Stock Market Operations

Interdisciplinary Course
 Module-I
Introduction to Stock Market
• Primary Market An overview of Indian Securities
Market, Meaning, Functions, Intermediaries -
Role of Primary Market –New Issues Market –
IPO’s –Investor protection in primary market –
Recent trends in primary market –SEBI measures
for primary market. Current status of Indian
securities market –perspective on market
growth and technology SBA 1 : To familiarize the
stock market operations.
 Outcome of Module-I
Introduction to Primary Market
Meaning of Primary Market
Definition of Primary Market
Nature/ Features/Characteristics of Primary Market
Functions of Primary Market
Types of issue in Primary Market
Intermediaries involved in Primary Market
Importance of Primary Market
SEBI Guidelines towards Primary Market
Advantages and disadvantages of Primary Market
 INDIAN FINANCIAL MARKET
You are fully aware that business units have to raise short-term
as well as long-term funds to meet their working and fixed
capital requirements from time to time. This necessitates not
only the ready availability of such funds but also a
transmission mechanism with the help of which the providers
of funds (investors/ lenders) can interact with the
borrowers/users (business units) and transfer the funds to
them as and when required. This aspect is taken care of by the
financial markets which provide a place where or a system
through which, the transfer of funds by investors/lenders to
the business units is adequately facilitated.
SYSTEM OF FINANCIAL MARKET
FINANCIAL MARKET PRIMARY MARKET SECONDARY MARKET

MONEY CAPITAL
MARKET MARKET
 FINANCIAL MARKET
We know that, money always flows from surplus
sector to deficit sector. That means persons
having excess of money lend it to those who
need money to fulfill their requirement. Similarly,
in business sectors the surplus money flows from
the investors or lenders to the businessmen for
the purpose of production or sale of goods and
services. So, we find two different groups, one
who invest money or lend money and the others,
who borrow or use the money.
Now you think, how these two groups meet and
transact with each other. The financial markets act as
a link between these two different groups. It
facilitates this function by acting as an intermediary
between the borrowers and lenders of money. So,
financial market may be defined as ‘a transmission
mechanism between investors (or lenders) and the
borrowers (or users) through which transfer of funds
is facilitated’. It consists of individual investors,
financial institutions and other intermediaries who
are linked by a formal trading rules and
communication network for trading the various
financial assets and credit instruments
Let us now see the main functions of financial market.
(a) It provides facilities for interaction between the
investors and the borrowers.
(b) It provides pricing information resulting from the
interaction between buyers and sellers in the
market when they trade the financial assets.
(c) It provides security to dealings in financial assets.
(d) It ensures liquidity by providing a mechanism for an
investor to sell the financial assets.
(e) It ensures low cost of transactions and information.
 WHAT IS FINANCIAL MARKET?
Financial Market is market where financial
instrument are traded with the maturity of
less than equal to one year of Money market
instrument for example CD’s (Certificate of
Deposit) CP’s (Commercial Papers), TB’s
(Treasury Bills) CM’s (Call Money), Bill of
Exchange etc and more than one year tenor
instruments of Capital Market for example
Shares, Debentures and Bonds etc.
 What is Money Market?
Money Market is a market where short term
instruments are traded with the maturity of
less than or equal to one year for example
CD’s (Certificate of Deposit) CP’s (Commercial
Papers), TB’s (Treasury Bills) CM’s (Call
Money), Bill of Exchange etc
This market is regulated by RBI (Reserve Bank of
India).
 What is Capital Market?
Capital Market is a market where long term
instruments are traded with the maturity of
more than one year for example Shares,
Debentures and Bonds etc.
This market is further divided into two parts
Primary Market and Secondary Market.
This market is regulated by SEBI (Security
Exchange Board of India.
 What is Primary Market?
Primary Market is also known as new issue
market where securities are issued first time in
this market for example IPO (Initial Public
Offer).
In this Market Companies, Financial institutions,
Government, Corporate etc raise finance from
investors or Surplus Holders in the form of
Share, debentures, Bonds etc
 TYPES OF FINANCIAL MARKETS
A financial market consists of two major
segments: (a) Money Market; and (b) Capital
Market. While the money market deals in
short-term credit, the capital market handles
the medium term and long-term credit.
 MONEY MARKET
The money market is a market for short-term funds, which
deals in financial assets whose period of maturity is upto
one year. It should be noted that money market does
not deal in cash or money as such but simply provides a
market for credit instruments such as bills of exchange,
promissory notes, commercial paper, treasury bills, etc.
These financial instruments are close substitute of
money. These instruments help the business units, other
organizations and the Government to borrow the funds
to meet their short-term requirement.
Money market does not imply to any specific market
place. Rather it refers to the whole networks of
financial institutions dealing in short-term funds, which
provides an outlet to lenders and a source of supply for
such funds to borrowers. Most of the money market
transactions take place on telephone, fax or Internet.
The Indian money market consists of Reserve Bank of
India, Commercial banks, Co-operative banks, and
other specialized financial institutions. The Reserve
Bank of India is the leader of the money market in
India. Some Non-Banking Financial Companies (NBFCs)
and financial institutions like LIC, GIC, UTI, etc. also
operate in the Indian money market.
 Money Market Instruments
Following are some of the important money
market instruments or securities.
(a) Call Money : Call money is mainly used by the
banks to meet their temporary requirement of
cash. They borrow and lend money from each
other normally on a daily basis. It is repayable on
demand and its maturity period varies between
one day to a fortnight. The rate of interest paid
on call money loan is known as call rate.
(b) Treasury Bill :A treasury bill is a promissory note
issued by the RBI to meet the short-term requirement
of funds. Treasury bills are highly liquid instruments,
that means, at any time the holder of treasury bills can
transfer or get it discounted from RBI. These bills are
normally issued at a price less than their face value;
and redeemed at face value. So the difference
between the issue price and the face value of the
treasury bill represents the interest on the investment.
These bills are secured instruments and are issued for
a period of not exceeding 364 days. Banks, Financial
institutions and corporations normally play major role
in the Treasury Bill market
(c) Commercial Paper : Commercial paper (CP) is a
popular instrument for financing working capital
requirements of companies. The CP is an
unsecured instrument issued in the form of
promissory note. This instrument was
introduced in 1990 to enable the corporate
borrowers to raise short-term funds. It can be
issued for period ranging from 15 days to one
year. Commercial papers are transferable by
endorsement and delivery. The highly reputed
companies (Blue Chip companies) are the major
player of commercial paper market.
(d) Certificate of Deposit : Certificate of Deposit
(CDs) are short-term instruments issued by
Commercial Banks and Special Financial
Institutions (SFIs), which are freely
transferable from one party to another. The
maturity period of CDs ranges from 91 days to
one year. These can be issued to individuals,
co-operatives and companies.
(e) Trade Bill :Normally the traders buy goods from the
wholesalers or manufactures on credit. The sellers get
payment after the end of the credit period. But if any seller
does not want to wait or in immediate need of money
he/she can draw a bill of exchange in favour of the buyer.
When buyer accepts the bill it becomes a negotiable
instrument and is termed as bill of exchange or trade bill.
This trade bill can now be discounted with a bank before its
maturity. On maturity the bank gets the payment from the
drawee i.e., the buyer of goods. When trade bills are
accepted by Commercial Banks it is known as Commercial
Bills. So trade bill is an instrument, which enables the
drawer of the bill to get funds for short period to meet the
working capital needs.
 Primary market Intermediaries

Capital Market intermediaries are the important link between the

regulators, issuer, and investor. SEBI has issued regulations in
respect of each intermediary to ensure proper services to be
rendered by them to the investors and the capital market. In this
post, we will learn about some primary market intermediaries.
The following market intermediaries are involved in the primary
market:
• Merchant Bankers/Lead Managers
• Registrars and Share Transfer Agents
• Underwriters
• Bankers to the Issue
• Debenture Trustees etc
 Merchant Bankers

• Merchant Bankers play an important role in the issue management process.

Merchant Bankers are mandated by SEBI to manage public issues (as lead
managers) and open offers in take-overs.
• Apart from these, they have other diverse services and functions. These
include organizing and extending finance for investment in projects,
assistance in financial management, acceptance house business, raising Euro-
dollar loans and issue of foreign currency bonds.
• Lead Managers (Category 1 merchant bankers) has to ensure correctness of
the information furnished in the offer document.
• They have to ensure compliance with the SEBI Rules and regulations and also
guidelines for Disclosure and Investor Protection. To this effect, they have to
submit to SEBI a Due Diligence Certificate confirming that disclosures made in
the draft prospectus or letter of offer are true, fair and adequate to enable
the prospective investors to make a well-informed investment decision.
 Underwriters

• Underwriting services are provided by some large specialists

financial institutions such as banks, insurance or investment
houses, whereby they guarantee payment in case of damage or
financial loss and accept the financial risk for liability arising from
such guarantee.
• Securities underwriting is the process by which investment banks
raise investment capital from investors on behalf of corporations
and governments that are issuing securities (both equities and
debt capital). The services are typically used during a public
offering in the primary market.
• Underwriters are required to register with SEBI in terms of SEBI
(Underwriters) Rules and Regulations, 1993.
 Bankers to the Issue

• Bankers to an Issue means a scheduled bank

carrying on all of the following activities:
• acceptance of application and application money
• acceptance of allotment of call money
• refund of application money
• Payment of dividends or interest warrants etc
The activities of the Banker to an issue in the Indian
Capital Market are regulated by SEBI (Bankers to an
issue) Regulations, 1994
 Debenture Trustees

• Debenture Trustee means a Trustee of a Trust deed for securing any

issue of debentures.
• Debenture trustees call for periodical reports from the body
corporate
• takes possession of trust property in accordance with the
provisions of the trust deed
• enforce security in the interest of debenture holders
• do such acts as necessary in the event the security becomes
enforceable
• carry out such acts as are necessary for the protection of
debenture holders and to do all things necessary in order to resolve
the grievances of the debenture holders.
• ascertain and specify that debenture certificates have been
discharged within 30 days of registration of the charge with ROC
• ascertain and specify that debenture certificates have been
discharged in accordance with the provisions of the Company Act
• ascertain and specify that interest warrants for interest due on
the debentures have been dispatched to the debenture holders
on or before the due date and so on.
• To inform SEBI in case of breach of Trust Deed and take measures
accordingly.
• The activities of Debenture Trustee in the Indian Capital Market
are regulated by SEBI (Debenture Trustees) Regulations, 1993
 CAPITAL MARKET
Capital Market may be defined as a market dealing in
medium and long-term funds. It is an institutional
arrangement for borrowing medium and long-term
funds and provides facilities for marketing and
trading of securities. So it constitutes all long-term
borrowings from banks and financial institutions,
borrowings from foreign markets and raising of
capital by issue various securities such as shares
debentures, bonds, etc. In the present chapter let us
discuss about the market for trading of securities.
The market where securities are traded is known
as Securities market. It consists of two
different segments namely primary and
secondary market. The primary market deals
with new or fresh issue of securities and is,
therefore, also known as new issue market;
whereas the secondary market provides a
place for purchase and sale of existing
securities and is often termed as stock market
or stock exchange.
 Introduction to Primary Market
The Primary Market consists of arrangements, which facilitate the
procurement of long-term funds by companies by making fresh issue of
shares and debentures. You know that companies make fresh issue of
shares and/or debentures at their formation stage and, if necessary,
subsequently for the expansion of business. It is usually done through
private placement to friends, relatives and financial institutions or by
making public issue. In any case, the companies have to follow a well-
established legal procedure and involve a number of intermediaries such
as underwriters, brokers, etc. who form an integral part of the primary
market. You must have learnt about many initial public offers (IPOs) made
recently by a number of public sector undertakings such as ONGC, GAIL,
NTPC and the private sector companies like Tata Consultancy Services
(TCS), Biocon, Jet-Airways and so on.
 Meaning of Primary Market
• In the primary market, new stocks and bonds
are sold to the public for the first time. In a
primary market, investors are able to purchase
securities directly from the issuer. Types of
primary market issues include an initial public
offering (IPO), a private placement, a rights
issue, and a preferred allotment.
 Features / Characteristics of Primary Market

• It is a market place for brand new securities. In other

words, investors directly buy securities from the issuer.
• primary market is a major source of finance for the
new as well as for the existing companies.
• In the primary market, capital can be raised in many
forms such as Public issue (IPO/FPO), Right Issue,
Bonus Issue, Private Placement (Preferential
Allotment/QIB).
• Primary market helps companies to acquire capital for
a very long period.
 Functions of Primary Market
(1) Mobilization of Funds – Primary market plays
intermediary role between the public and
companies. It is a platform whereby savings of
individual become the source of funds for the
companies. This transmission of funds creates
a win win situation for both the parties
because savers idle money generates earning
for them in the form of dividend or interest
and companies ‘ capital needs also get fulfilled.
(2) Capital Formation – Large companies require
huge amount of funds for their successful
operation such as expansion programs etc.
Primary market helps companies in the
acquisition of required funds from the public
across the country / world by issuing securities
(3) Origination – Raising money from the open
market is an irreversible and risky job as it
requires huge amount of time and money.
Therefore, companies have to be very careful
while acquiring money from the market.
Origination is the most prominent step
wherein specialised agencies investigate the
technical, economic, financial and legal
aspects of the company and find out the
answer of following questions 
Type of instruments to be issued 
There are many instruments available in the market i. e.
equity shares, debentures, preference shares etc. Every
instrument has its pros and cons such as preference
shares have to be redeemed after the expiry of
stipulated time, debentures demand regular interest
payment and redemption as well and equity shares
increase holders ‘ interference in the companies ‘
working. So first of all, Companies must choose the most
suitable instrument for the acquisition of capital..
Selling price of an Instrument 
Price at which securities must be offered to the
public is a very crucial decision. Companies
while choosing the selling price must consider
their own goodwill.
Timings – Companies must consider the
economic condition of the market while
issuing new securities in the market
 (4) Underwriting 
It is an agreement wherein financial institutions known as underwriters
guarantee the issuer for buying unsold portion of the issue size.

Who is an Underwriter?
Underwriting (UW) services are provided by some large financial
institutions, such as banks, insurance companies and investment
houses, whereby they guarantee payment in case of damage or
financial loss and accept the financial risk for liability arising from
such guarantee. An underwriting arrangement may be created in
a number of situations including insurance, issues of security in
a public offering, and bank lending, among others. The person or
institution that agrees to sell a minimum number of securities of
the company for commission is called the Underwriter.
 (5) Distribution 
This is the last function of primary market
( performed by brokers or agents ) which
includes the delivery of securities from the
issuer to the buyer
 Types of primary market issues

Public Issue
IPO
FPO
Right Issue
Bonus Issue
Private Placement
Preferential Issue (PI)
Qualified Institutional Buyers (QIB)
Stock Market Operations

Interdisciplinary Course
 Module-I
Introduction to Stock Market
• Primary Market An overview of Indian Securities
Market, Meaning, Functions, Intermediaries -
Role of Primary Market –New Issues Market –
IPO’s –Investor protection in primary market –
Recent trends in primary market –SEBI measures
for primary market. Current status of Indian
securities market –perspective on market
growth and technology SBA 1 : To familiarize the
stock market operations.
 Outcome of Module-I
Introduction to Primary Market
Meaning of Primary Market
Definition of Primary Market
Nature/ Features/Characteristics of Primary Market
Functions of Primary Market
Types of issue in Primary Market
Intermediaries involved in Primary Market
Importance of Primary Market
SEBI Guidelines towards Primary Market
Advantages and disadvantages of Primary Market
 INDIAN FINANCIAL MARKET
You are fully aware that business units have to raise short-term
as well as long-term funds to meet their working and fixed
capital requirements from time to time. This necessitates not
only the ready availability of such funds but also a
transmission mechanism with the help of which the providers
of funds (investors/ lenders) can interact with the
borrowers/users (business units) and transfer the funds to
them as and when required. This aspect is taken care of by the
financial markets which provide a place where or a system
through which, the transfer of funds by investors/lenders to
the business units is adequately facilitated.
SYSTEM OF FINANCIAL MARKET
FINANCIAL MARKET PRIMARY MARKET SECONDARY MARKET

MONEY CAPITAL
MARKET MARKET
 FINANCIAL MARKET
We know that, money always flows from surplus
sector to deficit sector. That means persons
having excess of money lend it to those who
need money to fulfill their requirement. Similarly,
in business sectors the surplus money flows from
the investors or lenders to the businessmen for
the purpose of production or sale of goods and
services. So, we find two different groups, one
who invest money or lend money and the others,
who borrow or use the money.
Now you think, how these two groups meet and
transact with each other. The financial markets act as
a link between these two different groups. It
facilitates this function by acting as an intermediary
between the borrowers and lenders of money. So,
financial market may be defined as ‘a transmission
mechanism between investors (or lenders) and the
borrowers (or users) through which transfer of funds
is facilitated’. It consists of individual investors,
financial institutions and other intermediaries who
are linked by a formal trading rules and
communication network for trading the various
financial assets and credit instruments
Let us now see the main functions of financial market.
(a) It provides facilities for interaction between the
investors and the borrowers.
(b) It provides pricing information resulting from the
interaction between buyers and sellers in the
market when they trade the financial assets.
(c) It provides security to dealings in financial assets.
(d) It ensures liquidity by providing a mechanism for an
investor to sell the financial assets.
(e) It ensures low cost of transactions and information.
 WHAT IS FINANCIAL MARKET?
Financial Market is market where financial
instrument are traded with the maturity of
less than equal to one year of Money market
instrument for example CD’s (Certificate of
Deposit) CP’s (Commercial Papers), TB’s
(Treasury Bills) CM’s (Call Money), Bill of
Exchange etc and more than one year tenor
instruments of Capital Market for example
Shares, Debentures and Bonds etc.
 What is Money Market?
Money Market is a market where short term
instruments are traded with the maturity of
less than or equal to one year for example
CD’s (Certificate of Deposit) CP’s (Commercial
Papers), TB’s (Treasury Bills) CM’s (Call
Money), Bill of Exchange etc
This market is regulated by RBI (Reserve Bank of
India).
 What is Capital Market?
Capital Market is a market where long term
instruments are traded with the maturity of
more than one year for example Shares,
Debentures and Bonds etc.
This market is further divided into two parts
Primary Market and Secondary Market.
This market is regulated by SEBI (Security
Exchange Board of India.
 What is Primary Market?
Primary Market is also known as new issue
market where securities are issued first time in
this market for example IPO (Initial Public
Offer).
In this Market Companies, Financial institutions,
Government, Corporate etc raise finance from
investors or Surplus Holders in the form of
Share, debentures, Bonds etc
 TYPES OF FINANCIAL MARKETS
A financial market consists of two major
segments: (a) Money Market; and (b) Capital
Market. While the money market deals in
short-term credit, the capital market handles
the medium term and long-term credit.
 MONEY MARKET
The money market is a market for short-term funds, which
deals in financial assets whose period of maturity is upto
one year. It should be noted that money market does
not deal in cash or money as such but simply provides a
market for credit instruments such as bills of exchange,
promissory notes, commercial paper, treasury bills, etc.
These financial instruments are close substitute of
money. These instruments help the business units, other
organizations and the Government to borrow the funds
to meet their short-term requirement.
Money market does not imply to any specific market
place. Rather it refers to the whole networks of
financial institutions dealing in short-term funds, which
provides an outlet to lenders and a source of supply for
such funds to borrowers. Most of the money market
transactions take place on telephone, fax or Internet.
The Indian money market consists of Reserve Bank of
India, Commercial banks, Co-operative banks, and
other specialized financial institutions. The Reserve
Bank of India is the leader of the money market in
India. Some Non-Banking Financial Companies (NBFCs)
and financial institutions like LIC, GIC, UTI, etc. also
operate in the Indian money market.
 Money Market Instruments
Following are some of the important money
market instruments or securities.
(a) Call Money : Call money is mainly used by the
banks to meet their temporary requirement of
cash. They borrow and lend money from each
other normally on a daily basis. It is repayable on
demand and its maturity period varies between
one day to a fortnight. The rate of interest paid
on call money loan is known as call rate.
(b) Treasury Bill :A treasury bill is a promissory note
issued by the RBI to meet the short-term requirement
of funds. Treasury bills are highly liquid instruments,
that means, at any time the holder of treasury bills can
transfer or get it discounted from RBI. These bills are
normally issued at a price less than their face value;
and redeemed at face value. So the difference
between the issue price and the face value of the
treasury bill represents the interest on the investment.
These bills are secured instruments and are issued for
a period of not exceeding 364 days. Banks, Financial
institutions and corporations normally play major role
in the Treasury Bill market
(c) Commercial Paper : Commercial paper (CP) is a
popular instrument for financing working capital
requirements of companies. The CP is an
unsecured instrument issued in the form of
promissory note. This instrument was
introduced in 1990 to enable the corporate
borrowers to raise short-term funds. It can be
issued for period ranging from 15 days to one
year. Commercial papers are transferable by
endorsement and delivery. The highly reputed
companies (Blue Chip companies) are the major
player of commercial paper market.
(d) Certificate of Deposit : Certificate of Deposit
(CDs) are short-term instruments issued by
Commercial Banks and Special Financial
Institutions (SFIs), which are freely
transferable from one party to another. The
maturity period of CDs ranges from 91 days to
one year. These can be issued to individuals,
co-operatives and companies.
(e) Trade Bill :Normally the traders buy goods from the
wholesalers or manufactures on credit. The sellers get
payment after the end of the credit period. But if any seller
does not want to wait or in immediate need of money
he/she can draw a bill of exchange in favour of the buyer.
When buyer accepts the bill it becomes a negotiable
instrument and is termed as bill of exchange or trade bill.
This trade bill can now be discounted with a bank before its
maturity. On maturity the bank gets the payment from the
drawee i.e., the buyer of goods. When trade bills are
accepted by Commercial Banks it is known as Commercial
Bills. So trade bill is an instrument, which enables the
drawer of the bill to get funds for short period to meet the
working capital needs.
 Primary market Intermediaries

Capital Market intermediaries are the important link between the

regulators, issuer, and investor. SEBI has issued regulations in
respect of each intermediary to ensure proper services to be
rendered by them to the investors and the capital market. In this
post, we will learn about some primary market intermediaries.
The following market intermediaries are involved in the primary
market:
• Merchant Bankers/Lead Managers
• Registrars and Share Transfer Agents
• Underwriters
• Bankers to the Issue
• Debenture Trustees etc
 Merchant Bankers

• Merchant Bankers play an important role in the issue management process.

Merchant Bankers are mandated by SEBI to manage public issues (as lead
managers) and open offers in take-overs.
• Apart from these, they have other diverse services and functions. These
include organizing and extending finance for investment in projects,
assistance in financial management, acceptance house business, raising Euro-
dollar loans and issue of foreign currency bonds.
• Lead Managers (Category 1 merchant bankers) has to ensure correctness of
the information furnished in the offer document.
• They have to ensure compliance with the SEBI Rules and regulations and also
guidelines for Disclosure and Investor Protection. To this effect, they have to
submit to SEBI a Due Diligence Certificate confirming that disclosures made in
the draft prospectus or letter of offer are true, fair and adequate to enable
the prospective investors to make a well-informed investment decision.
 Underwriters

• Underwriting services are provided by some large specialists

financial institutions such as banks, insurance or investment
houses, whereby they guarantee payment in case of damage or
financial loss and accept the financial risk for liability arising from
such guarantee.
• Securities underwriting is the process by which investment banks
raise investment capital from investors on behalf of corporations
and governments that are issuing securities (both equities and
debt capital). The services are typically used during a public
offering in the primary market.
• Underwriters are required to register with SEBI in terms of SEBI
(Underwriters) Rules and Regulations, 1993.
 Bankers to the Issue

• Bankers to an Issue means a scheduled bank

carrying on all of the following activities:
• acceptance of application and application money
• acceptance of allotment of call money
• refund of application money
• Payment of dividends or interest warrants etc
The activities of the Banker to an issue in the Indian
Capital Market are regulated by SEBI (Bankers to an
issue) Regulations, 1994
 Debenture Trustees

• Debenture Trustee means a Trustee of a Trust deed for securing any

issue of debentures.
• Debenture trustees call for periodical reports from the body
corporate
• takes possession of trust property in accordance with the
provisions of the trust deed
• enforce security in the interest of debenture holders
• do such acts as necessary in the event the security becomes
enforceable
• carry out such acts as are necessary for the protection of
debenture holders and to do all things necessary in order to resolve
the grievances of the debenture holders.
• ascertain and specify that debenture certificates have been
discharged within 30 days of registration of the charge with ROC
• ascertain and specify that debenture certificates have been
discharged in accordance with the provisions of the Company Act
• ascertain and specify that interest warrants for interest due on
the debentures have been dispatched to the debenture holders
on or before the due date and so on.
• To inform SEBI in case of breach of Trust Deed and take measures
accordingly.
• The activities of Debenture Trustee in the Indian Capital Market
are regulated by SEBI (Debenture Trustees) Regulations, 1993
 CAPITAL MARKET
Capital Market may be defined as a market dealing in
medium and long-term funds. It is an institutional
arrangement for borrowing medium and long-term
funds and provides facilities for marketing and
trading of securities. So it constitutes all long-term
borrowings from banks and financial institutions,
borrowings from foreign markets and raising of
capital by issue various securities such as shares
debentures, bonds, etc. In the present chapter let us
discuss about the market for trading of securities.
The market where securities are traded is known
as Securities market. It consists of two
different segments namely primary and
secondary market. The primary market deals
with new or fresh issue of securities and is,
therefore, also known as new issue market;
whereas the secondary market provides a
place for purchase and sale of existing
securities and is often termed as stock market
or stock exchange.
 Introduction to Primary Market
The Primary Market consists of arrangements, which facilitate the
procurement of long-term funds by companies by making fresh issue of
shares and debentures. You know that companies make fresh issue of
shares and/or debentures at their formation stage and, if necessary,
subsequently for the expansion of business. It is usually done through
private placement to friends, relatives and financial institutions or by
making public issue. In any case, the companies have to follow a well-
established legal procedure and involve a number of intermediaries such
as underwriters, brokers, etc. who form an integral part of the primary
market. You must have learnt about many initial public offers (IPOs) made
recently by a number of public sector undertakings such as ONGC, GAIL,
NTPC and the private sector companies like Tata Consultancy Services
(TCS), Biocon, Jet-Airways and so on.
 Meaning of Primary Market
• In the primary market, new stocks and bonds
are sold to the public for the first time. In a
primary market, investors are able to purchase
securities directly from the issuer. Types of
primary market issues include an initial public
offering (IPO), a private placement, a rights
issue, and a preferred allotment.
 Features / Characteristics of Primary Market

• It is a market place for brand new securities. In other

words, investors directly buy securities from the issuer.
• primary market is a major source of finance for the
new as well as for the existing companies.
• In the primary market, capital can be raised in many
forms such as Public issue (IPO/FPO), Right Issue,
Bonus Issue, Private Placement (Preferential
Allotment/QIB).
• Primary market helps companies to acquire capital for
a very long period.
 Functions of Primary Market
(1) Mobilization of Funds – Primary market plays
intermediary role between the public and
companies. It is a platform whereby savings of
individual become the source of funds for the
companies. This transmission of funds creates
a win win situation for both the parties
because savers idle money generates earning
for them in the form of dividend or interest
and companies ‘ capital needs also get fulfilled.
(2) Capital Formation – Large companies require
huge amount of funds for their successful
operation such as expansion programs etc.
Primary market helps companies in the
acquisition of required funds from the public
across the country / world by issuing securities
(3) Origination – Raising money from the open
market is an irreversible and risky job as it
requires huge amount of time and money.
Therefore, companies have to be very careful
while acquiring money from the market.
Origination is the most prominent step
wherein specialised agencies investigate the
technical, economic, financial and legal
aspects of the company and find out the
answer of following questions 
Type of instruments to be issued 
There are many instruments available in the market i. e.
equity shares, debentures, preference shares etc. Every
instrument has its pros and cons such as preference
shares have to be redeemed after the expiry of
stipulated time, debentures demand regular interest
payment and redemption as well and equity shares
increase holders ‘ interference in the companies ‘
working. So first of all, Companies must choose the most
suitable instrument for the acquisition of capital..
Selling price of an Instrument 
Price at which securities must be offered to the
public is a very crucial decision. Companies
while choosing the selling price must consider
their own goodwill.
Timings – Companies must consider the
economic condition of the market while
issuing new securities in the market
 (4) Underwriting 
It is an agreement wherein financial institutions known as underwriters
guarantee the issuer for buying unsold portion of the issue size.

Who is an Underwriter?
Underwriting (UW) services are provided by some large financial
institutions, such as banks, insurance companies and investment
houses, whereby they guarantee payment in case of damage or
financial loss and accept the financial risk for liability arising from
such guarantee. An underwriting arrangement may be created in
a number of situations including insurance, issues of security in
a public offering, and bank lending, among others. The person or
institution that agrees to sell a minimum number of securities of
the company for commission is called the Underwriter.
 (5) Distribution 
This is the last function of primary market
( performed by brokers or agents ) which
includes the delivery of securities from the
issuer to the buyer
Public issue
The public issue is one of the most common
methods of issuing securities to the public. The
company enters the capital market to raise
money from kinds of investors. Here, the
securities are offered for sale to new investors.
The new investor becomes the shareholder of
the issuing company. This is called a public issue.
The further classification of the public issue is –
Initial Public Offer
As the name suggests, it is a fresh issue of equity
shares or convertible securities by an unlisted
company. These securities are traded
previously or offered for sale to the general
public. After the process of listing, the
company’s share is traded on the stock
exchange. The investor can buy and sell
securities after listing in the secondary market
Further Public Offer or Follow on Offer or FPO.
When a listed company on the stock exchange
announces fresh issues of shares to the
general public. The listed company does this
to raise additional funds
Rights issue
• This is another type of issue in the primary market.
Here, the company issues shares to its existing
shareholders by offering them to purchase more. The
issue of securities is at a predetermined price.
• In a rights issue, the investors have a choice of buying
shares at a discount price within a specific period. It
enhances the control of the existing shareholders of
the company. It helps the company to raise funds
without any additional costs.
Bonus issue
• When a company issues fully paid additional
shares to its existing shareholders for free. The
company issues shares from its free reserves
or securities premium account. These shares
are a gift for its current shareholders.
However, the issuance of bonus shares does
not require fresh capital
 Private placement

Private placements mean that when a company offers its

securities to a small group of people. The securities may
be bonds, stocks, or other securities. The investors can be
either individual or institution or both.
Comparatively, private placements are more manageable to
issue than an IPO. The regulatory norms are significantly
less. Also, it reduces cost and time. The private placement
is suitable for companies that are at early stages (like
startups). The company may raise capital through an
investment bank or a hedge fund or ultra-high net worth
individuals (HNIs
Preferential issue
The preferential issue is one of the quickest methods for a
company to raise capital for their business. Here, both
listed and unlisted companies can issue shares. Usually,
these companies issue shares to a particular group of
investors.
It is important to note that the preferential issue is neither
a public issue nor a rights issue. In the preferential
allotment, the preference shareholders receive dividends
before the ordinary shareholders receive it.
Qualified institutional placement.
• Qualified institutional placement is another type of
private placement. Here, the listed company issues
equity shares or debentures (partly or wholly
convertible) or any other security not including
warrants. These securities are convertible in nature.
Qualified institutional buyer (QIB) purchases these
securities.
• QIBs are investors who have requisite financial
knowledge and expertise to invest in the capital market.
Some of the QIBs are –
 Foreign institutional investors who are registered with
SEBI.
 Primary market Intermediaries

Capital Market intermediaries are the important link between the

regulators, issuer, and investor. SEBI has issued regulations in
respect of each intermediary to ensure proper services to be
rendered by them to the investors and the capital market. In this
post, we will learn about some primary market intermediaries.
The following market intermediaries are involved in the primary
market:
• Merchant Bankers/Lead Managers
• Registrars and Share Transfer Agents
• Underwriters
• Bankers to the Issue
• Debenture Trustees etc
 Merchant Bankers

• Merchant Bankers play an important role in the issue management process.

Merchant Bankers are mandated by SEBI to manage public issues (as lead
managers) and open offers in take-overs.
• Apart from these, they have other diverse services and functions. These
include organizing and extending finance for investment in projects,
assistance in financial management, acceptance house business, raising Euro-
dollar loans and issue of foreign currency bonds.
• Lead Managers (Category 1 merchant bankers) has to ensure correctness of
the information furnished in the offer document.
• They have to ensure compliance with the SEBI Rules and regulations and also
guidelines for Disclosure and Investor Protection. To this effect, they have to
submit to SEBI a Due Diligence Certificate confirming that disclosures made in
the draft prospectus or letter of offer are true, fair and adequate to enable
the prospective investors to make a well-informed investment decision.
 Underwriters

• Underwriting services are provided by some large specialists

financial institutions such as banks, insurance or investment
houses, whereby they guarantee payment in case of damage or
financial loss and accept the financial risk for liability arising from
such guarantee.
• Securities underwriting is the process by which investment banks
raise investment capital from investors on behalf of corporations
and governments that are issuing securities (both equities and
debt capital). The services are typically used during a public
offering in the primary market.
• Underwriters are required to register with SEBI in terms of SEBI
(Underwriters) Rules and Regulations, 1993.
 Bankers to the Issue

• Bankers to an Issue means a scheduled bank

carrying on all of the following activities:
• acceptance of application and application money
• acceptance of allotment of call money
• refund of application money
• Payment of dividends or interest warrants etc
The activities of the Banker to an issue in the Indian
Capital Market are regulated by SEBI (Bankers to an
issue) Regulations, 1994
 Debenture Trustees

• Debenture Trustee means a Trustee of a Trust deed for securing any

issue of debentures.
• Debenture trustees call for periodical reports from the body
corporate
• takes possession of trust property in accordance with the
provisions of the trust deed
• enforce security in the interest of debenture holders
• do such acts as necessary in the event the security becomes
enforceable
• carry out such acts as are necessary for the protection of
debenture holders and to do all things necessary in order to resolve
the grievances of the debenture holders.
• ascertain and specify that debenture certificates have been
discharged within 30 days of registration of the charge with ROC
• ascertain and specify that debenture certificates have been
discharged in accordance with the provisions of the Company Act
• ascertain and specify that interest warrants for interest due on
the debentures have been dispatched to the debenture holders
on or before the due date and so on.
• To inform SEBI in case of breach of Trust Deed and take measures
accordingly.
• The activities of Debenture Trustee in the Indian Capital Market
are regulated by SEBI (Debenture Trustees) Regulations, 1993
 Regulatory measures of SEBI for Primary Market reforms in India
Primary Market Reforms in India – SEBI Guidelines

1. Disclosure of All Material Facts is made Compulsory: SEBI

has made it compulsory for companies do disclose all the
facts and risk factors  regarding the projects undertaken by
the company. The basis on which the premium amount is
calculated should also be disclosed by the company as per
SEBI norms. SEBI also advises the code of ethics for
advertising in media regarding the public issue
2. Encouragement to Initial Public 0ffers: In order
to encourage Initial Public Offers (IPO) in the
primary market, SEBI has permitted companies
to determine the par value of shares issued by
them. SEBI has allowed issues of IPOs to go for
“Book Building” – i.e. reserve and allot shares
to individual investors. But the issuer will have
to disclose the price, the issue size and the
number of securities to be offered to the public.
3. Increase of Popularity to Private Placement
Market: In recent years, private placement
market has become popular with issuers
because of stringent entry and disclosure
norms for public issues. Besides low cost of
issuance, ease of structuring investments and
saving of time lag in issuance are the other
causes responsible for the rapid growth of
private placement market
4. Underwriting has made Optional: To reduce
the cost of issue in primary market, SEBI has
made underwriting of issue optional.
However, the condition that if an issue was
not underwritten and was not able to collect
90% of the amount offered to the public, the
entire amount collected would be refunded to
the investor is still in force.
• 5. Issue of Due Diligence Certificate: The lead
managers have to issue due diligence
certificate, which has now been made part of
the offer document.
• 6. Conditions regarding Application Size etc.:
SEBI has raised the minimum application size
and also the proportion of each issue allowed
for firm allotment to institutions such as
mutual funds.
• 7. Regulation of Merchant Banking: SEBI has brought Merchant
banking under its regulatory framework. The merchant bankers
are now to be authorized by SEBI. Merchant bankers, now have
a greater degree of accountability in the offer document and
issue process.

• 8. Imposition of Compulsory Deposit on Companies making

Public Issues: In order to induce companies to exercise greater
care and diligence for timely action in matters relating to the
public issues of capital, SEBI has advised stock exchanges to
collect from companies making public issues, a deposit of one
per cent of the issue amount which could be forfeited in case of
non-compliance of the provisions of the listing agreement and,
non-dispatch of refund orders and share certificates by
registered post within the prescribed time.
• 9. Reforms as to Mutual Funds: The Government has now permitted the
setting up of private mutual funds and a few have already been set up.
UTI has now been brought under the regulatory jurisdiction of SEBI. All
mutual funds are allowed to apply for firm allotments in public issues. To
improve the scope of investments by mutual funds, the latter are
permitted to underwrite public issues. Further, SEBI has relaxed the
guidelines for investment in money market instruments. Finally, SEBI has
issued fresh guidelines for advertising by mutual funds.

• 10. Vetting of Offer Document: SEBI vets offer documents to make sure

that the company listing the shares has made all disclosures in it. All the
guidelines and regulatory measures of capital issues are meant to
promote healthy and efficient functioning of the issue market (or the
primary market).
• Despite all these steps, there are flagrant breaches of issue procedures
through collusion between unscrupulous promoters and corrupt officials
in the lead banks and even of the top officials of SEBI.
 Module-01
Successfully Completed
 Module-II
Secondary Market and SEBI
• Secondary Market Meaning, Nature, Functions of
Secondary Market –Organization and Regulatory
framework for stock exchanges in India –Defects in
working of Indian stock exchanges –secondary
market intermediaries - stock brokers, advisorsy -
regulations and code of conduct framed by SEBI-
Dematerialization
• SBA 2 : To understand the role of SEBI and Structure
of BSE/NSE.
Introduction to Secondary Market
The secondary market known as stock market or stock exchange
plays an equally important role in mobilizing long-term funds
by providing the necessary liquidity to holdings in shares and
debentures. It provides a place where these securities can be
encased without any difficulty and delay. It is an organized
market where shares, and debentures are traded regularly
with high degree of transparency and security. In fact, an
active secondary market facilitates the growth of primary
market as the investors in the primary market are assured of a
continuous market for liquidity of their holdings. The major
players in the primary market are merchant bankers, mutual
funds, financial institutions, and the individual investors; and
in the secondary market you have all these and the
stockbrokers who are members of the stock exchange who
facilitate the trading.
 Meaning of Secondary Market
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
 Secondary Market- Meaning
A secondary market is a platform wherein the shares of companies are
traded among investors. It means that investors can freely buy and
sell shares without the intervention of the issuing company. In these
transactions among investors, the issuing company does not
participate in income generation, and share valuation is rather
based on its performance in the market. Income in this market is
thus generated via the sale of the shares from one investor to
another. Some of the entities that are functional in a secondary
market include – 1. Retail investors. 2. Advisory service providers
and brokers comprising commission brokers and security dealers,
among others. 3. Financial intermediaries including non-banking
financial companies, insurance companies, banks and mutual funds.
 Definition of Secondary Market

“This is the market wherein the trading of

securities is done. Secondary market consists
of both equity as well as debt markets.”
 Nature/Features/Characteristics of
Secondary Market
1. Gives liquidity to all investors. Any seller in need of cash can easily sell
the security due to the presence of a large number of buyers.
2. Very little time lag between any new news or information on the
company and the stock price reflecting that news. The secondary
market quickly adjusts the price to any new development in the
security.
3. Lower transaction costs due to the high volume of transactions.
4. Demand and supply economics in the market assist in price discovery.
5. An alternative to saving.
6. Secondary markets face heavy regulations from the government as they
are a vital source of capital formation and liquidity for the companies
and the investors. High regulations ensure the safety of the investor’s
money.
 Functions of Secondary Market
1. Economic Barometer: A stock exchange is a reliable barometer to
measure the economic condition of a country. Every major change in
country and economy is reflected in the prices of shares. The rise or fall
in the share prices indicates the boom or recession cycle of the
economy. Stock exchange is also known as a pulse of economy or
economic mirror which reflects the economic conditions of a country.

2. Pricing of Securities: The stock market helps to value the securities on

the basis of demand and supply factors. The securities of profitable and
growth oriented companies are valued higher as there is more demand
for such securities. The valuation of securities is useful for investors,
government and creditors. The investors can know the value of their
investment, the creditors can value the creditworthiness and
government can impose taxes on value of securities.
3. Safety of Transactions: In stock market only the listed
securities are traded and stock exchange authorities
include the companies names in the trade list only
after verifying the soundness of company. The
companies which are listed they also have to operate
within the strict rules and regulations. This ensures
safety of dealing through stock exchange.
4. Contributes to Economic Growth: In stock exchange
securities of various companies are bought and sold.
This process of disinvestment and reinvestment helps
to invest in most productive investment proposal and
this leads to capital formation and economic growth.
5. Spreading of Equity Cult: Stock exchange encourages people to
invest in ownership securities by regulating new issues, better
trading practices and by educating public about investment.
6. Providing Scope for Speculation: To ensure liquidity and
demand of supply of securities the stock exchange permits
healthy speculation of securities.
7. Liquidity: The main function of stock market is to provide
ready market for sale and purchase of securities. The presence
of stock exchange market gives assurance to investors that their
investment can be converted into cash whenever they want.
The investors can invest in long term investment projects
without any hesitation, as because of stock exchange they can
convert long term investment into short term and medium
term.
8. Better Allocation of Capital: The shares of profit making
companies are quoted at higher prices and are actively
traded so such companies can easily raise fresh capital
from stock market. The general public hesitates to invest
in securities of loss making companies. So stock
exchange facilitates allocation of investor’s fund to
profitable channels.
9. Promotes the Habits of Savings and Investment: The
stock market offers attractive opportunities of
investment in various securities. These attractive
opportunities encourage people to save more and invest
in securities of corporate sector rather than investing in
unproductive assets such as gold, silver, etc.
 DISTINCTION BETWEEN PRIMARY MARKET
AND SECONDARY MARKET

The main points of distinction between the primary

market and secondary market are as follows:
1. Function : While the main function of primary
market is to raise long-term funds through fresh
issue of securities, the main function of secondary
market is to provide continuous and ready market
for the existing long-term securities.
3. Listing Requirement : While only those securities
can be dealt within the secondary market, which
have been approved for the purpose (listed), there is
no such requirement in case of primary market.

4. Determination of prices : In case of primary market,

the prices are determined by the management with
due compliance with SEBI requirement for new issue
of securities. But in case of secondary market, the
price of the securities is determined by forces of
demand and supply of the market and keeps on
fluctuating.
Differences Between Primary and Secondary
Market
Basis Primary Market Secondary Market
Also called as New Issue Market (NIM) After Issue Market (AIM)
Role of the market Market where stocks are Market where stocks are
issued for the first time traded once issued

Intermediaries Investment banks Brokers

Sale of securities Directly by companies to Sold and purchased

investors amongst investors and
traders

Price of shares Fixed at par value

Changes depending on the
supply and demand of
shares
 Organization of Stock Exchanges
The first organized stock exchange in India was
started in Bombay in 1875 with the formation
of the “Native share and Stock Brokers
Association”. Thus the Bombay Stock Exchange
is the oldest one in the country. With the
growth of Joint stock companies, the stock
exchanges also made a steady growth and at
present there are 23 recognized stock
exchanges with about 6000 stock brokers.
1. Traditional Structure of stock Exchanges

The stock exchanges in India can be classified

into two broad groups on the basis of their
legal structure. They are:

1. Three stock exchanges which are functioning

as association of person viz., BSE, ASE and
Madhya Pradesh Stock Exchange.
2. Twenty stock exchanges which have been set up as companies, either limited by
guarantees or by shares. They are
1. Bangalore Stock Exchange
2. Bhubaneswar Stock exchange
3. Calcutta Stock Exchange
4. Cochin Stock Exchange
5. Coimbatore Stock Exchange
6. Delhi Stock Exchange
7. Gauhati Stock Exchange
8. Hyderabad Stock Exchange
9. Interconnected Stock Exchange
10.Jaipur Stock Exchange
11.Ludhiana Stock Exchange
12.Madras Stock Exchange
13.Magadh Stock Exchange
14.Mangalore Stock Exchange
15.15.National Stock Exchange
16.6.Pune Stock Exchange
17.17.OTCEI
 2. Demutualization of Stock
Exchanges
The transition process of an exchange from a ―mutually-owned
association to a company ―owned by Shareholders‖ is called
demutualization.
Demutualization is transforming the legal structure, of an exchange
from a mutual form to a business corporation form. In a mutual
exchange, the three functions of ownership, management and
trading are intervened into a single group. It means that the broker
members of the exchange are owners as well as traders on the
exchange and further they themselves manage the exchange. These
three functions are segregated from one another after
demutualization. The demutualised stock exchanges in India are; 1.
The National Stock Exchange (NSE) 2. over the Counter Exchange of
India (OTCEI)
 3. Corporatization of Stock Exchanges

The process of converting the organizational

structure of the stock exchange from a non-
corporate structure to a corporate structure is
called Corporatization of stock exchanges. As
stated earlier, some of the stock exchanges
were established as Association in India of like
BSE, ASE and MPSE. Corporatization of these
exchanges is the process of converting them
into incorporated companies.
 Management:
The recognized stocks exchanges are managed boards
consist of elected member directors from stock broker
members, public representatives and government
nominees nominated by the SEBI. The government has
also powers to nominate Presidents and Vice-presidents
of stock exchanges and to approve the appointment of
the chief Executive and public representatives. The
major stock exchanges are managed by the Chief
Executive Director and the smaller stock exchanges are
under the control of a Secretary.
 Membership
To become a member of a recognized stock exchange, a person
must possess the following qualifications:
• He should be a citizen of India,
• He should not be less than 21 years of age,
• He should not have been adjudged bankrupt or insolvent,
• He should not have been convicted for an offence involving
fraud or dishonesty,
• He should not be engaged in any other business except dealing
in securities,
• He should not have been expelled by any other stock exchange
or declared a defaulter by any other stock exchange.
 Regulatory framework for Stock Exchange in
India
The growth of security market of a country is influenced by the
legislative measures taken by that country from time to time.
The policy change has great impact on the minds of public which
ultimately affects their saving habits. For effective mobilization
of funds, it is necessary that the interest of the potential
investors should be protected adequately. In the pre-
independence, the earliest legislation relating to stock market
was introduced in the 19* Century. This legislation was passed in
1865 but it lost its impact due to outbreak of the American Civil
War. Thereafter, the At Stock Exchange Enquiry Committee was
set-up in 1923. This committee in its report, emphasized on
necessity of the Stock Exchanges' framing and maintaining a
systematic set of rules and regulations in the interest of the
general investing public and of the trade itself.
The next step towards special legislation for
controlling stock markets was Bombay
Securities Contracts Control Act, 1925. This
Act gave certain powers to government in
regard to recognition of Stock exchanges etc.
but this act proved ineffective-in regulating
security trading and government control there
under was nominal, practically. The Bombay
Security Contracts Control Act remained in
force till the Securities Contract (Regulation)
Act, 1956 enacted by the Central Government.
The main Acts which effect the Securities markets are Companies
Act, 1956, Capital Issues Control Act, 1947, Securities Contract
(Regulation) Act, 1956, Securities Contract (Regulation) Rules
1957 and Securities and Exchange Board of India Act, 1992,
which was set up as a Securities and Exchange Board of India
(SEBI) on April 1988. It took almost four years for the
government to bring about a separate legislation in the name of
Securities and Exchange Board of India Act, 1992 conferring
statutory powers. The Act charged to SEBl with comprehensive
powers over practically all aspects of capital market operations.
The Securities and Exchange Board of India (SEBI), has emerged
as an important constituent of the system that now exists to
regulate, control and monitor the Indian Financial System (IFS)
as certain powers of some other constituents of this system
have been delegated to the SEBl.
  Companies Act, 1956
After Independence, the Government of India passed various
legislations so that investors can have confidence while
investing their savings. With a view to protect the interest of a
large number of shareholders and creditors on healthy lines
and to help the attainment of the ultimate ends of social and
economic policy of the Government, the Companies Act, 1956
was passed. It was not enacted purely from legalistic point of
view but it was also passed on the changing social needs of the
country. The Companies Act, 1956 which together with its
amendments, is the substantive law in our country today and
contains a large number of new and startling provisions for
public control over the functioning of joint stock companies.
The following are the basic objectives of the Companies Act, 1956:
(a) Minimum assured standard of business integrity and conduct in the
promotion and management of companies;
(b) Full and fair disclosure of all reasonable information relating to the affairs
of the company;
(c) Effective participation and control by shareholders and the protection of
their legitimate interests;
(d) Enforcement of proper performance of their duties by the company
management; and
(e) Power of intervention and investigation into the affairs of companies then
they are managed in a manner prejudicial to the interest of the shareholders
or to the public interest. A company has to operate with in the legal
framework prevailing in the country. The Companies Act deals with the
formation and management of new companies. With the growth of joint
stock companies, the capital market has taken a new turn in the
development of the country.
  The Securities Contract (Regulation) Act,
1956 It
was proved over time that the provision in Capital Issues (Control)
Act were totally inadequate to regulate the growing dimensions of
capital market activity. The government realized the necessity of
creating a broad based and a more secure environment for the
business to grow. This led to the enactment of Companies Act and
Securities Contracts (Regulation) Act in 1956. These legislations
contained several provisions relating to the issue of prospectus,
disclosure of accounting and financial information and listing of
securities etc. The Securities Control (Regulation) Act, 1956 came
into force throughout India on 20 Feb, 1957. This Act permits only
those exchanges which have been recognized by the Central
Government to function in any notified state or area.
It prescribes the requirements which a company must comply with
before its shares can be listed on any recognized stock exchange in
the country. There is no statutory obligation that every public
limited company should get its shares listed on a recognized stock
exchange. However, a company declaring in the prospectus, its
intention of applying for enlistment, is bound Under Section 73 of
the Companies Act, to make a listing application to the stock
exchange concerned. It is also bound to abide by the prescribed
requirements in order to have its shares admitted to dealings failing
which; it has to refund the application money to those who have
subscribed for the share capital. Further, the Government reserves
the powers under section 21 of the Securities Contracts (Regulation)
Act, 1956 to compel a Public Limited Company when it is so
necessary or expedient, in the interest of the trade or of the public
to comply with the prescribed requirements and list its shares on a
recognized stock exchange.
The objective of the Securities Contracts (Regulation) Act
(SCRA) is to regulate the working of stock exchanges or
secondary market with a view to prevent undesirable
transactions or speculation in securities, and thereby, to
build up a healthy and strong investment market in
which the public could invest with confidence. It
empowers the GOl to recognize and derecognize the
stock exchanges, to stipulate laws and by-laws for their
functioning, and to make the listing of securities
mandatory on stock exchanges by Public Limited
Companies (PULCOs). It prohibits securities transactions
outside the recognized stock exchanges.
It lays down that all contracts in securities except short delivery
contracts, can be entered only between and through the
members of recognized stock exchanges. It prescribes
conditions or requirements for listing of securities on
recognized stock exchanges. It empowers the GOI to supersede
the governing bodies of stock exchanges, to suspend business
on recognized stock exchanges, to declare certain contracts
illegal and void under certain circumstances, to prohibit
contracts in certain cases, to license the security dealers, and
to lay down penalties for contravention of the provision of the
Act. It is administrated by the Ministry of Finance, Department
of Economic Affairs, GOI. This Act aims at having a strong and
healthy investment market so that members of the public may
invest their savings with full confidence.
  The Reserve Bank of India (RBI)
The financial system deals in other people's money and, therefore, their
confidence, trust and faith in it is crucially important for its smooth
functioning. Financial regulation is necessary to generate, maintain
and promote this trust. One reason why the public trust may be lost
is that some of the savers or investors or intermediaries may
imprudently take too much risk, which could engender defaults,
bankruptcies, and insolvencies. A regulation is needed to check
prudence in the system. The modern trading technology and the
possibility of high leveraging enable market participants to take large
stake which are disproportionate with their own investments. There
are frequent instances of dishonest, unfair, fraudulent, and unethical
practices or activities of the market intermediaries or agencies such
as brokers, merchant bankers, custodians, trustees, etc.
The regulation becomes necessary to ensure that the investors
are protected; that disclosure and access to information are
adequate, timely, and equal; that the participants measure
upto the rules of the market place; and that the markets are
both fair and efficient. To regulate financial system, RBI has
special role and responsibility. The RBI, as the central bank of
the Country, is the centre of Indian financial and monetary
system. As the apex institution, it has been guiding,
monitoring, regulating, controlling, and promoting the destiny
of the Indian Financial System (IFS) since its inception. It
started functioning from April 1, 1935 on the terms of the
Reserve Bank of India Act, 1934. It was a private shareholders'
institution till January, 1949, after which, it became a State-
owned institution under the Reserve Bank (Transfer to Public
Ownership) of India Act, 1948.
This Act empowers the Central Government, in consultation
with the Governor of the Bank, to issue such directions to it
as they might consider necessary in the public interest.
Further, the Governor and all the Deputy Governors of the
Bank are appointed by the Central Government. The Bank is
managed by a Central Board of Directors; four Local Boards
are to advise the Central Board on matters referred to them.
They are also required to perform duties as are delegated to
them. The final control of the Bank vests in the Central Board
which comprises the Governor, four Deputy Governors, and
fifteen Directors nominated by the Central Government. The
committee of the Central Board consists of the Governor, the
Deputy Governor and such other Directors as may be present
at a given meeting.
  Securities and Exchanges Board of India
(SEBI) Act, 1992
The year 1991 witnessed a big push being given to liberalization and
reforms in the Indian financial sector. For sometime thereafter, the
volume of business in the primary and secondary securities markets
increased significantly. As part of the same reform process, the
globalization or internationalization of the Indian financial system made it
vulnerable to external shocks. The multi-crore securities scam rocked the
IFS in 1992. All these developments impressed on the authorities the
need to have in place a vigilant regulatory body or an effective and
efficient watchdog. It was felt that the then existing regulatory framework
was fragmented, ill-coordinated, and inadequate and that there was a
need for an autonomous, statutory, integrated organization to ensure the
smooth functioning of the IFS., which is backed by a statute, and which is
accountable to the Parliament and in which investors can have trust.
The SEBI came into being as a response to these
requirements. The SEBI was established on April
12, 1988 through an administrative order, but it
became a statutory and really powerful
organization only since 1992. The CICA was
repealed and the office of the CCl was abolished
in 1992, and SEBl was set-up on 21 February, 1992
through an ordinance issued on 30 January, 1992.
The ordinance was replaced by the SEBI Act on 4
April, 1992. Certain powers under certain sections
of SCRA and CA have been delegated to the SEBI.
The regulatory powers of the SEBI were increased through the
Securities Laws (Amendment) Ordinance of January, 1995 which
were subsequently replaced by an Act of Parliament. The SEBI is
under the overall control of the Ministry of Finance, and has its
head office at Mumbai. It has become now a very important
constituent of the financial regulatory framework in India. The
philosophy underlying the creation of the SEBI is that multiple
regulatory bodies for securities industry i.e. the regulatory
systems get divided, causing confusion among market
participants as to who is really in command. In a multiple
regulatory structure, there is also an overlap of functions of
different regulatory bodies. Through the SEBI, the regulation
model which is sought to be put in place in India, is one in which
every aspect of securities market regulation is entrusted to a
single highly visible and independent organization
Defects in working of Indian Stock Exchange

1. Speculative activities: Most of the transactions in stock

exchange are carry forward transactions with a
speculative motive of deriving benefit from short term
price fluctuation. Genuine transactions are only less.
Hence market is not subject to free interplay of demand
and supply for securities.
2. Insider trading: Insider trading has been a routine
practice in India. Insiders are those who have access to
unpublished price-sensitive information. By virtue of their
position in the company they use such information for
their own benefits.
3. Poor liquidity: The Indian stock exchanges suffer from poor
liquidity. Though there are approximately 8000 listed
companies in India, the securities of only a few companies
are actively traded. Only those securities are liquid. This
means other stocks have very low liquidity.
4. Less floating securities: There is scarcity of floating
securities in the Indian stock exchanges. Out of the total
stocks, only a small portion is being offered for sale. The
financial institutions and joint stock companies control over
75% of the scrips. However, they do not offer their holdings
for sale. The UTI, GIC, LIC etc. indulge more in purchasing
than in selling. This creates scarcity of stocks for trading.
Hence, the market becomes highly volatile. It is subject to
easy price manipulations.
5. Lack of transparency: Many brokers are violating the regulations
with a view to cheating the innocent investing community. No
information is available to investors regarding the volume of
transactions carried out at the highest and lowest prices. In short,
there is no transparency in dealings in stock exchanges.
6. High volatility: The Indian stock market is subject to high
volatility in recent years. The stock prices fluctuate from hour to
hour. High volatility is not conducive for the smooth functioning
of the stock market.
7. Dominance of financial institutions: The Indian stock market is
being dominated by few financial institutions like UTI, LIC, GIC
etc. This means these few institutions can influence stock market
greatly. This actually reduces the level of competition in the stock
market. This is not a healthy trend for the growth of any stock
market.
8. Competition of merchant bankers: The increasing
number of merchant bankers in the stock market has
led to unhealthy competition in the stock market. The
merchant bankers help the unscrupulous promoters
to raise funds for non- existent projects. Investors are
the ultimate sufferers.
9.Lack of professionalism: Some of the brokers are
highly competent and professional. At the same time,
majority of the brokers are not so professional. They
lack proper education, business skills, infrastructure
facilities etc. Hence they are not able to provide
proper service to their clients.
 SEBI measures for Secondary Market
SEBI has introduced a wide range of reforms in the secondary market. These can be
discussed under the headings, namely, Governing Body of the stock exchange.
Infrastructure Development of the stock exchange, Settlement and Clearing, Debt
Market Segment, Price Stabilization, Delisting, Brokers; and insider trading.
Governing Body of the stock exchange

1. The Board of directors of stock exchange has to be reconstituted so as to include

non-members, public representatives, government representatives to the extent of
50% of total number of members.
2. Capital adequacy norms should be complied with regard to members of various
stock exchanges on the basis of their turnover of trade.
3. Working hours of stock exchanges should be from 12 noon to 3 p.m.

4. All recognized stock exchanges should report about their transactions within 24
hours.
 Infrastructure Development of Stock
Exchange
Sufficient infrastructure should be available in any stock exchange to
facilitate trade. For example, National Stock Exchange, (NSE) was set
up with sophisticated screen-based trading. SEBI grants recognition
only to those new stock exchanges which have online screen-based
trading facility. Settlement and Clearing SEBI has withdrawn carry
forward transactions and introduced certain modified regulations.
All stock exchanges should follow the practice of weekly settlement.
Apart from this, SEBI has instructed all stock exchanges to set up
clearing houses, clearing corporations or settlement guarantee fund
for ensuring prompt settlement of the transactions. SEBI has
allowed institutional investors, foreign investments, stock brokers to
avail the facility of warehousing of trade.
 Debt Market Segment
NSE has a wholesale debt market segment to
enable the traders to trade in debt
instruments. SEBI has allowed the listing of
debt instruments of those companies which
have not even listed their equity shares
previously. Foreign institutional investors have
been permitted to invest up to 100 percent of
the funds in debt instruments of Indian
companies.
 Price Stabilization
SEBI keeps a constant watch over the unusual
fluctuations in prices. It has instructed the
stock exchanges to monitor the prices of
newly listed securities. When there is an
abnormal price variation in newly listed
securities, SEBI would impose additional
margin on purchase of such securities. SEBI
has also introduced adequate measures to
prevent price rigging and circular trading.
 Delisting
SEBI has streamlined the norms for delisting of
securities from stock exchanges. In case of
voluntary delisting from regional stock
exchanges, the company would offer to buy
the shares from shareholders of the region.
Moreover, it also stipulates that the listing fee
for three years be paid by the company
concerned at the time of delisting.
 Brokers
SEBI has regulated the functioning of brokers through
the following measures:
1. Each broker and sub-broker should get their names
registered with the stock exchange.
2. Capital adequacy norms have been fixed for the
brokers in order to ensure their professional
competence, financial solvency, etc.
3. A code of conduct has been laid down for their
discharge of duties, resulting in the execution of
orders, issue of contract note, breach of trust, being
fair to clients; and rendering investment advice.
4. Audit of the books of brokers and filing of audit report
with SEBI have been made compulsory.
5. Brokers should preserve the books of accounts and
other records for a minimum period of five years. SEBI
has the right to inspect the books, records and
documents of the brokers.
6. Brokers should disclose transaction price and
brokerage separately in the contract notes issued to
their clients to ensure transparency in the broker-
client relationship.
7. Brokers cannot underwrite more than 5% of public
issue
 Module-02
Successfully Completed
 Module-III
Listing of Securities in BSE and NSE
• Listing of Securities: Meaning – Merits and
Demerits –Listing requirements, procedure,
fee –Listing of rights issue, bonus issue,
further issue –Listing conditions of BSE and
NSE –Delisting.
• SBA 3 : How to list securities in stock markets.
 Listing of Securities-
Listing of Securities- Meaning Listed Securities are shares,
debentures or any other securities that is traded through an
exchange such as BSE, NSE, etc. When a public company
decides to go public and issue shares, it will need to choose an
exchange on which to be listed. To do so, it must be able to
meet that exchange's listing requirements and pay both the
exchange's entry and yearly listing fees. Listing requirements
vary by exchange and include minimum stockholder's equity, a
minimum share price and a minimum number of shareholders.
Exchanges have listing requirements to ensure that only high
quality securities are traded on them and to uphold the
exchange's reputation among investors.
 Merits of Listing
Securities Listing offers advantages to both the investors as well as the
companies.
Merits of listing of Securities to investors
1. It provides liquidity to investments. Security holders can convert
their securities into cash by selling them as and when they require.
2. Shares are traded in an open auction market where buyers and
sellers meet. It enables an investor to get the best possible price
for his securities.
3. Ease of entering into either buy or sell transactions.
4. Transactions are conducted in an open and transparent manner
subject to a well defined code of conduct. Therefore investors are
assured of fair dealings.
5. Listing safeguards investor’s interests. It is because listed
companies have to provide clear and timely information to the
stock exchanges regarding dividends, bonus shares, new issues of
capital, plans for mergers, acquisitions, expansion or
diversification of business. This enables investors to take informed
decisions.
6. Listed securities enable investors to apply for loans by providing
them as collateral security.
7. Investors are able to know the price changes through the price
quotations provided by the stock exchanges in case of listed
securities.
8. Listing of shares in stock exchanges provides investors facilities for
transfer, registration of rights, fair and equitable allotment.
9. Share holders are provided due notice with regard to book closure
dates, and they can take investment decisions accordingly.
 Merits of listing to companies
1. Listed securities are preferred by the investors as they have
better liquidity.
2. Listing provides wide publicity to the companies since their
name is mentioned in stock market reports, analysis in
newspapers, magazines, TV news channels. This increases the
market for the securities. As Hasting has observed,
3. Listing provides a company better visibility and improves its
image and reputation.
4. It makes future financing easier and cheaper in case of
expansion or diversification of the business.
5. Growth and stability in the market through broadening and
diversification of its shareholding.
6. Listing attracts interest of institutional investors of the
country as well as foreign institutional investors.
7. Listing enables a company to know its market value
and this information is useful in case of mergers and
acquisitions, to arrive at the purchase consideration,
exchange ratios etc.
8. By complying with the listing requirements, the
operations of the company become more
transparent and investor friendly. It further enhances
the reputation of the company.
 Demerits of listing Securities
Listing is not without its limitations. The following are the limitations of
listing:
1. Listing might enable speculators to drive up or drive down prices at their
will. The violent fluctuations in share prices affect genuine investors.
2. In case of excessive speculation, share prices might not reflect its
fundamentals. The stock markets may fail to be the true economic
barometer of an economy’s performance.
3. In case of bear markets share prices might be hammered down, and the
standing of a company might be lowered in the eyes of the investors,
shareholders, bankers, creditors, employees etc.
4. Listing of securities may induce the management and the top level
employees to indulge in ‘insider trading‘by getting access to important
information. Such actions adversely affect the common security holders.
5. The management might enter into an agreement with brokers to
artificially increase prices before a fresh issue and benefit from that.
Common public might be induced to buy shares in such companies,
ultimately the prices would crash and the common investors would be
left with worthless stock of securities.
6. Listing requires disclosing important sensitive
information to stock exchanges such as plans for
expansion, diversification, selling of certain businesses,
acquisition of certain brands or companies etc. Such
information might be used by the competitors to gain
advantage.
7. Outsiders might acquire substantial shares in the
company and threaten to take over the company or they
might demand hefty compensation to sell their shares.
8. Stock exchanges in India still suffer from shortcomings.
Listed securities might be utilized by scamsters to
indulge in scams.
 Objectives of Listing
The major objectives of listing are
1. To provide ready marketability and liquidity
of a company’s securities.
2. To provide free negotiability to stocks.
3. To protect shareholders and investors
interests.
4. To provide a mechanism for effective control
and supervision of trading.
 Listing requirements
A company which desires to list its shares in a stock exchange has to comply
with the following requirements:
1. Permission for listing should have been provided for in the Memorandum of
Association and Articles of Association.
2. The company should have issued for public subscription at least the
minimum prescribed percentage of its share capital (49 percent).
3. The prospectus should contain necessary information with regard to the
opening of subscription list, receipt of share application etc.
4. Allotment of shares should be done in a fair and reasonable manner. In case
of over subscription, the basis of allotment should be decided by the
company in consultation with the recognized stock exchange where the
shares are proposed to be listed.
5. The company must enter into a listing agreement with the stock exchange.
The listing agreement contains the terms and conditions of listing. It also
contains the disclosures that have to be made by the company on a
continuous basis.
 Minimum Public Offer
A company which desires to list its securities in a stock
exchange, should offer at least sixty percent of its issued
capital for public subscription. Out of this sixty percent, a
maximum of eleven percent in the aggregate may be
reserved for the Central government, State government,
their investment agencies and public financial
institutions. The public offer should be made through a
prospectus and through newspaper advertisements. The
promoters might choose to take up the remaining forty
percent for themselves, or allot a part of it to their
associates.
 Fair allotment
Allotment of shares should be made in a fair and
transparent manner. In case of over subscription,
allotment should be made in an equitable manner in
consultation with the stock exchange where the
shares are proposed to be listed. In case, the
company proposes to list its shares in more than one
exchange, the basis of allotment should be decided
in consultation with the stock exchange which is
located in the place in which the company’s
registered office is located.
 Listing Procedure
1. Decision about listing on the Exchange: The
company compares the benefits of a presence on
the Exchange (the “profit” of the listing) with the
challenges connected with it (primarily the
disclosure obligations of its presence on the
Exchange, but also one-off and ongoing
expenses). If the company considers that the
benefits outweigh the costs of listing, it may then
decide to apply for a listing on the Exchange.
2. Selection of the contributors: The first and most
important task during the preparatory phase is the
selection of the contributing players. Investment
firms have a dual role. On the one hand, they carry
out advisory services, the preparation of the issue
process, and the transaction itself, while on the other
hand they offer/sell the securities to the public. In a
public offering, they also provide an underwriting
guarantee on behalf of the issuer. Fees are generally
charges in accordance with these main services.
Choosing the right investment firm is of paramount
importance since this is the player who will assist the
issuer during the entire listing process and who
organizes this multiplayer and complex negotiation.
It is reasonable to select the advising bank (or
banks) based on a tender, and selecting the
other players together with the advising bank
is recommended. The issuer has to make
preparations even prior to the selection of the
advisor and needs to have knowledge of the
qualification criteria and the requirements
expected during the selection and listing
process.
Auditors’ responsibility is far larger and far more complex
in the case of a public company and transactions
resulting in an increase in the number of shareholders.
In addition to the traditional audit services, the auditor
prepares a more detailed financial report (the so-called
long form report) in the preparation of a listing, and its
tasks often include an assessment (but not a
certification) of the management's earnings forecasts.
Legal advisors deal with the examination of the legal
status, significant contracts and legal relationships of
the issuer, as well as with the documentation of
shareholder rights (statutes, deed of foundation,
shareholders’ agreements etc.).
Legal advisors’ main task is to prepare a final
report. The role of lawyers is very important in
the preparation of a public offering,
subscription and underwriting contracts linked
to the sale of shares. Given that at this stage
of the process the interests of the issuer and
of the lead manager may differ, both parties
often have their own legal counsel.
Marketing and PR advisors provide assistance with the
distribution of shares during the public offering and with
marketing the securities to potential buyers. These advisors
participate in organizing road shows preceding the sale of
the shares and in providing logistic services. If the company
intends to make a simple listing on the Exchange, it is not
necessary to involve all of the players listed above – the
respective regulation does not require the contribution of
an advisor in this case. Still, if a package of new or existing
shares is to be sold to the public, contribution of an
investment firm has to be involved.
3. Preparations for listing on the Exchange: The
Company shall prepare not only for the listing, but
for the maintenance associated with listing on the
Exchange. It is necessary that an appropriate level
of investor relations and a harmonization of the
internal corporate processes among the different
business units are ensured. It is particularly
important in the case of a public offering, but also
useful in a simple listing, to devise an appropriate
marketing campaign at this stage.
4. Preparation of a prospectus: The most important document
of a listing is the so-called prospectus. The prospectus shall
contain all relevant information on the economic, market,
financial and legal situation of the company (and their likely
developments in the future), giving investors the widest
possible range of information to ensure proper decision-
making. The prospectus shall explicitly contain a statement
that the shares are to be listed on an Exchange and shall
indicate as a prime risk factor, if no investment firms
participated in its compilation. The prospectus prepared for a
listing on the BSE shall be submitted for approval to the
Central Bank of Hungary, which shall make a decision within
20 working days. Issuing the Prospectus can only be done
following the MNB’s approval.
As a consequence of Hungary ’s EU membership
and on the basis of a “single passport”, the
BSE also accepts prospectuses approved by
the supervisory authority of any other EU
member state. The provisions regarding the
contents of the prospectus are determined by
the respective EU regulation.
5. Compilation of the listing documentation: This
documentation basically consists of an application,
different statements and additional documents (to assist
in this, the Exchange has compiled an application form).

6. Official submission of the listing documentation to the

Exchange (application for listing): In order to ensure
smoother administration, it is recommended that an
unofficial draft version of the application be submitted
to the Exchange for a preliminary assessment prior to
the official submission of listing documentation. This
shall be followed by the official submission of the papers
already agreed upon.
7. Public notice of new listing applications: Subsequent to
the receipt of the application, the Exchange issues a public
notice informing the market of the receipt of the
application.

8. Review of the application: The Exchange has 10 Exchange

days to review the application and must make a decision
within 30 calendar days of its receipt. If necessary, the
Exchange may request the issuer to submit any missing
documents, and the issuer shall appropriately supplement
the documentation within ten working days – in such cases,
the deadline for the assessment by the Exchange shall be
extended by the period needed to submit the missing
documents.
9. Publications on the Exchange website
regarding the listing: The documents relevant
to investors shall be published at least two
Exchange days before the listing.
10. If the documentation is complete and
appropriate, a decision on listing shall be
made (otherwise, the application shall be
rejected).
11. First trading day Trading in the shares
officially commences on the Exchange.
 Delisting of Securities
Delisting of securities means removal of the securities of
a listed company from the stock exchange. It may
happen either when the company does not comply
with the guidelines of the stock exchange, or that the
company has not witnessed trading for years, or that it
voluntary wants to get delisted or in case of merger or
acquisition of a company with/by some other company.
So, broadly it can be classified under two head:
1. compulsory delisting.
2. Voluntary delisting.
 Compulsory delisting
Compulsory delisting refers to permanent removal of
securities of a listed company from a stock exchange as a
penalizing measure at the behest of the stock exchange
for not making submissions/comply with various
requirements set out in the Listing agreement within the
time frames prescribed. In voluntary delisting, a listed
company decides on its own to permanently remove its
securities from a stock exchange. This happens mainly
due to merger or amalgamation of one company with the
other or due to the non-performance of the shares on the
particular exchange in the market.
 A stock exchange may compulsorily
delist the shares of a listed company
under certain circumstances like:
1. Non-compliance with the Listing Agreement for a minimum
period of six months.
2. Failure to maintain the minimum trading level of shares on the
exchange.
3. promoters', Directors' track record especially with regard to
insider trading, manipulation of share prices, unfair market
practices (e.g. returning of share transfer documents under
objection on frivolous grounds with a view to creating scarcity
of floating stock, in the market causing unjust aberrations in
the share prices, auctions, close-out, etc.
4. The company has become sick and unable to meet
current debt obligations or to adequately finance
operations, or has not paid interest on debentures
for the last 2-3 years, or has become defunct, or
there are no employees, or liquidator appointed, etc
Where the securities of the company are delisted by
an exchange under this method, the promoter of
the company shall be liable to compensate the
security-holders of the company by paying them the
fair value of the securities held by them and
acquiring their securities, subject to their option to
remain security-holders with the company.
In such a case there is no provision for an exit route for the
shareholders except that the stock exchanges would allow
trading in the securities under the permitted category for
a period of one year after delisting. Companies may upon
request get voluntarily delisted from any stock exchange
other than the regional stock exchange, following the
delisting guidelines. In such cases, the companies are
required to obtain prior approval of the holders of the
securities sought to be delisted, by a special resolution at
a General Meeting of the company. The shareholders will
be provided with an exit opportunity by the promoters or
those who are in the control of the management.
 The SEBI (Delisting of Securities) Guidelines
2003
The SEBI (Delisting of Securities) Guidelines 2003 is the regulating Act
framing the guidelines and the procedure for delisting of securities.
Under this the prescribed procedure is:
1. The decision on delisting should be taken by shareholders though a
special resolution in case of voluntary delisting & though a panel to be
constituted by the exchange comprising the following in case of
compulsory delisting:
  Two directors/ officers of the exchange (one director to be a public
representative).
  One representative of the investors.
  One representative from the Central government (Department of
Company Affairs) / regional director/ Registrar of Companies.
  Executive Director/ secretary of the Exchange
2. Due notice of delisting and intimation to the
company as well as other Stock Exchanges where
the company's securities are listed to be given.
3. Notice of termination of the Listing Agreement
to be given.
4. making an application to the exchange in the
form specified, annexing a copy of the special
resolution passed by the shareholders in case of
voluntary delisting.
5. Public announcement to be made in this regard
with all due information.
 Module-03
Successfully Completed
 Module-IV
Stock Exchanges and Trading System
• Stock Exchanges BSE, NSE & MCX –Different
trading systems –Different types of settlements
- Pay-in and Pay-out –Bad Delivery –Short
delivery –Auction –Market types, Order types
and books –De-mat settlement –Physical
settlement –Practical sessions on stock market
operations
• SBA 4 : How to trade in stock exchanges.
 Overview of Bombay Stock Exchange

The BSE, formerly known as the Bombay Stock

Exchange Ltd. is an Indian stock exchange
located at Dalal Street, Mumbai. Established in
1875, it is Asia's oldest stock exchange. The
BSE is the world's 10th largest stock exchange
with an overall market capitalization of more
than US$2.2 trillion on as of April 2018.
 Historical Overview of BSE
Historical Overview While BSE Ltd is now synonymous with Dalal
Street, it was not always so. In 1850s, five stock brokers gathered
together under Banyan tree in front of Mumbai Town Hall, where
Horniman Circle is now situated. A decade later, the brokers moved
their location to another leafy setting, this time under banyan trees
at the junction of Meadows Street and what was then called
Esplanade Road, now Mahatma Gandhi Road. With a rapid increase
in the number of brokers, they had to shift places repeatedly. At last,
in 1874, the brokers found a permanent location, the one that they
could call their own. The new place was, aptly, called Dalal Street
(Brokers' Street). The brokers group became an official organization
known as "The Native Share & Stock Brokers Association" in 1875.
On August 31, 1957, the BSE became the first stock
exchange to be recognized by the Indian Government
under the Securities Contracts Regulation Act. In
1980, the exchange moved to the Phiroze Jeejeebhoy
Towers at Dalal Street, Fort area. In 1986, it
developed the S&P BSE SENSEX index, giving the BSE
a means to measure the overall performance of the
exchange. In 2000, the BSE used this index to open its
derivatives market, trading S&P BSE SENSEX futures
contracts. The development of S&P BSE SENSEX
options along with equity derivatives followed in 2001
and 2002, expanding the BSE's trading platform.
Historically an open outcry floor trading exchange, the
Bombay Stock Exchange switched to an electronic trading
system developed by CMC Ltd. in 1995. It took the
exchange only 50 days to make this transition. This
automated, screen-based trading platform called BSE On-
Line Trading (BOLT) had a capacity of 8 million orders per
day. Now BSE has raised capital by issuing shares and as on
3 May 2017 the BSE share which is traded in NSE only
closed with Rs.999. The BSE is also a Partner Exchange of
the United Nations Sustainable Stock Exchange initiative,
joining in September 2012. BSE established India INX on 30
December 2016. India INX is the first international
exchange of India. BSE launches commodity derivatives
contract in gold, silver.
Today BSE provides an efficient and transparent market
for trading in equity, currencies, debt instruments,
derivatives, mutual funds. BSE SME is India’s largest
SME platform which has listed over 250 companies
and continues to grow at a steady pace. BSE StAR MF
is India’s largest online mutual fund platform which
process over 27 lakh transactions per month and adds
almost 2 lakh new SIPs every month. BSE Bond, the
transparent and efficient electronic book mechanism
process for private placement of debt securities, is
the market leader with more than Rs 2.09 lakh crore
of fund raising from 530 issuances. (F.Y.2017-2018).
 Recent Trends BSE
Recent Trends Keeping in line with the vision of Shri Narendra Modi, Hon’be
Prime Minister of Inida, BSE has launched India INX, India's 1st
international exchange, located at GIFT CITY IFSC in Ahmedabad. Indian
Clearing Corporation Limited, a wholly owned subsidiary of BSE, acts as
the central counterparty to all trades executed on the BSE trading
platform and provides full innovation, guaranteeing the settlement of all
bonafide trades executed. BSE Institute Ltd, another fully owned
subsidiary of BSE runs one of the most respected capital market
educational institutes in the country. BSE has also launched BSE
Sammaan, the CSR exchange, is a 1st of its kind initiative which aims to
connect corporate with verified NGOs BSE's popular equity index - the
S&P BSE SENSEX - is India's most widely tracked stock market benchmark
index. It is traded internationally on the EUREX as well as leading
exchanges of the BRCS nations (Brazil, Russia, China and South Africa)
Overview of National Stock Exchange (NSE)

National Stock Exchange of India Limited (NSE) is the

leading stock exchange of India, located in Mumbai,
Maharashtra. NSE was established in 1992 as the
first dematerialized electronic exchange in the
country. NSE was the first exchange in the country
to provide a modern, fully automated screenbased
electronic trading system which offered easy trading
facilities to investors spread across the length and
breadth of the country
Historical Overview National Stock Exchange

Historical Overview National Stock Exchange was incorporated in the year

1992 to bring about transparency in the Indian equity markets. Instead of
trading memberships being confined to a group of brokers, NSE ensured
that anyone who was qualified, experienced and met the minimum
financial requirements were allowed to trade. In this context, NSE was
ahead of its time when it separated ownership and management of the
exchange under SEBI's supervision. Stock price information which could
earlier be accessed only by a handful of people could now be seen by a
client in a remote location with the same ease. The paperbased
settlement was replaced by electronic depository-based accounts and
settlement of trades was always done on time. One of the most critical
changes involved a robust risk management system that was set in place,
to ensure that settlement guarantees would protect investors against
broker defaults.
NSE was set up by a group of leading Indian financial
institutions at the behest of the Government of India to
bring transparency to the Indian capital market. Based
on the recommendations laid out by the Pherwani
committee, NSE was established with a diversified
shareholding comprising domestic and global investors.
The key domestic investors include Life Insurance
Corporation, State Bank of India, IFCI Limited , IDFC
Limited and Stock Holding Corporation of India Limited.
Key global investors include Gagil FDI Limited, GS
Strategic Investments Limited, SAIF II SE Investments
Mauritius Limited, Aranda Investments (Mauritius) Pte
Limited and PI Opportunities Fund
The exchange was incorporated in 1992 as a tax-paying company
and was recognized as a stock exchange in 1993 under the
Securities Contracts (Regulation) Act, 1956, when P. V.
Narasimha Rao was the Prime Minister of India and Manmohan
Singh was the Finance Minister. NSE commenced operations in
the Wholesale Debt Market (WDM) segment in June 1994. The
capital market (equities) segment of the NSE commenced
operations in November 1994, while operations in the
derivatives segment commenced in June 2000. NSE offers
trading, clearing and settlement services in equity, equity
derivative, debt, commodity derivatives, and currency
derivatives segments. It was the first exchange in India to
introduce an electronic trading facility thus connecting the
investor base of the entire country. NSE has 2500 VSATs and
3000 leased lines spread over more than 2000 cities across India
NSE was also instrumental in creating the National
Securities Depository Limited (NSDL) which allows
investors to securely hold and transfer their shares and
bonds electronically. It also allows investors to hold and
trade in as few as one share or bond. This not only made
holding financial instruments convenient but more
importantly, eliminated the need for paper certificates
and greatly reduced incidents involving forged or fake
certificates and fraudulent transactions that had plagued
the Indian stock market. The NSDL's security, combined
with the transparency, lower transaction prices and
efficiency that NSE offered, greatly increased the
attractiveness of the Indian stock market to domestic and
international investors.
 NSE EMERGE
NSE EMERGE is NSE's new initiative for Small
and medium-sized enterprises (SME) & Start-
up companies in India. These companies can
get listed on NSE without an Initial public
offering (IPO). This platform will help SME's &
Startups connect with investors and help them
with the raising of funds.[12] In August 2019,
the 200th company listed on NSE's SME
platform.
 Markets
Markets NSE offers trading and investment in the
following segments:
Equity: Equity, Indices, Mutual fund, Exchange-
traded funds, Initial public offerings, Security
Lending and Borrowing etc.
Derivatives: Equity Derivatives Currency
derivatives, Commodity Derivatives, Interest rate
futures
Debt: Corporate bonds
 OTCEI
Overview of OTC Exchange of India The OTC Exchange of India (OTCEI), also
known as the Over-the-Counter Exchange of India, is based in Mumbai,
Maharashtra. It is India's first exchange for small companies, as well as
the first screen-based nationwide stock exchange in India. OTCEI was set
up to access high-technology enterprising promoters in raising finance for
new product development in a cost-effective manner and to provide a
transparent and efficient trading system to investors. OTCEI is promoted
by the Unit Trust of India, the Industrial Credit and Investment
Corporation of India, the Industrial Development Bank of India, the
Industrial Finance Corporation of India, and other institutions, and is a
recognized stock exchange under the SCR Act. The OTC Exchange Of India
was founded in 1990 under the Companies Act 1956 and was recognized
by the Securities Contracts Regulation Act, 1956 as a stock exchange. The
OTCEI is no longer a functional exchange as the same has been de-
recognized by SEBI vide its order dated 31 Mar 2015.
Features of the Over-The-Counter Exchange
of India (OTCEI)
The OTCEI has some special features that make it a unique exchange in India
as well as being a growth catalyst for small- to medium-sized companies.
The following are some of its unique features:
1. Stock Restrictions: Stocks that are listed on other exchanges will not be
listed on the OTCEI and conversely, stocks listed on the OTCEI will not be
listed on other exchanges.
2. Minimum Capital Requirements: The requirement for the minimum
issued equity capital is 30 lakh rupees, which is approximately $40,000.
3. Large Company Restrictions: Companies with issued equity capital of
more than 25 crore rupees ($3.3 million) are not allowed to be listed.
4. Member Base Capital Requirement: Members must maintain a base
capital of 4 lakh rupees ($5,277) to continue to be listed on the exchange.
Over-The-Counter Exchange of India (OTCEI)
Listing Requirements
Though the requirements of the OTCEI make it easier
for small- to mid-cap sized companies to be listed,
there are still some requirements that companies
must meet before being allowed to be listed. Listing
does require sponsorship from members of the OTCEI
and it needs to have two market makers. In addition,
once a company is listed, it cannot be delisted for at
least three years, and a certain percentage of issued
equity capital needs to be kept by promoters for a
minimum of three years. This percentage is 20%.
 Transactions on the Over-The-Counter Exchange of
India (OTCEI)
The transactions on the OTCEI revolve around the dealers. Dealers
operate in a few capacities, the two most important being as a
broker and as a market maker. As a broker, the dealer transacts on
behalf of buyers and sellers. As a market maker, the dealer has to
ensure the availability of the shares for transaction purposes as
well as to ensure that the price remains reasonable through
supply and demand levels. In addition to the dealers, the OTCEI
also has custodians. The custodian, or settler, is the individual that
performs the multitude of administrative tasks necessary for the
proper functioning of the OTCEI. These tasks include validating
and storing documents as well as facilitating daily clearing
transactions. The last group of players consists of the registrars
and transfer agents that make sure the correct transfer and
allotment of shares take place.
 Recent Trends OTC Exchange of India
Recent Trends OTC Exchange of India introduced certain new concepts in
the Indian trading system:
1. Screen based nationwide trading known as OTCEI Automated
Securities Integrated System or OASIS
2. Market Making
3. Sponsorship of companies
4. Trading done in share certificates
5. Weekly Settlement Cycle
6. Short Selling
7. Demat trading through National Securities Depository Limited for
convenient paperless trading
8. Tie-up with National Securities Clearing Corporation Ltd for Clearing.
 MCX and How Does it Work?

• The full form of MCX is Multi Commodity Exchange of India

Limited. MCX is India’s first commodity derivatives exchange
facilitating online trading of commodity derivatives transactions.
Commencing operations in 2003, MCX operates under the
purview of the Securities and Exchange Board of India (SEBI).

• MCX operates in the same manner as the Bombay Stock

Exchange (BSE) and the National Stock Exchange (NSE), offering
commodity derivative contracts across segments including
agriculture commodities, metals and energy among others
 Factors Affecting Commodity Prices

Demand and Supply

It’s one of the fundamental factors affecting commodity prices.
Note that while the law of demand and supply is applicable for
the commodity market as well, it varies across diverse time
periods, depending on season, domestic and global conditions.
Geopolitical Concerns
Geopolitical factors have a direct as well an indirect effect on
commodity product trading prices. Having said that, there are
occasions when they positively influence commodity prices
Cost and Technology

This is another factor that influences

commodity prices. Costs include that of raw
materials, R&D, wages, licensing and taxes,
among others. Also, in the long-term
technological developments may result in
greater yields that bring down the marginal
cost of production.
 Advantages of MCX

Transparency 
Trading volumes, their prices and changes are totally transparent on MCX
and are in an organized structure. These help in making an informed choice.
 
Range of Opportunities 
MCX offers a range of opportunities in the form of several month contracts of
derivatives & options that provide the much-needed diversification and
liquidity. 

MCX Demat Account

  An MCX Demat account is a type of account that helps you invest in different
commodities in the stock market. Till 2015, MCX Demat Account was
regulated by the Forward Market Commission that later merged with SEBI.
 What is MCX Trading Account?

 
An MCX trading account is the account through which
you can trade in a wide range of commodities on the
MCX. 
Note that, if you are looking to open an MCX trading
account, you need to keep some margin money in
your account. This margin money is a type of security
for the broker to compensate for huge losses suffered,
if any.
 
The types of margin include:
 
Initial Margin
Initial margin refers to the minimum margin
money that you need to deposit in your MCX
trading account to start trading.
 M2M Margin
  Profit or loss in a trading day is adjusted each day by mark-to-
market (M2M) margin. If there’s a profit, the money is transferred
to your MCX trading account by the clearing house. On the other
hand, if make losses, the money is transferred from the MCX
account into the account of the clearing house by the broker.

Special Margin
Traders collect special margin to control volatility and set off
excessive speculation. Note that the margin amount is anywhere
between 5-10% of the contract value of the commodity.
 Importance of MCX Account

An MCX trading account allows you to: 

• Invest in different commodities
• Ensure seamless transaction
• Get access to detailed reports, essential for
due diligence
 How to Open MCX Account?
For MCX account opening:

Choose a Stockbroker
  Choose a suitable stockbroker registered with MCX. There are many such stockbrokers in the
market, each having their own strengths. The choice is important as the broker holds your
account and executes trade on your behalf. Choose a well-informed and customer-savvy broker.

Fill up the Application Form 

This is the next step in MCX account opening. Fill up the application form with the relevant
details and submit the KYC documents related to your identity, address and income, among
others.
 
In-person Verification 
A mandatory exercise, in-person verification establishes your documents’ authenticity. Thanks
to digitalization, most broking firms offer this service online.

Once the verification is complete and the account is opened, you need to deposit an initial
margin money. You can open an MCX online account or visit the branch of the broking house
for so.
 Types of Trade Settlement 

During trading of financial securities, the time period for

settlement of trades, trade capture is set as per the contract.
The general time frame differs as per the types of securities.
Equity securities are settled on T + 2 days, here ‘T’ is the trade
date. Other securities such as commodities, currencies, or
derivatives are traded at the mark to market, the settlement
for a mark to market is at T + 2 days.
• The classification of Trade settlement can be done into 3 types:
• Normal/ Rolling Settlement
• Trade-to-Trade Settlement
• Auction
 Rolling Settlement
In this type of trade settlement, securities are settled on
successive dates based on the settlement period in the
contract and the day when the trade was executed. So
let’s take a trade contract period with T + 2 days
settlement time, here if a trade is placed on Monday and
another trade is placed on Tuesday, the trade on
Monday will be settled on Wednesday and the trade
executed on Tuesday will be settled on Thursday
(successively).
This is different from the account settlement method
wherein the trade executed within a given time period is
all settled at once.
 Trade-to-Trade Settlement
In the Asset allocation, Trade to Trade Settlement
method, intraday trading in prohibited for securities
falling in this segment.

In this type of settlement method, the trader is required

to accept the delivery of the security when bought
and provide the monetary value, while selling the
trader has to deliver the securities and the monetary
value of the same will be provided to the trader for
the securities traded. In short, shares are traded only
for delivery.
Auction
Any trade involves at least two parties to the transaction, in the
trading of financial securities, on one side we have the buyer of
the security on the other side we have the seller of the financial
security. The auction takes place when the selling party of the
transaction or trade fails to deliver within the given time period
on the agreement of selling the security for the said or agreed
upon the monetary value of the security. It’s a kind of penalty for
the investor’s carelessness while trading.
In this case of failure the broker of the selling party will try to
purchase the security in a buy-in-auction market, the sum of the
auction price along with the penalty and brokerage charges has
to be paid by the defaulter (the selling party). The settlement of
the action is done on T+3 days given the broker tries and
purchases the share in the auction market on T + 2 days
 Pay in and payout

• Pay-in and Pay-outs are the days when brokers and exchanges make
payment or delivery of the securities.
• What is Pay-in?
• When investors sell their shares, the broker collects the specific
shares from their Demat account. Then, these shares are transferred
to the exchange and clearing board. This process is called pay in.
• What is Pay-out?
• When investors buy the shares, the clearing member transfers these
shares to the broker who then transfers these shares to the demat
account. This process is called payout.
• The whole settlement cycle takes T+2 days ( 2 working days
excluding the day of trading) for settlement.
 Bad delivery in Stock Market

A tender of securities on a stock exchange that

are not in proper transferable or negotiable
form or not in compliance with the terms of a
contract or the rules of an exchange
 Short delivery in share market

• Short delivery happens when the seller (on

the other side of your buy trade) fails to
deliver the shares to the exchange to be
credited to your demat account. This typically
happens when intraday short positions can
not be closed due to illiquidity or due to stocks
hitting an upper circuit.
 How Does Settlement Work in the Stock Market?

• Every transaction you ever make requires a buyer and a seller

with the underlying medium of the transaction being money.
• But when it comes to buying and selling shares in the stock
market, transactions are not instantaneous. You do not get the
shares in your DEMAT account the very moment you place a buy
order.
• It isn’t instantaneous because of the involvement of the various
intermediaries in the entire process. The authorities need to
ensure that this movement is as smooth and standardized as
possible so as to minimize the involved risk.
• In the Indian stock market, a trade involves the completion of 3
phases, trading, clearing and settlement.
• These 3 phases happen on 3 respective days, the Trade Day, or the T-Day,
the T+1 day and the T+2 day.
• So, when you buy some shares on T-day, you receive the shares in
your DEMAT account generally after 2 days, that is, on the T+2 day, which
is also the case if you were to sell some shares, for which you receive the
money on the T+2 day.
• The first phase is the trading phase which happens on the T-day.  This is
the day where you place any buy or sell orders for the securities you
choose. If you’re placing a buy order, the money gets debited from your
bank account and goes to your broker along with any brokerage charges.
If you’re placing a sell order, the shares you’re selling get blocked
immediately so as to prevent you from selling them multiple times.
• The second phase happens on the next day, that is the T+1 day. If you
had placed a buy order on the previous day, your broker transfers the
money to the stock exchange and if you had placed a sell order, the
broker transfers the shares to the stock exchange.
• The third and the final phase of trade settlement happens on
the T+2 day. If you had placed a buy order, then your broker
credits the shares you purchased into your DEMAT account and
if you had placed a sell order, your broker transfers the funds
into your bank account after deducting brokerage charges.
• A trade is termed as settled once the buyer of the stocks
receives the stocks and the seller receives the payment for
these stocks.
• In order to keep this entire process hassle-free, SEBI, the
Securities and Exchange Board of India has designated entities,
which are depositories, clearing banks, clearing corporation and
the clearing members/custodians.
• These entities work in perfect unison to keep the system
running.
• Clearing corporations are the ones responsible for everything
that happens on the T+1 day. They ensure that the trade is
settled at the end and they are obligated to meet all settlements
irrespective of member defaults.
• The clearing corporation then transfers the trade details to the
clearing members who have to determine and confirm the
positioning of shares and the funds required to suit the trade and
subsequently settle the entire trade.
• This entire process of settlement happens through clearing banks
wherein every clearing member has to have an account.
• The clearing members receive funds from clearing corporations
when the stock exchange has to deliver funds to the seller and
they have to make funds available to clearing corporations when
the buyer sends the funds to the stock exchange. These situations
are respectively known as the pay-out and pay-in.
 Dematerialization
and Rematerialization
Points Dematerialization Rematerialization
Meaning Process of converting Process of conversion
physical Securities of electronic Certificate of
certificate into electronic Securities into physical
form form

Conversion Here, the paper form of Here, electronic records

securities are converted are converted into
into digitally/electronically physical/paper form
held securities securities
Use of Form It uses ‘DRF’ Viz It uses ‘RRF’
Dematerialization Request Rematerialization Request
Form from investor to DP Form from investor to DP
Sequence This is an initial process. It This is a reverse process. It
is a primary and initial is a secondary supporting
process of Depository function of the depository.
Already demated securities
are remated.
Identification of Securities Demated securities have Remated securities will
no distinctive number. have certificate and
They are fungible. distinctive numbers as
issued by the company

Security maintenance The depository is the The issuing company is the

custodian of securities and record keeping authority.
records. Securities are maintained
by investors.

Difficulty of Process Demat is an easy process. Remat is not only time

Also its not a time consuming but also a
consuming process complex process
 Module-04
Successfully Completed
 Module-V
Risk Management in BSE and NSE
• Risk management systems - Risk management
system in BSE & NSE –Margins – Exposure
limits –Surveillance system in –Circuit breakers
- Inside Trading, Circular Trading, Price Rigging
–market indices.
• SBA 5 : To equip procedures of risk
management in stock market.
 Insider Trading

Illegal insider trading refers generally to buying or selling a security, in

breach of a fiduciary duty or other relationship of trust and
confidence, on the basis of material, nonpublic information about
the security. Insider trading violations may also include "tipping"
such information, securities trading by the person "tipped," and
securities trading by those who misappropriate such information.
Examples of insider trading cases that have been brought by the SEC
are cases against:
• Corporate officers, directors, and employees who traded the
corporation's securities after learning of significant, confidential
corporate developments;
• Friends, business associates, family members, and other "tippers" of
such officers, directors, and employees, who traded the securities
after receiving such information;
• Employees of law, banking, brokerage and printing firms who traded
based on information they obtained in connection with providing
services to the corporation whose securities they traded;
• Government employees who traded based on confidential information
they learned because of their employment with the government;
• Political intelligence consultants who may tip or trade based on
material, nonpublic information they obtain from government
employees; and
• Other persons who misappropriated, and took advantage of,
confidential information from their employers, family, friends, and
others.
• Because insider trading undermines investor confidence in the fairness
and integrity of the securities markets, the SEC has treated the
detection and prosecution of insider trading violations as one of its
enforcement priorities. 
 Circular trading
• Circular trading is a type of securities fraud that can take place in stock markets,
causing price manipulation and often related to pump and dump schemes. Circular
trading occurs when identical sell orders are entered at the same time with the same
number of shares and the same price. As a result, there is no beneficial change in
ownership of shares, but there is the appearance of an increased trade volume. Circular
trading can be achieved by several parties colluding to achieve the Fraudulent outcome.
This is not to be confused with wash trading, which is where the same outcome is
achieved but occurs through the actions of one investor, rather than a group.
• Circular trading is based on the premise that trading volume has a direct impact
on share price. Trading volume increases are widely regarded as a signal that something
important is happening within a company, such as a new product or a change in
management that may be soon announced. Due to this, Investors buy shares in order to
take advantage of the expected increase in share value. This increases the value of the
shares, causing them to become overvalued. Circular trading is fraudulent because the
signal that investors receive to buy shares has no basis in reality and is made with the
sole purpose of creating interest where none is warranted.
• Therefore, this fraudulent practice is widely considered unethical and
is banned in many countries. This issue is most prevalent
in India, where companies such as Videocon Industries Ltd had their
shares devalued fraudulently by the Brokers Mansukh Securities and
Finance Ltd. and Intec Shares and Stock Brokers Ltd.
• Circular trading has become a particularly important issue since the
advent of high-frequency trading in the 1990s, which allows large
investors and investor groups to perform an extremely high number
of automated transactions in a short period of time. Powerful
Computers can be used to buy and sell shares in single stocks at
immensely more rapid rates than humans can achieve manually.
Consequently, creating the appearance of high trading volumes has
become much easier, particularly in large companies where a very
large number of transactions is required to simulate a realistic level of
activity
 Price Rigging

Price rigging is a form of market manipulation. Cases of price rigging may be

prosecuted under the antitrust laws of several different countries, as it
runs contrary to natural market forces (such as supply and demand). It
has the effect of dampening competition, which negatively impacts
consumers as competition tends to provide greater variety and lower
prices.
While most cases of price rigging involve a conspiracy to keep prices as high
as possible, it may also be employed to keep prices stable, fix them, or
discount them.
Price rigging may take many forms: manufacturers and sellers may seek to
set pricing floors, agree to a common minimum price or book price, limit
discounting or markups, agree to impose or limit similar surcharges, or
carve up territories or customer bases to limit competition within them.
 Bulls, Bears, and Stags

• Bullish and bearish are the two most common terms used to describe the
thought processes and actions of an individual investor. These mentalities
are based on the intentions of investors who seek to gain from market
movements.
• A bullish trader is one who believes the price of an asset will rise. Buy-and-
hold strategists are normally bullish investors. Bearish traders, on the other
hand, are those who believe the price of an asset will fall.
• While a long-term investor may be perpetually bullish, always looking for
something to buy and assuming the stock will always rise over time, the
stag investor may rapidly change from bullish to bearish, and vice versa. On
any given day, an asset may rise or fall, and even when an asset is rising
overall there will be periods when it falls. Since the stag is only in trades for
a short period of time, they may trade many of these price oscillations
higher and lower.
 Module-05
Successfully Completed
 IAT Rules to be followed during online Test
• You must use a functioning webcam and microphone
• No cell phones or other secondary devices in the room or test area
• Your desk/table must be clear or any materials except your test-
taking device
• No one else can be in the room with you
• No talking 
• The testing room must be well-lit and you must be clearly visible
• No dual screens/monitors
• Do not leave the camera/If you leave the camera you will be
disqualified from the online test.
• No use of additional applications or internet
PRESENTATIONS
For 10 Internal Marks