Primary market

1. Primary Market

2. Securities Market In India
Securities market
in India
Equity Market Debt Market Derivatives Market
Primary
Equity market
Secondary
Equity Market
Govt. securities
Market
Corporate debt market
Money market
Futures Market
Options Market

3. PRIMARY MARKET
• Primary market is also known as new issue
market.
• In Primary market, shares are offered to
general public by a company or to its existing
shareholders.
• Stocks available for the first time are offered
through Primary Market.
• The issuer may be a new or an existing
company

5. Ways to issue Equity capital in Primary
Market
1. Public Issue
 Fixed Method
 Book-Building Method (Price Band)
2. Rights Issue
3. Preferential Allotment
4. Private Placement

6. Initial Public Offer

7. Intermediaries
• Lead Managers
• Bankers to the issue
• Registrars and share transfer agents
• Underwriters
• Stock-brokers and sub-brokers
• Depositaries

8. Factors to be Considered
DIP Guidelines

9. DIP Guidelines
• The primary issuances are governed by SEBI in terms of SEBI
(Disclosures and Investor protection) guidelines.
• SEBI framed its DIP guidelines in 1992.
• In 2000, SEBI issued “Securities and Exchange Board of India
(Disclosure and Investor Protection) Guidelines, 2000” which
is compilation of all circulars organized in chapter forms.
• SEBI (Disclosure and investor protection) guidelines 2000 are
in short called DIP guidelines.
• It provides a comprehensive framework for issuances by the
companies.

10. Eligibility Norms
• SEBI has laid down eligibility norms for entities accessing the
primary market through public issues.
• There is no eligibility norm for a listed company making a
rights issue as it is an offer made to the existing shareholders
who are expected to know their company.
• There are no eligibility norms for a listed company making a
preferential issue.
• However for Qualified Institutions’ placement (QIP), only
those companies whose shares are listed in NSE or BSE and
those who are having a minimum public float as required in
terms of the Listing agreement, are eligible.

11. Continued…
• Entry Norm I (EN I): The company shall meet the following
requirements:
(a) The company has net tangible assets of at least Rs. 3 crores in
each of the preceding 3 full years (of 12 months each), of which
not more than 50% is held in monetary assets.
(b) The company has a track record of distributable profits for at
least three out of immediately preceding five years;
(c) Net worth of at least Rs. 1 crore in each of the preceding
three full years ,

12. Continued…
(d) If change in name, at least 50% revenue for preceding 1 year
should be from the new activity.
(e) The aggregate of the proposed issue and all previous issues
made in the same financial year should not exceed 5 times the
pre- issue net worth.

13. Continued…
• To provide sufficient flexibility and also to ensure that genuine
companies do not suffer on account of rigidity of the
parameters, SEBI has provided two other alternative routes to
company not satisfying any of the above conditions, for
accessing the primary Market, as under:

14. Continued….
• Entry Norm II (EN II):
(a) Issue shall be through book building route, with at least 50%
of net public offer to be mandatory allotted to the Qualified
Institutional Buyers (QIBs).
(b) The minimum post-issue face value capital shall be Rs. 10
crore or there shall be a compulsory market-making for at least 2
years

15. Continued…
OR
• Entry Norm III (EN III):
(a) The “project” is appraised and participated to the extent of
15% by Commercial Banks of which at least 10% comes from the
appraiser(s).
(b) The minimum post-issue face value capital shall be Rs. 10
crore or there shall be a compulsory market-making for at least 2
years.
In addition to satisfying the aforesaid eligibility norms, the
company shall also satisfy the criteria of having at least 1000
prospective allotees in its issue.

16. Exemption from Eligibility Norms
a) Private Sector Banks
(b) Public sector banks
(c) An infrastructure company whose project has been appraised
by a PFI (Public Financial Institution) or IDFC (Infrastructure
Development Finance Corporation) or IL&FS (Infrastructure
Leasing and Financing Services Ltd.) and or a bank which was
earlier a PFI and not less than 5% of the project cost is financed
by any of these institutions.
(d) Rights issue by a listed company

17. SEBI’s Role in an Issue
• Any company making a public issue or a listed company
making a rights issue of value of more than Rs 50 lakhs is
required to file a draft offer document with SEBI for its
observations.
• The validity period of SEBI’s observation letter is three months
only i.e the company has to open its issue within three
months period.
• There is no requirement of filing any offer document / notice
to SEBI in case of preferential allotment and QIP.
• In QIP, Merchant Banker handling the issue has to file copy of
placement document with SEBI post allotment for record
purpose.

18. Red Herring Prospectus
• A red herring prospectus does not have details of either price
or the no. of shares being offered or the amount of issue.
• This type of prospectus is adopted in the book building route.
• However this prospectus mentions the upper and lower price
bands.
• It should be filed with the registrar of companies at least
three days before the opening of the offer.
• It should also be filed with SEBI.
• It is called red herring prospectus because it contains a
passage in red that states the company is not attempting to
sell its shares before the registration is approved by SEBI.

19. Escrow Account
• An escrow account is a designated account, the funds in
which can be utilized only for a specified purpose. In other
words, the bankers to the issue keep the funds in the escrow
account on behalf of the bidders.
• These funds are not available to the company till the issue is
completed and allocation is made.

20. IPO Grading
• SEBI has made IPO grading mandatory from 1st may 2007.
• But, in December, 2013 SEBI has made it optional.
• IPO grading is the grade assigned by a Credit Rating Agency
(CRAs) registered with SEBI, to the initial public offering (IPO)
of equity shares.
• The grade represents a relative assessment of the
fundamentals of that issue in relation to the other listed
equity securities in India.
• The IPO grade assigned is the outcome of a detailed
evaluation of qualitative and quantitative factors of the
concerned company.

21. Continued…
• Such grading is generally assigned on a five‐point scale with a
higher score indicating stronger fundamentals and vice versa
as below.
 IPO grade 1 ‐ Poor fundamentals
 IPO grade 2 ‐ Below‐Average fundamentals
 IPO grade 3 ‐ Average fundamentals
 IPO grade 4 ‐ Above‐average fundamentals
 IPO grade 5 ‐ Strong fundamentals

22. Continued…
• IPO grading has been introduced as an endeavour to make
additional information available for the investors in order to
facilitate their assessment of equity issues offered through an
IPO.
• Any issuer who decides to offer shares through an IPO, is
required to obtain a grade for the IPO from at least one Credit
Rating Agency.

23. Continued…
• IPO grade/s cannot be rejected. Irrespective of whether the
issuer finds the grade given by the rating agency acceptable or
not, the grade has to be disclosed as required under the DIP
Guidelines.
• However the issuer has the option of opting for another
grading by a different agency.
• In such an event all grades obtained for the IPO will have to
be disclosed in the offer documents, advertisements etc.

24. The Grading Process
• The issuer company sends a formal request to the grading
agency.
• The agency seeks information on the company’s existing
operations as well as the proposed projects through a
questionnaire.
• Site visits and discussions with the key operating personnel of
the company concerned are conducted by the rating agency.
• Apart from the officials of the company, the agency also
meets its bankers, auditors, merchant bankers and appraising
authority (if any). If needed, the opinion of independent
expert agencies on critical issues like, the technology
proposed to be used is also obtained.

25. Continued…
• Analysts of the agency present a detailed grading report to
the rating committee, which then assigns the grade.
• Usually, the assignment of grade takes three to four weeks
after all the necessary information has been provided to ICRA.
• The issuer company is required to disclose the assigned grade
and also publish it in the red herring prospectus, which is filed
with the SEBI.

26. Grading Methodology
1.Business Prospects and Competitive Position
• Industry Prospects
• Company Prospects
2.Financial Position
3. Management Quality
4. Corporate Governance Practices
5. Compliance and Litigation History
6. New Projects—Risks and Prospects

27. IPO Grading (DIP Guidelines)
No unlisted company shall make an IPO of equity shares or any
other security which may be converted into or exchanged with
equity shares at a later date, unless the following conditions are
satisfied as on the date of filing of Prospectus (in case of fixed
price issue) or Red Herring Prospectus (in case of book built
issue) with ROC:
(i) the unlisted company has obtained grading for the IPO from at
least one credit rating agency;

28. Continued…
(ii) disclosures of all the grades obtained, along with the
rationale/ description furnished by the credit rating agency(ies)
for each of the grades obtained, have been made in the
Prospectus (in case of fixed price issue) or Red Herring
Prospectus (in case of book built issue);and
(iii) the expenses incurred for grading IPO have been borne by
the unlisted company obtaining grading for IPO.

29. Lock-in
• “Lock-in” indicates a freeze on the shares. SEBI (DIP)
Guidelines have stipulated lock-in requirements on shares of
promoters mainly to ensure that the promoters or main
persons who are controlling the company, shall continue to
hold some minimum percentage in the company after the
public issue.
• There is lock-in on the shares held before IPO and also on
shares acquired through preferential allotment route.
• However there is no lock- in on shares/ securities allotted
through QIP route.

30. Promoter’s Contribution
• In case of Public issue by Unlisted company
• In case of offer for sale
• In case of public issues by listed companies
• In case of composite issues by listed companies
• Promoter’ s contribution should be brought in at least one
day prior to the issue opening date

31. Promoter’s Contribution
• Promoters’ Contribution in a Public Issue by Unlisted
Companies: In a public issue by an unlisted company, the
promoters shall contribute not less than 20% of the post issue
capital.
• Promoters’ Shareholding in Case of Offers for Sale: The
promoters’ shareholding after offer for sale shall not be less
than 20% of the post issue capital.
• Promoters’ Contribution in Case of Public Issues by Listed
Companies: the promoters shall participate either to the
extent of 20% of the proposed issue or to ensure post-issue
share holding to the extent of 20% of the post-issue capital.

32. Continued…
• Promoters’ Contribution in Case of Composite Issues by Listed
companies: In case of composite issues of a listed company,
the promoters’ contribution shall at the option of the
promoter(s) be either 20% of the proposed public issue or
20% of the post-issue capital. Rights issue component of the
composite issue shall be excluded while calculating the post-
issue capital.

33. Continued…
• Promoters’ Contribution to be brought in before Public Issue
Opens: Promoters shall bring in the full amount of the
promoters’ contribution including premium at least one day
prior to the issue opening date, which shall be kept in an
escrow account with a Scheduled Commercial Bank and the
said contribution/ amount shall be released to the company
along with the public issue proceeds. However, where the
promoters’ contribution has been brought prior to the public
issue and has already been deployed by the company, the
company should disclose the use of such funds in the cash
flow statement of the offer document.

34. Exemption from Requirement of
Promoters’ Contribution
• The requirement of promoters’ contribution
shall not be applicable:
(a) In case of public issue of securities by a company which
has been listed on a stock exchange for at least 3 years and
has a track record of dividend payment for at least 3
immediately preceding years.
(b) in case of companies where no identifiable promoter or
promoter group exists.
(c) in case of rights issues.

35. Lock-in requirements
• In case of any issue of capital to the public the
minimum promoters’ contribution shall be
locked in for a period of 3 years.
• If the promoters’ contribution in the proposed
issue exceeds the required minimum
contribution, such excess contribution shall
also be locked in for a period of one year.

36. Lock-in requirements
• In case of any issue of capital to the public the minimum
promoters’ contribution shall be locked in for a period of 3
years.
• The lock-in shall start from the date of allotment in the
proposed public issue and the last date of the lock-in shall be
reckoned as three years from the date of commencement of
commercial production or the date of allotment in the public
issue whichever is later.

37. Continued…
• The expression "Date of commencement of commercial
production“ means the last date of the month in which
commercial production in a manufacturing company is
expected to commence as stated in the offer document.

38. Continued…
• Lock-in of Excess Promoters’ Contribution:
In case of a public issue by unlisted company, if the promoters’
contribution in the proposed issue exceeds the required
minimum contribution, such excess contribution shall also be
locked in for a period of one year.
In case of a public issue by a listed company, participation by
promoters in the proposed public issue in excess of the required
minimum percentage shall also be locked-in for a period of one
year as per the lock-in provisions as specified in Guidelines on
Preferential issue.

39. Continued…
• Lock-in of pre-issue share capital of an unlisted company:
The entire pre-issue capital, other than that locked-in as
minimum promoters’ contribution, shall be locked-in for a period
of one year from the date of allotment in the proposed public
issue. Provided that where shares held by promoter(s) are lent to
the SA under clause 8A.7, they shall be exempted from the lock
in requirements specified above for the period starting from the
date of such lending and ending on the date on which they are
returned to the same lender(s) under clause 8A.13 or under
clause 8A.15, as the case may be.

40. Continued…
• Lock-in of securities issued on firm allotment basis:
Securities issued on firm allotment basis shall be locked-in for a
period of one year from the date of commencement of
commercial production or the date of allotment in the public
issue, whichever is later.

41. OTHER REQUIREMENTS IN RESPECT OF
LOCK-IN
• Pledge of Securities Forming Part of Promoters Contribution
• Inter-se Transfer of Securities Amongst Promoters
• Inscription of Non-Transferability

42. Green shoe option
• Legally called over allotment option.
• a provision contained in an underwriting agreement which
gives the underwriter the right to sell investors more shares
than originally planned by the issuer.
• This would normally be done if the demand for a security
issue proves higher than expected.
• The term comes from the first company, Green shoe
manufacturing, to permit underwriters to use this practice in
its offering.
• The green shoe option can be a maximum of 15% of the
public offer.

43. Continued…
(a) An issuer company making a public offer of equity shares can
avail of the Green Shoe Option (GSO) for stabilizing the post
listing price of its shares, subject to the provisions of SEBI
guidelines.
(b) A company desirous of availing the option granted by SEBI,
shall in the resolution of the general meeting authorizing the
public issue, seek authorization also for the possibility of
allotment of further shares to the ‘stabilizing agent’ (SA) at the
end of the stabilization period.

44. Continued…
• The company shall appoint one of the merchant bankers or
Book Runners, as the case may be, from amongst the issue
management team, as the “stabilizing agent” (SA), who will be
responsible for the price stabilization process, if required.
• The SA shall enter into an agreement with the issuer
company, prior to filing of offer document with SEBI, clearly
stating all the terms and conditions relating to this option
including fees charged / expenses to be incurred by SA for this
purpose.

45. Continued…
• The SA shall also enter into an agreement with the
promoter(s) or pre issue shareholders who will lend their
shares, specifying the maximum number of shares that may
be borrowed from the promoters or the shareholders, which
shall not be in excess of 15% of the total issue size.
• The details of the agreements shall be disclosed in the draft
prospectus, Red Herring prospectus and the final prospectus.

46. Continued…
• Lead merchant banker or the Lead Book Runner, in
consultation with the SA, shall determine the amount of
shares to be over allotted with the public issue within the
ceiling specified i.e. 15% of the issue size.
• Over-allotment refers to an allocation of shares in excess of
the size of the public issue made by the SA out of shares
borrowed from promoters in pursuance of a GSO exercised by
the issuing company.

47. Continued…
• The draft prospectus, the Red Herring prospectus and the
final prospectus shall contain the following additional
disclosures:
a. Name of the SA
b. The maximum number of shares proposed to be over-allotted
by the company.
c. The period, for which the company proposes to avail of the
stabilization mechanism,

48. Continued…
d. The maximum amount of funds to be received by the
company in case of further allotment and the use of these
additional funds, in final document to be filed with ROCs.
e. Details of the agreement entered in to by SA with the
promoters to borrow shares from the latter which inter-alia shall
include name of the promoters, their existing shareholding,
number & percentage of shares to be lent by them and other
important terms and conditions including the rights and
obligations of each party.

49. Continued…
f. The final prospectus shall additionally disclose the exact
number of shares to be allotted pursuant to the public issue,
stating separately therein the number of shares to be borrowed
from the promoters and over allotted by the SA, and the
percentage of such shares in relation to the total issue size.

50. Continued…
• The SA shall borrow shares from the promoters to the extent
of the proposed over-allotment.
• They should be in dematerialized form only and their
allocation should be pro rata to all the applicants.
• The stabilization mechanism shall be available for the period
disclosed by the company in the prospectus, which shall not
exceed 30 days from the date when trading permission was
given by the exchange(s).

51. Continued…
• The money received from the applicants against the
overallotment in the green shoe option shall be kept in the
GSO Bank Account, distinct from the issue account and shall
be used for the purpose of buying shares from the market,
during the stabilization period.
• The shares bought from the market by the SA, if any during
the stabilization period, shall be credited to the GSO Demat
Account.

52. Continued…
• The shares bought from the market and lying in the GSO
Demat Account shall be returned to the promoters
immediately, in any case not later than 2 working days after
the close of the stabilization period.
• The prime responsibility of the SA shall be to stabilize post
listing price of the shares.
• To this end, the SA shall determine the timing of buying the
shares, the quantity to be bought, the price at which the
shares are to be bought etc.

53. Continued…
• On expiry of the stabilization period, in case the SA does not
buy shares to the extent of shares over-allotted by the
company from the market, the issuer company shall allot
shares to the extent of the shortfall in dematerialized form to
the GSO Demat Account, within five days of the closure of the
stabilization period.
• These shares shall be returned to the promoters by the SA in
lieu of the shares borrowed from them and the GSO Demat
Account shall be closed thereafter.
• The company shall make a final listing application in respect of
these shares to all the Exchanges where the shares allotted in
the public issue are listed.

54. Continued…
• The SA shall remit the issue price to the issuer company from
the GSO Bank Account.
• The amount left in this account, if any, after this remittance
and deduction of expenses incurred by the SA for the
stabilization mechanism, shall be transferred to the investor
protection fund(s) of the stock exchange(s) where the shares
of issuer company are listed, in equal parts if the shares are
listed in more than one exchanges.
• The GSO Bank Account shall be closed soon thereafter.

55. Continued…
• The SA shall submit a report to the stock exchange(s) on a
daily basis during the stabilization period.
• The SA shall also submit a final report to SEBI in the format
specified in Schedule XXIX.
• This report shall be signed by the SA and the company and
accompanied with a depository statement for the “GSO
Demat Account” for the stabilization period, indicating the
flow of the shares into and from the account.
• The report shall also be accompanied by an undertaking given
by the SA and countersigned by the depository(ies) regarding
confirmation of lock-in shares returned to the promoters in
lieu of the shares borrowed from them for the purpose of the
stabilization, as per the requirement specified.

56. Continued…
• The SA shall maintain a register in respect of each issue
having the green shoe option in which he acts as a SA. The
register shall contain the following details of:
(a) each transaction effected in the course of the stabilizing
action, the price, date and time
(b) the details of the promoters from whom the shares are
borrowed and the number of shares borrowed from each; and
details of allotments made
• The register must be retained for a period of at least three
years from the date of the end of the stabilizing period.”

57. IDR and DIP guidelines
• Covered through Presentation in class

58. ASBA
• The SEBI has introduced ASBA facility from Sep. 2008 onwards.
• ASBA provides an alternative mode of payment in issues whereby
the application money remains in the investor's account till
finalization of basis of allotment in the issue.
• Investors can apply with ASBA route through Self certified
syndicate banks (SCSBs) only.
• SCSBs are those banks which satisfy the conditions laid by SEBI.

59. Book Building
• Book building is a price discovery method. In this method, a
company does not fix up a particular price for the shares, but
instead gives a price range.
• As per the SEBI guidelines, an issue company can issue
securities through either 100% of the net offer to the public
through the book building route or 75% through book building
process and remaining 25% through the fixed price method.

60. Pricing Band
• In book building method, the company gives a price band,
e.g., 80-110.
• The lowest price is known as the floor price and the highest
price is known as the cap price.
• When bidding for shares, investors have to decide at which
price they would like to bid for the shares.
• They can bid for shares at any price within this range.
• The price at which the shares are allotted is known as cut-off
price.

61. The Process
• The issuer appoints a lead merchant banker as a book runner
by the issuer.
• The issuer decides the price band for the issue and the no. of
securities to be issued.
• A draft prospectus (Red Herring Prospectus) is submitted to
the SEBI and circulated among all investors.
• Investors place their orders.
• Book-runner builds a record known as the Book.
• A book should remain open for a minimum of three working
days.

62. Continued…
• An investor can alter his bid, both price and quantity, anytime
before the close of the issue.
• Syndicate members aggregate and forward all offers to the
book runner.
• After consulting the issuer, the book runner determines the
issue price as a weighted average of the offers received.
• Securities are allotted to the successful bidders.

63. How does Book Building work?
• The applicants bid for the shares quoting the price and the
quantity that they would like to bid at.
• Only the retail investors have the option of bidding at ‘cut-off’.
• After the bidding process is complete, the ‘cut-off’ price is
arrived at on the lines of Dutch auction. The basis of
Allotment is then finalized and letters allotment/refund is
undertaken.
• The final prospectus with all the details including the final
issue price and the issue size is filed with ROC, thus
completing the issue process.

64. Settlement and Allotment
• After the closure of the issue, the bids received are
aggregated under different categories i.e., firm allotment,
Qualified Institutional Buyers (QIBs), Non-Institutional Buyers
(NIBs), Retail, etc.
• The oversubscription ratios are then calculated for each of the
categories as against the shares reserved for each of the
categories in the offer document.
• Within each of these categories, the bids are then segregated
into different buckets based on the number of shares applied
for.

65. Continued…
• The oversubscription ratio is then applied to the number of
shares applied for and the number of shares to be allotted for
applicants in each of the buckets is determined.
• Then, the number of successful allotees is determined. This
process is followed in case of proportionate allotment.
• In case of allotment for QIBs, it is subject to the discretion of
the post issue lead manager.

66. Continued…
QIBs : Retail Investors : Non-Institutional Investors
50% : 35% : 15%

67. Dutch Auction/Option
• Under Dutch Auction method, investor have to bid within the
price band fixed by the issuing company.
• Finally shares would be allotted proportionately at a uniform
price (cut-off rate) to the allotees.

68. French Auction/Option
• The Govt. has decided to adopt French auction method for
public offers of PSUs.
• Under this route there will be no upper limit to bid price and
the highest bidder will secure the largest share of allotments.
• Allotment takes place on Price-priority basis and that too on
differential prices.
• Higher is the bid, higher would be the allocation.

69. Firm allotment
• A company making an issue to the public can reserve some
shares on allotment on firm basis for some categories as
specified in DIP guidelines.
• 5% firm allotment is maximum in 100% Book building.

70. Listing
• From hand written notes

71. Reverse Book Building (Delisting of
shares)
• The Reverse Book Building is a mechanism provided for
capturing the sell orders on online basis from the share
holders through respective Book Running Lead Managers
(BRLMs) which can be used by companies intending to
delist its shares through buy back process.
• In the Reverse Book Building scenario, the
Acquirer/Company offers to buy back shares from the share
holders. The Reverse Book Building is basically a process
used for efficient price discovery.
• It is a mechanism where, during the period for which the
Reverse Book Building is open, offers are collected from the
share holders at various prices, which are above or equal to
the floor price. The buy back price is determined after the
offer closing date

72. Secondary Market
• Origin of stock market in India goes back to the end of the 18th
century, when long-term negotiable securities were first issued.
• The real beginning occurred in the middle of the 19th century.
• In 1875, BSE came into existence.
• Later on, in free India, the securities contract regulation act, 1956
was passed. The act gave permanent recognition to BSE in 1957.
• In 1992, SEBI was set up to regulate the stock exchanges and stock
trading.
• In 1993, badla system was banned.
• The most important developments in the Indian stock market was
the establishment of the NSE in 1994.
• NSE is ring less, national and computerized exchange.
• Due to threat of NSE in 1994, BSE switched from open outcry
system to screen based system in 1995.

73. • In 1996, NSCCL came into existence.
• In 2000, derivative trading in the form of index futures index
options was introduced.
• In 2003, interest rate derivatives were introduced.

74. How securities are traded?
• Each stock exchange has certain listed
securities and permitted securities which are
traded on it.
• Members of the exchange alone are entitled
to the trading privileges.
• Investors interested in buying or selling
securities should place their orders with the
members or brokers of the exchange.

75. Ways to Organize trading activity:
• Open Outcry System: Under this system traders
shout and resort to signals on the trading floor
of the exchange. Which consists of several
notional trading posts for different securities.
 A member or his representative wishing to buy or sell a
certain security reaches the trading post where the
security is traded.
 Here, he comes in contact with others interested in
transacting in that security.
 Buyers make their bids and sellers make their offers
and bargains are closed at mutually agreed upon
prices.

76. Continued…
• Screen-based system: In this system, trading ring
is replaced by the computer screen and distant
participants can trade with each other through
the computer network
• A large no. of participants, geographically
separated, can trade simultaneously at high
speeds.
• The kind of screen based trading system adopted
in India is referred to as the open electronic limit
order book (ELOB) market system.

77. Key Features of ELOB
 Buyers and sellers place their orders on the computer. These
orders may be limit orders or market orders.
 The computer constantly tries to match mutually compatible
orders. The matching is done on a price-time priority,
implying that price is given preference over time in the
process of matching.
 A buy order at a higher limit price is accorded precedence
over a buy order at a lower limit price. Between two limit
orders placed at the same price, the limit order placed
earlier is accorded priority over the limit order placed later.
 The limit order book, i.e. the list of unmatched limit orders is
displayed on the screen. Put differently, it is open for
inspection to all traders.

78. Types of orders
• Market order
• Limit order
• Stop-loss market order
• Stop-loss limit order
• Good till cancelled order
• Day order
• Good till date order
• Immediate or cancer order

79. Types of orders
1. Market Order: buy or sell order to be executed
immediately at the best prevailing market price. A
market order to sell will be executed at the highest
bid price whereas a market order to buy will be
executed at the lowest ask price.
E.g. An investor calls his broker and ask for the market
price of Reliance. The broker reports that the best bid
price is Rs.100 and the best ask price is Rs.105, that
means if the investor wants to buy the shares then
he would have to buy for Rs.105 and if he wants to
sell then he would have to sell it for Rs. 100.

80. 2. Limit order: A limit order pre-specifies the
price limit, investors specifies the price at
which they are willing to buy or sell.
E.g. a limit order to buy at a price of Rs. 50
means that a trader want to buy at a price not
more than Rs. 50 and a limit order to sell at a
price of Rs.70 means that a trader wants to
sell at a price not less than Rs. 70.

81. • Stop Loss order: stock is sold when its price
falls below a limit.

83. Settlement
• Rolling Settlement
In a rolling settlement, for all trades executed
on trading day .i.e. day the obligations are
determined on the T+1 day and settlement on
T+2 basis i.e. on the 2nd working day. For
arriving at the settlement day all intervening
holidays, which include bank holidays, NSE
holidays, Saturdays and Sundays are
excluded.

84. Activity Day
Trading Rolling settlement trading T
Clearing Custodial confirmation and
delivery generation
T+1 working days
Settlement Securities and funds pay-in T+2
Securities and funds pay-out T+2

85. Transaction Costs
• Trading Costs
1.) Brokerage cost: is paid to the broker
2.) Market impact cost: difference between the actual
transaction price and the ideal price ( average of the best bid
price and the ask price).
e.g. if the best buy and best sell price for the stock are Rs. 49.50
and Rs. 50.50 respectively. The ideal price is Rs. 50. Thus a
person who wants to buy immediately has to pay Rs. 50.50,
suffering a buy-side market impact cost of Rs. 0.50.
3.) Securities transaction tax (STT): is paid on securities
transactions, by buyer and seller both. In intra-day on selling
transactions only.

86. Continued…
4. Exchange transaction charges
5. Service tax on brokerage and ETC
6. Stamp duty
7. SEBI charges.

87. Buying and selling shares
• Procedure for buying shares:
1. Locating a broker
2. Placement of order
3. Execution of order
• Procedure for selling shares:
1. Placement of order
2. Execution of order

88. Essentials of Online share trading
• Online Stock Trading is a recent way of buying and selling
stocks.
• To get started one needs three accounts
• Savings Account
• Demat Account
• Trading Account

89. Buy Cycle and Account Transactions
Trading Account
Demat
Account
Bank Account
Money from
bank Account
to trading
Account
Shares moving
from trading
account to Demat
Account

90. Capital Market- Participants
• Brokers
• Depositories (NSDL, CDSL)
• Retail Investors
• Institutional Investors

91. Market Wide circuit breakers
• Written notes

92. Mobile trading and Algo trading
• Written notes

93. Margin Requirement
• Types of Margin in Equity Market
1. VaR based margin
2. Extreme Loss Margin
3. Mark-to-mark margin
• Types of Margin in Futures market
1. SPAN
2. Exposure Margin
3. Mark-to mark

94. Operation of Margins For a long Position in two
Gold Futures contracts
• For example, An investor takes a long position in 2 December
gold futures contracts on June 5
contract size is 100 ounce.
futures price is US$1250
initial margin requirement is US$6,000/contract
(US$12,000 in total)
maintenance margin is US$4,500/contract (US$9,000 in
total)
It is assumed that excess money is not withdrawn

95. Day Trade
Price ($)
Settlement
Price ($)
Daily
gain
($)
Cumulative
gain ($)
Margin Account
balance ($)
Margin
call ($)
1 1,250 12,000
2 1241 -1800 -1800 10,200
3 1238.30 -540 -2340 9,660
4 1244.60 1260 -1080 10,920
5 1241.30 -660 -1740 10,260
6 1240.10 -240 -1980 10,020
7 1236.20 -780 -2760 9,240
8 1229.90 -1260 -4020 7,980 4,020
9 1230.80 180 -3840 12,180
10 1225.40 -1080 -4920 11,100
11 1228.10 540 -4380 11,640
12 1211 -3420 -7800 8,220 3,780
13 1226.90 3,180 4,620 15,180

96. Market Indices
• Written notes