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

9. 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

10. 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.

11. 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.

12. 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.

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

14. 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.
Money Market
Organised Money Market Unorganised Money Market
UNORGANISED SECTOR
1. Indigenous banks
2 Money lenders
3. Chits
4. Nidhis

15. Organised Money Market
1. Reserve bank of India.
2. DFHI (discount and finance house of India).
3. 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.

16. History of Banking In
India
 Before independence
 After independence
 Nationalization
 Liberalization

17. 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 (1st Commercial Bank by British)
1881 – Oudh Commercial Bank (1st Commercial Bank of India with limited liability)
1894 – Punjab National Bank (1st Commercial Bank fully operated by Indian)
History of Banking In
India

18. 1905 Partition of Bengal
1906 – Bank of India
1906 – Canara Bank
1907 – Indian Bank
1908 – Bank of Baroda
1911 – Central Bank Of India ( 1st Swadheshi Bank of India) Investment and
Operations are Indian
1914 – 1918 1st World War

19. 1919 – International Money Conference
Took Self Financial Institution decision to financial control
27/01/1921 – IMPERIAL BANK OF INDIA established in Mumbai
by Imperial Bank of India Act of 1920.
Bank of Bengal
Bank of Bombay
Bank of Madrass

20. •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.

21.  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 1st bank to be Nationalized in 1949
 It has 22 regional offices, most of them in state capitals
Reserve Bank of India

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

23.  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

24.  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

25. 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

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

28. 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

29. 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

30. 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

31. 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.

32. 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

33. 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

34. 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)

35.  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

36. 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.

37. • 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.

38. Unorganised Money Market
 Indigenous Banks
 Money lenders
 Unregulated Intermediaries

39. 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

40. • 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

41. Unregulated Intermediaries
A) 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

42. Money Market
Call
Money
Market
T-bills
Market
Bankers
Acceptan
ce
C- Bills
Market
CP
Market
CD
Market
Repo
Market
COMPONENTS / SUB MARKETS OF MONEY
MARKET

43. 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.

44. 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

45. 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.

46. 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.

47. 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.

48. 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.

49. 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.

50. 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.

51. 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

52. 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.

53. • 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.

54. 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.

55. Role Of Capital Market
1. 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.

56. 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.

57. 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

58. Basic Capital Market Instruments

59. 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.

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

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

62. 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.

63. Types Of Preference Share

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

65. Limitations Of Preference Shares
From Investor ’s point of view
• Not secured
• Not an attractive investment
• No right to participate in the management

66. • 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

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

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

69. LIMITATION OF DEBENTURES
• Fixed rate on interest
• Companies may have to mortgage their assets
• Not an attractive investment from company’s point of
view.

70. 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.

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

72. 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.

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

74. 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.

75. 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

76. 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.

77. 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.

78. 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

79. Various Methods Of Float Capital
IPO (Initial Public Offer)
FPO (Further Public Offer)
NFO (New Fund Offer)
Right Issue
Private Placement
Bonus Issue
Buyback

80. • 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 (

81. • 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).

82. 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

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

84. 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.

86. 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).

87. 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.

88. • 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

89. • 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)

90. 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.

91. 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.

92. • 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.

94. Advantages of IPO
• The financial benefit in the form of raising capital
• Increased public awareness of the company because
IPOs often generate publicity by making their products
known to a new group of potential customers.
• An increase in market share for the company.

95. 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.

96. 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.

97. 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.

98. 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.

99. 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.

100. 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.

101. 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.

102. 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.

103. • 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.

104. 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.

105. 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.

106. 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.

107. 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.

108. 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.

109. 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.

110. Secondary Market-Stock exchange

111. 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.

112. '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.

113. 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.

114. 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

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

116. 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

117. NSE & BSE

119. 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 ]

120.  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

121. 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

122. • 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

123. 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

124. 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

125. 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.

126. (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.

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

128. • Raising capital for businesses
• Mobilizing savings for investment
• Facilitating company growth
• Profit sharing
• Corporate governance
• indicator of the economy

129. 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)

130. 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

131. Eligibility Criteria for Listing
IPOs by Companies
1. 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
2. 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.
3. At least three years track record.

132. 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.

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

135. 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.

136. • 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.

137. 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

138. 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)

139. • 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)