<br />LSE has carved out its unique position among the Stock Exchanges of the country for the Knowledge Management. It has set up an Education and Training Cell and the same has emerged as a leading facility in various Financial Services in India. The Exchange has been conducting a unique certification programme in Capital Market in association with Centre for Industry Institute Partnership Programme Punjab University, Chandigarh for the last three year. This programme has widened the horizons of participants vis-à-vis Capital Market Operations as practical skill based knowledge is provided by Stock Brokers, Stock Exchange Officials, Professors of Finance and Business Management and above all Professionals working in different areas of Capital Market. We have completed series of batches of this programme and we now want to scale up this programme and are planning to launch various other programmes on areas relating to Securities Market. We have edge over others as far as Education and Training in Financial Services is concerned due to following factors: a. Directly connected with the Industry as Regional Stock Exchange. b. Connected with large base of Investors as they use the Stock Exchange as a Trading Platform for their liquidity needs c. Presence in the region of Punjab, Himachal Pradesh, Jammu & Kashmir and Chandigarh through our branches Network and the area being under the jurisdiction of our Exchange. d. Already running Certification programmes in Capital Market successfully. e. Continuously holding Investor Awareness Programmes for Investors & Investor Groups through association with Brokers, Sub-brokers, Colleges, Universities and Consumer Groups. <br />Chapter-2<br />Introduction to Capital Markets<br />Capital Markets<br />Introduction<br />Markets exist to facilitate the purchase and sale of goods and services. The financial market exists to facilitate sale and purchase of financial instruments and comprises of two major markets, namely the capital market and the money market. The distinction between capital market and money market is that capital market mainly deals in medium and long-term investments (maturity more than a year) while the money market deals in short term investments (maturity up to a year).<br />Capital market can be divided into two segments viz. primary and secondary. The primary market is mainly used by issuers for raising fresh capital from the investors by making initial public offers or rights issues or offers for sale of equity or debt. The secondary market provides liquidity to these instruments, through trading and settlement on the stock exchanges.<br />Capital market is, thus, important for raising funds for capital formation and investments and forms a very vital link for economic development of any country. The capital market provides a means for issuers to raise capital from investors (who have surplus money available from saving for investment). Thus, the savings normally flow from household sector to business or Government sector, which normally invest more than they save.<br />A vibrant and efficient capital market is the most important parameter for evaluating health of any economy.<br />Functions of the capital market<br />The major objectives of capital market are:<br />• To mobilize resources for investments.<br />• To facilitate buying and selling of securities.<br />• To facilitate the process of efficient price discovery.<br />• To facilitate settlement of transactions in accordance with the predetermined time<br />Schedules.<br />Investment Instruments<br />Investment is a deployment of funds in one or more types of assets that will be held over a period of time. Various forms of investment options are available to an investor. They cover bank deposits, term deposits, recurring deposits, company deposits, postal savings schemes, deposits with non-bank financial intermediaries, government and corporate bonds, life insurance and provident funds, equity shares, mutual funds, tangible assets like gold, silver and jewellery, real estate and work of arts, etc.<br />Capital market instruments can be broadly divided into two categories namely<br />• Debt, Equity and Hybrid instruments.<br />• Derivative Products like Futures, Options, Forward rate agreements and Swaps.<br />Debt: Instruments that are issued by the issuers for borrowing monies from the investors with a defined tenure and mutually agreed terms and conditions for payment of interest and repayment of principal.<br />Debt instruments are basically obligations undertaken by the issuer of the instrument as regards certain future cash flows representing interest and principal, which the issuer would pay to the legal owner of the instrument. Debt instruments are of various types. The key terms that distinguish one debt instrument from another are as follows:<br />• Issuer of the instrument<br />• Face value of the instrument<br />• Interest rate and payment terms<br />• Repayment terms (and therefore maturity period / tenor)<br />• Security or collateral provided by the issuer<br />Different kinds of money market instruments, which represent debt, are commercial papers (CP), certificates of deposit (CD), treasury bills (T-Bills), Govt. of India dated securities (GOISECs), etc.<br />Equity: Instruments that grant the investor a specified share of ownership of assets of a company and right to proportionate part of any dividend declared. Shares issued by a company represent the equity. The shares could generally be either ordinary shares or preference shares.<br />Major difference between Equity and Debt: Share represents the smallest unit of<br />Ownership of a company. If a company has issued 1, 00,000 shares, and a person owns 10of them, he owns 0.01% of the company. A debenture or a bond represents the smallest unit of lending. The bond or debenture holder gets an assured interest only for the period of holding and repayment of principal at the expiry thereof, while the shareholder is part-owner of the issuer company and has invested in its future, with a corresponding share in its profit or loss. The loss is, however, limited to the value of the shares owned by him.<br />Hybrids: Instruments that include features of both debt and equity, such as bonds with equity warrants e.g. convertible debentures and bonds.<br />Derivatives: Derivative is defined as a contract or instrument, whose value is derived from the underlying asset, as it has no independent value. Underlying asset can be securities, commodities, bullion, currency, etc. The two derivative products traded on the Indian stock exchanges are Futures and Options.<br />Futures (Index and Stock): Futures are the standardised contracts in terms of quantity, delivery time and place for settlement on a pre-determined date in future. It is a legally binding agreement between a seller and a buyer, which requires the seller to deliver to the buyer, a specified quantity of security at a specified time in the future, at a specified price. Such contracts are traded on the exchanges.<br />Options (Index and Stock): These are deferred delivery contracts that give the buyer the right, but not the obligation to buy or sell a specified security at a specified price on or before a specified future date. At present in India, both Futures and Options are cash settled.<br />Segments of capital market<br />The Capital Market consists of<br />A) Primary Market<br />B) Secondary Market<br />Primary Market: A market where the issuers access the prospective investors directly for funds required by them either for expansion or for meeting the working capital needs. This process is called disintermediation where the funds flow directly from investors to issuers.<br />The other alternative for issuers is to access the financial institutions and banks for funds. This process is called intermediation where the money flows from investors to banks/ financial institutions and then to issuers.<br />Primary market comprises of a market for new issues of shares and debentures, where investors apply directly to the issuer for allotment of shares/ debentures and pay application money to the issuer. Primary market is one where issuers contact directly to the public at large in search of capital and is distinguished from the secondary market, where investors buy/ sell listed shares / debentures on the stock exchange from / to new / existing investors.<br />Primary market helps public limited companies as well as Government organizations to issue their securities to the new / existing shareholders by making a public issue / rights issue. Issuer’s increase capital by expanding their capital base. This enables them to finance their growth plans or meet their working capital requirements, etc. After the public issue, the securities of the issuer are listed on a stock exchange(s) provided it complies with requirements prescribed by the stock exchange(s) in this regard. The securities, thereafter, become marketable. The issuers generally get their securities listed on one or more than one stock exchange. Listing of securities on more than one stock exchange enhances liquidity of the securities and results in increased volume of trading.<br />A formal public offer consists of an invitation to the public for subscription to the equity shares, preference shares or debentures has to be made by a company highlighting the details such as future prospects, financial viability and analyse the risk factors so that an investor can take an informed decision to make an investment. For this purpose, the company issues a prospectus in case of public issue and a letter of offer in case of rights issue, which is essentially made to its existing shareholders. This document is generally known as Offer document. It has the information about business of the company, promoters and business collaboration, management, the board of directors, cost of the project and the means of finance, status of the project, business prospects and profitability, the size of the issue, listing, tax benefits if any, and the names of underwriters and managers to the issue,<br />Etc.<br />The issuers are, thus, required to make adequate disclosures in the offer documents to enable the investors to decide about the investment.<br /> <br />Making public issue of securities is fraught with risk. There is always a possibility that the issue may not attract minimum subscription stipulated in the prospectus. The risk may be high or low depending upon promoters making the issue, the track record of the company, the size of the issue, the nature of project for which the issue is being made, the general economic conditions, etc. Issuers would like to free themselves of this worry and attend to their operations wholeheartedly if they could have someone else to worry on their behalf. For this purpose the companies approach underwriters who provide this service.<br />Normally, whenever an existing company comes out with a further issue of securities, the existing holders have the first right to subscribe to the issue in proportion to their existing holdings. Such an issue to the existing holders is called ‘Rights issue’. The price of the security before the entitlement of rights issue is known as the cum-rights price. The price after the entitlement of rights issue is known as the ex-rights price. The difference between the two is a measure of the market value of a right entitlement. An existing holder, besides subscribing to such an issue, can let his rights lapse, or renounce his rights in favour of another person (free, or for a consideration) by signing the renunciation form. <br />The companies declare dividends, interim as well as final, generally from the profits after the tax. The dividend is declared on the face value or par value of a share, and not on its market price. A company may choose to capitalize part of its reserves by issuing bonus shares to existing shareholders in proportion to their holdings, to convert the reserves into equity. The management of the company may do this by transferring some amount from the reserves account to the share capital account by a mere book entry. Bonus shares are issued free of cost and the number of shareholders remains the same. Their proportionate holdings do not change. After an issue of bonus shares, the price of a company’s share drops generally in proportion to the issue.<br />Activities in the Primary Market<br />1. Appointment of merchant bankers<br />2. Pricing of securities being issued<br />3. Communication/ Marketing of the issue<br />4. Information on credit risk<br />5. Making public issues<br />6. Collection of money<br />7. Minimum subscription<br />8. Listing on the stock exchange(s)<br />9. Allotment of securities in demat / physical mode<br />10. Record keeping<br />Secondary Market: <br /> In the secondary market the investors buy / sell securities through stock exchanges. Trading of securities on stock exchange results in exchange of money and securities between the investors.<br />Secondary market provides liquidity to the securities on the exchange(s) and this activity commences subsequent to the original issue. For example, having subscribed to the securities of a company, if one wishes to sell the same, it can be done through the secondary market.<br />Similarly one can also buy the securities of a company from the secondary market.<br />A stock exchange is the single most important institution in the secondary market for<br />Providing a platform to the investors for buying and selling of securities through its members. In other words, the stock exchange is the place where already issued securities of companies are bought and sold by investors. Thus, secondary market activity is different from the primary market in which the issuers issue securities directly to the investors. <br />Traditionally, a stock exchange has been an association of its members or stock brokers, formed for the purpose of facilitating the buying and selling of securities by the public and institutions at large and regulating its day to day operations. Of late however, stock exchanges in India now operate with due recognition from Securities and Exchange Board of India (SEBI) / the Government of India under the Securities Contracts (Regulation) Act, 1956.<br />The stock exchanges are either association of persons or are formed as companies. There are 24 recognized stock exchanges in India out of which one has not commenced its operations. Out of the 23 remaining stock exchanges, currently only on four stock exchanges, the trading volumes are recorded. Most of regional stock exchanges have formed subsidiary companies and obtained membership of Bombay Stock Exchange, (BSE) or National Stock Exchange (NSE) or both. Members of these stock exchanges are now working as sub-brokers of BSE / NSE brokers.<br />Securities listed on the stock exchange(s) have the following advantages:<br />• The stock exchange(s) provides a fair market place.<br />• It enhances liquidity.<br />• Their price is determined fairly.<br />• There is continuous reporting of their prices.<br />• Full information is available on the companies.<br />• Rights of investors are protected.<br />Stockbroker is a member of the stock exchange and is licensed to buy or sell securities for his own or on behalf of his clients. He charges a commission (brokerage) to the clients on the gross value of the transactions done by them. However, some of the stockbrokers, apart from buying and selling of securities for their clients for a commission, offer facilities such as safekeeping clients’ shares and bonds, offering investment advice, planning clients’ portfolio of investments, managing clients’ portfolio. There are experts who believe that by identifying and processing relevant information pertaining to financials of the companies quot;
correctlyquot;
and quickly (as compared to the market as whole), they can predict the share price movement faster than the market and thus outperform the market. Such experts are known as fundamental analysts. These experts use the fundamental approach to security valuation, for estimating the fundamental price (or fundamental price-earnings multiple) of a security.<br />Fundamental Analysis refers to scientific study of the basic factors, which determine a share’s value. The fundamental analyst studies the industry and the company’s sales, assets, liabilities, debt structure, earnings, products, market share; evaluates the company’s management, compares the company with its competitors, and then estimates the share’s intrinsic worth. The fundamental analysts’ tools are financial ratios arrived at by studying a company’s balance sheet and profit and loss account over a number of years. Fundamental analysis is more effective in fulfilling long-term growth objectives of shares, rather than their short-term price fluctuations.<br />Ratios of values obtained from a company’s financial statements are used to study its health and the price of its securities. The most important among these are current ratio, price earning (P/E) ratio, earnings to equity ratio, price-book value ratio, profit before tax to sales ratio, and quick ratio. Accounting figures, which help to arrive at these ratios, include book value, dividend, current yield, earning per share (EPS), volatility, etc.<br />Unlike the fundamental analysts, there are other experts who believe that largely the forces of demand and supply of securities determine the security prices, though the factors governing the demand and supply may themselves be both objective and subjective. They also believe that notwithstanding the day-to-day fluctuations, share prices move in a discernible pattern, and that these patterns last for long periods to be identified by them. Such analysts are called as ‘Technical Analysts’.<br />Technical analysis is a method of prediction of share price movement based on a study of price graphs or charts on the assumption that share price trends are repetitive, and that since investor psychology follows certain pattern, what is seen to have happened before is likely to be repeated. The technical analyst is not concerned with the fundamental strength or weakness of a company or an industry; he studies investor and price behaviour.<br />A stock market operator who expects share prices to fall in the immediate future and keeps selling (with the intention to pick up the shares later at a lower price for actual delivery), causing selling pressure and lowering the prices further is called a quot;
Bear”. The term is derived from the attacking posture of the bear, pushing downwards.<br />A stock market operator who expects share prices to rise and keeps buying (to sell the shares later at higher price), causing buying pressure and increasing the prices further is called a “Bull”. The term is derived from the attacking posture of the bull, pushing upwards.<br />Stag is a person who subscribes to a new issue with the primary objective of selling at profits no sooner than he gets the allotment.<br />Contract Note is a document given by the stockbroker to his clients giving particulars of the securities bought / sold, rate and date of transaction and the broker’s commission. The broker sends the contract note after executing the client’s order as an agreement. The contract note must be carefully preserved, as it is a primary documentary evidence of clients' transactions being executed by a member of a stock exchange. In case of any dispute between them, this can be used for the purpose of arbitration or filing claims / compensation against the member of the stock exchange who has executed the transaction. It also serves as evidence to the income tax authorities in verification of computations of short-term or long-term capital gains or losses.<br />Buying or selling of securities of a particular company with an expectation that the prices will increase or decrease in a span of short duration with an objective to generate income on account of such fluctuations in price is called “Speculation”. This is an activity in which a person assumes high risks, often without regard for the safety of his invested principal, to achieve capital gains in a short time. Investing in securities with the intention of holding them for long term for realizing appreciation in the value of the securities should be the aim of the investors who wish to derive benefits from holding investments for long term.<br />Arbitrage means buying shares on one stock exchange at a lower rate and selling the same on other stock exchange at a higher rate.<br />Activities in the Secondary Market<br />1. Trading of securities<br />2. Risk management<br />3. Clearing and settlement of trades<br />4. Delivery of securities and funds<br />Major entities involved in the capital market:<br />ENTITIES<br />,[object Object]](https://image.slidesharecdn.com/depositoryproject-110725014241-phpapp02/85/depository-project-for-ludhiana-stock-exchange-ptu-punjab-technical-university-by-hiresh-ahluwalia-1-320.jpg)
