CAPITAL MArket_Module 3_Final.ppt

India’s Capital Market – India’s Capital Market – investment optionsinvestment options

III Sem IAMIII Sem IAM

Prepared by RBPrepared by RB

Indian Economy and Capital Market at a glanceIndian Economy and Capital Market at a glance The India economy, the third largest economy

in the world in terms of purchasing power Second fastest growing economies after China Second fastest growing economies after China

with an average annual growth rate of more with an average annual growth rate of more than 8 per cent in the last three years than 8 per cent in the last three years

As predicted by Goldman Sachs, the Global Investment Bank, by 2035 India would be the third largest economy of the world just after US and China. It will grow to 60% of size of the US economy

GDP at current market prices is around US $ 2 GDP at current market prices is around US $ 2 trilliontrillion

Indian Economy and Capital Market at a glanceIndian Economy and Capital Market at a glance Second fastest growing economies after Second fastest growing economies after

China with an average annual growth rate of China with an average annual growth rate of more than 5 per cent in the last three years more than 5 per cent in the last three years

India’s growth rate has surpassed some of the India’s growth rate has surpassed some of the developed economiesdeveloped economies

GDP at current market prices is over US GDP at current market prices is over US $1.84 trillion

The total market capitalization of 58 major The total market capitalization of 58 major stock markets across the globe reached stock markets across the globe reached $60.68 trillion by end of September$60.68 trillion by end of September

India had first entered the trillion-dollar club in June India had first entered the trillion-dollar club in June 2007, but moved out in September 2008, amid the 2007, but moved out in September 2008, amid the global slowdown. It again got back into the elite league global slowdown. It again got back into the elite league in May 2009 and had largely remained there since then, in May 2009 and had largely remained there since then, except for some brief periods including once in 2012except for some brief periods including once in 2012

With India out of this league, only 13 stock markets With India out of this league, only 13 stock markets across the world now enjoy a trillion-dollar status, led across the world now enjoy a trillion-dollar status, led by the US (an estimated $20 trillion). Others in this club by the US (an estimated $20 trillion). Others in this club are UK, Japan, China, Canada, Hong Kong, Germany, are UK, Japan, China, Canada, Hong Kong, Germany, France, Switzerland, Australia, South Korea, Nordic France, Switzerland, Australia, South Korea, Nordic region and Brazil.region and Brazil.

GDP of India GDP of India

$1.84 trillion $1.84 trillion

Indian Economy and Capital Market Indian Economy and Capital Market at a glanceat a glance

Foreign investment can be made in India Foreign investment can be made in India with specific prior approval in sectors other with specific prior approval in sectors other than those prohibited than those prohibited

Foreign investment is now freely allowed in Foreign investment is now freely allowed in all sectors, including the services sector all sectors, including the services sector subject to specified sect oral ceilings except subject to specified sect oral ceilings except in a few strategically sensitive areasin a few strategically sensitive areas


General permission granted to the Indian General permission granted to the Indian companies for issuing rights/bonus shares companies for issuing rights/bonus shares to the existing nonresident shareholders to the existing nonresident shareholders subject to adherence to sectoral capsubject to adherence to sectoral cap

Indian companies may issue shares under Indian companies may issue shares under Employee Stock Option Scheme to its Employee Stock Option Scheme to its employees who are resident outside employees who are resident outside


An Indian company can raise foreign currency An Indian company can raise foreign currency resources overseas through ADRs or GDRsresources overseas through ADRs or GDRs

Foreign Institutional Investors are allowed to invest Foreign Institutional Investors are allowed to invest in India under the Foreign Institutional Investment in India under the Foreign Institutional Investment scheme scheme

Portfolio investment limits in individual companies Portfolio investment limits in individual companies can be raised by Board resolution keeping the can be raised by Board resolution keeping the overall sect oral cap in viewoverall sect oral cap in view


Investments can be made through foreign Investments can be made through foreign venture capital fundsventure capital funds

Private equity is allowed as an alternative Private equity is allowed as an alternative form of investmentform of investment

Qualified Institutional investors are allowed Qualified Institutional investors are allowed to invest in Indian Depository Receipts to invest in Indian Depository Receipts floated by foreign companies. FIIs and NRIs floated by foreign companies. FIIs and NRIs can also invest in IDRs after obtaining can also invest in IDRs after obtaining permission from RBI permission from RBI


FIIs can make investments in Corporate and FIIs can make investments in Corporate and Government Bond markets within the limits Government Bond markets within the limits

Household Investment in Shares and Household Investment in Shares and debentures as percentage of financial debentures as percentage of financial savings at 4.9 per centsavings at 4.9 per cent

SEBI Registered Market Intermediaries / InstitutionsSEBI Registered Market Intermediaries / Institutions2010 2011 2012Stock Exchanges(Cash Market)

19 19 19

Stock Exchanges(Derivatives Market)

2 2 3

Stock Exchanges(Currency Derivatives)

4 4 4

Brokers(Cash Segment)*

8804 9,235 9,195

Corporate Brokers(Cash Segment)

4,197 4,563 4,672

Sub-brokers(Cash Segment)

75,378 83,952 77,165

Foreign InstitutionalInvestors

1,713 1,722 1,765

Sub-accounts 5,378 5,686 6,322

Custodians 17 19 19

Depositories 2 2 2

Merchant Bankers 164 192 200

Depository Participants 758 805 854

Mutual Funds 47 51 49

Indian Economy and Capital Market Indian Economy and Capital Market at a Glanceat a Glance

Rise in index during the last eighteen Rise in index during the last eighteen months over 100 per centmonths over 100 per cent

Year on year return during the last year at Year on year return during the last year at 74 per cent 74 per cent

Daily volatility of the market 0.76 per cent to Daily volatility of the market 0.76 per cent to 1.29 per cent 1.29 per cent

39 mutual funds with over 500 schemes for 39 mutual funds with over 500 schemes for investmentinvestment


Investors by foreign institutional investors at Investors by foreign institutional investors at over $50 billionover $50 billion

At current prices, it is around 15 per cent of At current prices, it is around 15 per cent of the total market capitalizationthe total market capitalization

Only broad based entities established and Only broad based entities established and incorporated abroad are eligible to be incorporated abroad are eligible to be registered as Foreign Institutional investors registered as Foreign Institutional investors in India in India


FIIs can invest on behalf of their clients FIIs can invest on behalf of their clients through sub-accountsthrough sub-accounts

For normal FIIs, limit for investment in equity For normal FIIs, limit for investment in equity is at least 70 per cent while the rest could be is at least 70 per cent while the rest could be invested in debt up to a maximum limit of 30 invested in debt up to a maximum limit of 30 per centper cent

The derivatives trading on the NSE The derivatives trading on the NSE commenced with the S&P CNX Nifty Index commenced with the S&P CNX Nifty Index Futures on June 12, 2000. The trading in Futures on June 12, 2000. The trading in index options commenced on June 4, 2001 index options commenced on June 4, 2001 and trading in options on individual securities and trading in options on individual securities commenced on July 2, 2001. Single stock commenced on July 2, 2001. Single stock futures were launched on November 9, futures were launched on November 9, 2001. 2001.

The Index futures and options are available The Index futures and options are available on Indices - S&P CNX Nifty, CNX Nifty on Indices - S&P CNX Nifty, CNX Nifty Junior, CNX 100, CNX IT, Bank Nifty and Junior, CNX 100, CNX IT, Bank Nifty and Nifty Midcap 50Nifty Midcap 50


FIIs could also be dedicated debt funds who can FIIs could also be dedicated debt funds who can invest up to 100 per cent in debtinvest up to 100 per cent in debt

FIIs can issue overseas derivative instruments like FIIs can issue overseas derivative instruments like Participatory Notes (PNs) to the entities registered Participatory Notes (PNs) to the entities registered in the country of origin.in the country of origin.

There are 86 venture capital funds and 54 foreign There are 86 venture capital funds and 54 foreign venture capital investors venture capital investors

Most Foreign venture capital funds provide seed Most Foreign venture capital funds provide seed capital to firms with enormous growth potentialcapital to firms with enormous growth potential

Why invest in Indian capital Why invest in Indian capital markets?markets?

Business Week says that of 100 emerging Business Week says that of 100 emerging market firms which are rapidly globalising 21 market firms which are rapidly globalising 21 are Indian firmsare Indian firms

Economists project India to become the third Economists project India to become the third largest economy in the world by 2040largest economy in the world by 2040

Indian capital market regulator has acquired Indian capital market regulator has acquired international credibility in the least possible international credibility in the least possible timetime


India has a disclosure based regime of India has a disclosure based regime of regulationregulation

Disclosure and Investor Protection Disclosure and Investor Protection guidelines availableguidelines available

India’s accounting standards are closer to India’s accounting standards are closer to international standards international standards

India has a well laid down legal frameworkIndia has a well laid down legal framework


India has T+2 rolling settlement as opposed India has T+2 rolling settlement as opposed to T+3 in NYSE.to T+3 in NYSE.

In India the transactions are totally In India the transactions are totally electronic on a real time basis.electronic on a real time basis.

India has several protective safeguards for India has several protective safeguards for the retail investor such as grading system of the retail investor such as grading system of public offering, retail quota at 25 per cent public offering, retail quota at 25 per cent etc. etc.


SEBI has made corporate governance SEBI has made corporate governance guidelines mandatory for listed companiesguidelines mandatory for listed companies

Mutual funds are permitted to invest Mutual funds are permitted to invest overseas up to $3 billionoverseas up to $3 billion

Margin trading is in vogue Margin trading is in vogue Corporatisation and demutualization of stock Corporatisation and demutualization of stock

exchanges on card - foreign participation in exchanges on card - foreign participation in bourses permitted.bourses permitted.


As an integral part of risk management As an integral part of risk management trading and exposure limits, var margins and trading and exposure limits, var margins and mark to market margins are in voguemark to market margins are in vogue

Clearing houses and corporations with Clearing houses and corporations with novation in placenovation in place

Almost 100 per cent risk free electronic Almost 100 per cent risk free electronic settlement through depository system settlement through depository system

SEBI has a surveillance and enforcement SEBI has a surveillance and enforcement system in placesystem in place


India to become a regional hub for bond India to become a regional hub for bond trading once a free financial zone is set uptrading once a free financial zone is set up

India to set up a world class National India to set up a world class National Institute for Securities Markets with 7 Institute for Securities Markets with 7 business schools under its fold business schools under its fold

Market CapitalizationMarket Capitalization Market Capitalization (Market Cap) is a

measurement of business value based on share price and number of shares outstanding. It generally represents the market's view of a company's stock value and is a determining factor in stock valuation.

For example, if a company has 1.5 million shares outstanding at a share price of $ 25, its market cap is $37.5 million (1.5 million x $25). Companies can be categorized based upon the size of their market capitalization

There are five basic groups: mega-cap (market cap over $200B)large-cap ($10B–$200B)mid-cap ($2B–$10B)small-cap ($300M–$2B) micro-cap ($50M-$300M). Market cap is not always an accurate indication of value because it does not account for debt and other factors

Market Capitalization Market Capitalization Date

Range

Nov. 11, 2013 68.42 M

Nov. 8, 2013 68.42M

Nov. 7, 2013 66.94M

Nov. 6, 2013 67.53M

Nov. 5, 2013 68.72M

Nov. 4, 2013 69.02M

Nov. 1, 2013 68.81M

http://ycharts.com/companies/REDF/market_cap

Investment in Indian Companies by FIIs/NRIs/PIOs

Foreign Institutional Investors (FIIs), Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs) are allowed to invest in the primary and secondary capital markets in India through the portfolio investment scheme (PIS). Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through the stock exchanges in India.

The ceiling for overall investment for FIIs is 24 per cent of the paid up capital of the Indian company and 10 per cent for NRIs/PIOs.

The ceiling of 24 per cent for FII investment can be raised up to sectoral cap/statutory ceiling, subject to the approval of the board and the general body of the company passing a special resolution to that effect. And the ceiling of 10 per cent for NRIs/PIOs can be raised to 24 per cent subject to the approval of the general body of the company passing a resolution to that effect

http://www.capitalmarket.com/MarketWatch/marketcap.htm

http://www.rbi.org.in/advt/fiinri.html

OUTLINE

• Structure of the Securities Market • Participants in the Securities Market • Primary Equity Market • Public Issue • Secondary Equity Market (Stock Market) • Trading and Settlement • Buying and Selling Shares • Stock Market Indices • SEBI’s Regulation • Stock Market Abroad • Should Trading be Regulated • Government Securities Market • Corporate Debt Market • Money Market

OverviewOverview of of Financial Financial Markets Markets

• Two types of financial markets

• Money markets

• Capital markets • Primary market • Secondary market

Structure of the Securities

Market

Securities Market

Equity Market

Debt Market

Derivatives Market

Government Securities

Market

Corporate Debt

Market

Money Market

Options Market

Futures Market

The Capital Market (Equities) segment of The Capital Market (Equities) segment of NSE facilitates trading in the following NSE facilitates trading in the following

instruments:instruments: Shares Shares – Equity SharesEquity Shares– Preference SharesPreference Shares

Debentures Debentures – Partly Convertible DebenturesPartly Convertible Debentures– Fully Convertible DebenturesFully Convertible Debentures– Non Convertible DebenturesNon Convertible Debentures– Warrants / Coupons / Secured Premium Notes/ Warrants / Coupons / Secured Premium Notes/

other Hybridsother Hybrids– BondsBonds

Units of Mutual FundsUnits of Mutual Funds

Players and Participants in Players and Participants in Financial Markets Financial Markets

The IndividualsThe Individuals The Firms/CorporatesThe Firms/Corporates GovernmentGovernment RegulatorsRegulators Market IntermediariesMarket Intermediaries

Financial Market

Money market Capital market

Primary market

Secondary market

Commercial banks

Firms raise capital

Investors trade securities issued in primary market

debt

equity

Public Private placement

Short term instruments

Primary Mkt Inst

Stock exchange

Credit unions

Insurance cos

Supporting

agents

Participants In The Securities Market• Regulators

RBI, SEBI, DEA(Department of Economic Affairs) , DCA

SEC, MCA ( Ministry of Corporate Affairs) Stock Exchanges Listed Securities Depositories Brokers FIIs Merchant Bankers or Investment Bankers Mutual Funds Custodians Registrars Underwriters Bankers to an issue Debenture trustees Venture capital funds. Credit rating agencies

GOIMinistry of Finance

RBISEBI

Depositories Companies

BrokerDealers

ClearingCorporations

StockExchanges

MutualFunds

Banks

Registrar of Companies

MerchantBankers

Registrar &TransferAgents

PrimaryDealers

GOIDept of Co. Affairs

DepositoryParticipants

Structure of Indian Financial Markets

GOIMinistry of Finance

RBISEBI

Depositories Companies

BrokerDealers

ClearingCorporations

StockExchanges

MutualFunds

Banks

Registrar of Companies

MerchantBankers

Registrar &TransferAgents

PrimaryDealers

GOIDept of Co. Affairs

DepositoryParticipants

Structure of Indian Financial System:

Financial System

Suppliers of FundsIndividualsBusinesses

Governments

Demanders of FundsIndividualsBusinesses

Governments

Financial MarketsMoney MarketCapital Market

Financial InstitutionsCommercial Banks

Insurance CompaniesMutual Funds

Provident/Pension FundsNon-banking Financial Companies

Private Placement

Funds

Securities

Funds Securities

Funds Funds

SecuritiesSecurities

FundsFunds

DepositsShares

Loans

Primary vs. Secondary Security SalesPrimary vs. Secondary Security Sales

1.1. PrimaryPrimary– New issue – Initial Public Offering (IPO)New issue – Initial Public Offering (IPO)– Key factor: issuer receives the proceeds from Key factor: issuer receives the proceeds from

the salethe sale

2.2. SecondarySecondary– Existing owner sells to another partyExisting owner sells to another party– Issuing firm doesn’t receive proceeds and is Issuing firm doesn’t receive proceeds and is

not directly involvednot directly involved

5050

Market infrastructureMarket infrastructure• Stock exchange Stock exchange

• Clearing and settlementClearing and settlement

• Education and training Education and training

• Investors’ protection Investors’ protection

• Rating agencyRating agency

InstrumentsInstruments

• Equities Equities

• Bonds Bonds

Most popular investing instruments

Stocks and shares

Bonus issues

Rights issues

Corporate Government

PARTICIPANTS IN SECURITIES PARTICIPANTS IN SECURITIES MARKETMARKET

issuers of securities, investors in securities issuers of securities, investors in securities and the intermediaries. and the intermediaries.

The issuers and investors are the The issuers and investors are the consumers of services rendered by the consumers of services rendered by the intermediaries while the investors are intermediaries while the investors are consumers (they subscribe for and trade in consumers (they subscribe for and trade in securities) of securities issued by issuers. securities) of securities issued by issuers.

Intermediaries Intermediaries

• Brokerage houses Brokerage houses

• Stock brokers Stock brokers

• Advisors Advisors

• They educate and guide them in their They educate and guide them in their dealings and bring them together.dealings and bring them together.

Regulatory Framework of Securities MarketRegulatory Framework of Securities Market

Securities Contracts (Regulation) Act 1956: Securities Contracts (Regulation) Act 1956: gives gives the central government the regulatory jurisdiction over the the central government the regulatory jurisdiction over the functioning of the stock exchanges functioning of the stock exchanges

Companies Act 1956Companies Act 1956 SEBI Act, 1992SEBI Act, 1992 Depositories Act, 1996Depositories Act, 1996

STOCK EXCHANGESTOCK EXCHANGE Stock exchange means anybody of individuals, Stock exchange means anybody of individuals,

whether incorporated or not, constituted for thewhether incorporated or not, constituted for the purpose of regulating or controlling the business of purpose of regulating or controlling the business of buying, selling or dealing in securities.buying, selling or dealing in securities.

These securities include:These securities include: Shares, stocks, bonds, debentures, Govt. securitiesShares, stocks, bonds, debentures, Govt. securities According to According to Securities Contract Act 1956Securities Contract Act 1956, the stock , the stock

exchange can be defined as “An association, exchange can be defined as “An association, organization or body of assisting, regulating and organization or body of assisting, regulating and controlling businesscontrolling business in buying , selling, and dealing in in buying , selling, and dealing in securities.”securities.”

ObjectivesObjectives To regulate the business of trading on Stock To regulate the business of trading on Stock

market and its practicesmarket and its practices To create efficient securities market.To create efficient securities market. To ensure fair dealing and protection to To ensure fair dealing and protection to

investorsinvestors To improve the working of stock exchange.To improve the working of stock exchange. To control the undesirable speculative To control the undesirable speculative

practicespractices

Role and Functions of a stock exchangeRole and Functions of a stock exchange To bring companies and investors together so that Investors To bring companies and investors together so that Investors

can put risk capital into companies and companies can use can put risk capital into companies and companies can use the capital.the capital.

Provide an orderly regulated market for securities.Provide an orderly regulated market for securities. Facilitate continuous, ready and open market for selling and Facilitate continuous, ready and open market for selling and

buying securities.buying securities. Promote saving and investment in the economy by Promote saving and investment in the economy by

attracting funds from the investors.attracting funds from the investors. Facilitate takeovers by means of acquiring majority of Facilitate takeovers by means of acquiring majority of

shares traded on the stock market.shares traded on the stock market. Act as clearing house of business information.Act as clearing house of business information. Extend liquidity to securities.Extend liquidity to securities. ..

Facilitate marketability and transparency of Facilitate marketability and transparency of securitiessecurities

Allow companies to float their shares on the Allow companies to float their shares on the market.market.

Ensure wider ownership of securities.Ensure wider ownership of securities. Enable investors to evaluate the net worth of Enable investors to evaluate the net worth of

their holding.their holding. Provide capital to profitable sectors.Provide capital to profitable sectors. Ensure safety and fair dealings to all.Ensure safety and fair dealings to all.

Bombay Stock Exchange (BSE)Bombay Stock Exchange (BSE)

BSE, stands for Bombay Stock Exchange. BSE, stands for Bombay Stock Exchange. The oldest market not only in the country, but The oldest market not only in the country, but also in Asia. also in Asia.

In the early days, BSE was known as "The In the early days, BSE was known as "The Native Share & Stock Brokers Association." Native Share & Stock Brokers Association." It was established in the year 1875 and It was established in the year 1875 and became the first stock exchange in the became the first stock exchange in the country to be recognised by the governmentcountry to be recognised by the government

This is recognised worldwide and its index, This is recognised worldwide and its index, SENSEX, is also tracked worldwideSENSEX, is also tracked worldwide

Indian Stock Market (Sensex)Indian Stock Market (Sensex) Stocks in India had a positive performance during the

last month. India Stock Market (SENSEX), rallied 138 points or 0.67 percent during the last 30 days.

From 1979 until 2013, India Stock Market (SENSEX) averaged 5888 Index points reaching an all time high of 21197 Index points in November of 2013 and a record low of 113 Index points in December of 1979.

The SENSEX (BSE30) is a major stock market index which tracks the performance of 30 major companies listed on the Bombay Stock Exchange.

The companies are chosen based on the liquidity, trading volume and industry representation. The SENSEX, is a free-float market capitalization-weighted index. The Index has a base value of 100 as of 1978-79

SENSEX is calculated using the “ Free Float SENSEX is calculated using the “ Free Float Market Capitalization” method in which the level of Market Capitalization” method in which the level of index at any particular point of time reflects the index at any particular point of time reflects the market value of free floats of 30 shares market value of free floats of 30 shares

During the trading hours the current prices of index During the trading hours the current prices of index scrips are used by the SENSEX mechanism to scrips are used by the SENSEX mechanism to calculate the value of SENSEX every 15 scalculate the value of SENSEX every 15 s

The closing value of the SENSEX value for the day The closing value of the SENSEX value for the day is computed on the basis of weighted average of is computed on the basis of weighted average of all trades in all 30 shares during last 30 minutes of all trades in all 30 shares during last 30 minutes of the trading sessionthe trading session

Method Of ComputationMethod Of Computation CNX Nifty is computed using free float market capitalization

weighted method, wherein the level of the index reflects the total market value of all the stocks in the index relative to a particular base period. The method also takes into account constituent changes in the index and importantly corporate actions such as stock splits, rights, etc without affecting the index value.

Base Date and Value The base period selected for CNX Nifty index is the close of prices

on November 3, 1995, which marks the completion of one year of operations of NSE's Capital Market Segment. The base value of the index has been set at 1000 and a base capital of Rs.2.06 trillion.

National Stock Exchange (NSE)National Stock Exchange (NSE) Was incorporated in November 1992 by IDBI and Was incorporated in November 1992 by IDBI and

other All India financial Institutions and became other All India financial Institutions and became recognised exchange from April 1993recognised exchange from April 1993

Promoters:Promoters: IDBIIDBI Industrial Finance Corporation of IndiaIndustrial Finance Corporation of India Industrial Credit and Investment Corporation of India Industrial Credit and Investment Corporation of India LICLIC General Insurance Corporation of IndiaGeneral Insurance Corporation of India SBI Capital Markets LimitedSBI Capital Markets Limited Stock Holding Corporation of India LtdStock Holding Corporation of India Ltd

Market Segments of NSEMarket Segments of NSE

Wholesale debt market segment – June 1994Wholesale debt market segment – June 1994 Capital market segment – November 1994Capital market segment – November 1994 Derivatives (F & O) – June 2000Derivatives (F & O) – June 2000 Currency Derivatives Market – August 2008Currency Derivatives Market – August 2008 Interest Rate Derivative Market – August 2009Interest Rate Derivative Market – August 2009

NSE – CNX Nifty NSE – CNX Nifty The CNX Nifty is a well diversified 50 stock

index accounting for 22 sectors of the economy. It is used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index funds.

CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL). IISL is India's first specialised company focused upon the index as a core product.

http://www.nseindia.com/products/content/equities/indices/cnx_nifty.htm

The CNX Nifty Index represents about 70.28% of the free float market capitalization of the stocks listed on NSE as on September 30, 2013.

The total traded value for the last six months ending September 2013 of all index constituents is approximately 58.96% of of the traded value of all stocks on the NSE.

Impact cost of the CNX Nifty for a portfolio size of Rs.50 lakhs is 0.08% for the month September 2013.

CNX Nifty is professionally maintained and is ideal for derivatives trading.

Criteria for Selection of Constituent Stocks

Liquidity (Impact Cost) For inclusion in the index, the security should have traded

at an average impact cost of 0.50% or less during the last six months for 90% of the observations for a basket size of Rs. 2 Crores.

Impact cost is cost of executing a transaction in a security in proportion to the weightage of its free float market capitalisation as against the index free float market capitalisation at any point of time. This is the percentage mark up suffered while buying / selling the desired quantity of a security compared to its ideal price (best buy + best sell) / 2

.

For buying 150 shareFor buying 150 share

Ideal price= (Ideal price= (best buy + best sell) / 2

= ( 56 + 58) / 2 = 57= ( 56 + 58) / 2 = 57

Actual buy price = (100 x 58 + 50 x 59) Actual buy price = (100 x 58 + 50 x 59) = 58.33= 58.33

Impact cost = [(58.33 – 57)/57] x 100 = Impact cost = [(58.33 – 57)/57] x 100 = 2.33% 2.33%

Buy quantity Buy Price Sell quantity Sell Price

100 56 100 58

200 55 150 59

100 54 100 60

Market capitalization: Companies needs to have a six monthly average market capitalization of Rs 500 cr or more for the last six months

Floating Stock: Companies eligible for inclusion in CNX Nifty should have

atleast 10% floating stock. For this purpose, floating stock shall mean stocks which are not held by the promoters and associated entities (where identifiable) of such companies

Others: a) A company which comes out with a IPO will be eligible

for inclusion in the index, if it fulfills the normal eligiblity criteria for the index like impact cost, market capitalisation and floating stock, for a 3 month period instead of a 6 month period.

b) Replacement of Stock from the Index

A stock may be replaced from an index for the following reasons

Compulsory changes like corporate actions, delisting etc. In such a scenario, the stock having largest free float market capitalization and satisfying other requirements related to liquidity, turnover and free float will be considered for inclusion.

When a better candidate is available in the replacement pool, which can replace the index stock i.e. the stock with the highest free float market capitalization in the replacement pool has at least twice the free float market capitalization of the index stock with the lowest free float market capitalization.

Index Re-BalancingIndex Re-Balancing

Index is re-balanced on semi – annual Index is re-balanced on semi – annual basis. basis.

The cut-off date is January 31 and July 31 of The cut-off date is January 31 and July 31 of each year, i.e. For semi-annual review of each year, i.e. For semi-annual review of indices, average data for six months ending indices, average data for six months ending the cut-off data is considered. the cut-off data is considered.

Six weeks prior notice is given to market Six weeks prior notice is given to market from the date of changefrom the date of change

Index GovernanceIndex Governance

A professional team at IISL manages CNX A professional team at IISL manages CNX Nifty Index. Nifty Index.

There is a three-tier governance structure There is a three-tier governance structure comprising the comprising the

Board of Directors of IISLBoard of Directors of IISL The Index Policy CommitteeThe Index Policy Committee The Index Maintenance Sub-CommitteeThe Index Maintenance Sub-Committee

CNX -NiftyCNX -Nifty

Sector RepresentationSector Representation

Top 10 Companies in CNX -NiftyTop 10 Companies in CNX -Nifty

Components of secondary marketComponents of secondary market over-the-counter (OTC) market over-the-counter (OTC) market the exchange-traded market.the exchange-traded market. OTC is different from the market place provided by the OTC is different from the market place provided by the

Over The Counter Exchange of India Limited. OTC Over The Counter Exchange of India Limited. OTC markets are essentially informal markets where trades markets are essentially informal markets where trades are negotiated.are negotiated.

Most of the trades in government securities are in the Most of the trades in government securities are in the OTC market. All the spot trades where securities are OTC market. All the spot trades where securities are traded for immediate delivery and payment take place in traded for immediate delivery and payment take place in the OTC market.the OTC market.

Trading in securities takes place through OTCEI’s Trading in securities takes place through OTCEI’s network of members and dealersnetwork of members and dealers

It is promoted by the consortium of Financial InstitutionsIt is promoted by the consortium of Financial Institutions

Over the Counter Exchange Of India (OTCEI)Over the Counter Exchange Of India (OTCEI) The Over the Counter Exchange of India (OTCEI) was The Over the Counter Exchange of India (OTCEI) was

incorporated under Section 25 of the Companies Act incorporated under Section 25 of the Companies Act in October 1990 and started functioning from in October 1990 and started functioning from September 1992September 1992

OTCEI has been set up to meet a long felt need for a OTCEI has been set up to meet a long felt need for a second tier market where companies with small paid-second tier market where companies with small paid-up capital can be listedup capital can be listed

OTC exchange is promoted by all India Financial OTC exchange is promoted by all India Financial Institutions, merchant bankers, and subsidiaries of Institutions, merchant bankers, and subsidiaries of public sector bankspublic sector banks

OTCEI is modelled on National Association of OTCEI is modelled on National Association of Securities Dealers Automated Quotation System Securities Dealers Automated Quotation System (NASDAQ) (NASDAQ)

Listing Requirements of OCTEIListing Requirements of OCTEI Listing on OTCEI may be sought by companies with Listing on OTCEI may be sought by companies with

equity capital of less than Rs 10 croreequity capital of less than Rs 10 crore The minimum issued share capital of more than Rs 30 The minimum issued share capital of more than Rs 30

lakhs but less than 300 lakhs, the minimum public lakhs but less than 300 lakhs, the minimum public offer should be 25% of the issued capital or Rs 20 offer should be 25% of the issued capital or Rs 20 lakhs worth of shareslakhs worth of shares

Companies with an issued equity capital of more than Companies with an issued equity capital of more than Rs 300 lakhs seeking listing on the OTCRs 300 lakhs seeking listing on the OTC

OTCEI/ OTC Composite Index:OTCEI/ OTC Composite Index: It acts as an indicator of the market movement.It acts as an indicator of the market movement. Base index was 100 , base date is 23Base index was 100 , base date is 23rdrd july 1993 july 1993

CR- counter receipt, SCS- sale conformation slip CR- counter receipt, SCS- sale conformation slip , ,

Benefits to a companyBenefits to a company Fast way to get money, as the company does Fast way to get money, as the company does

not have to wait for 3-4 months like a regular not have to wait for 3-4 months like a regular public issuepublic issue

No danger of under-subscriptionNo danger of under-subscription A new promoter with no track record can get A new promoter with no track record can get

premium in the market if the sponsor finds the premium in the market if the sponsor finds the project promisingproject promising

Circuit BreakersCircuit Breakers The Exchange has implemented index-based The Exchange has implemented index-based

market-wide circuit breakers with effect from market-wide circuit breakers with effect from July 02, 2001 July 02, 2001

SEBI vide its Circular no. CIR/MRD/DP/ 25 SEBI vide its Circular no. CIR/MRD/DP/ 25 /2013 dated September 03, 2013 has partially /2013 dated September 03, 2013 has partially modified the earlier circular. The revised modified the earlier circular. The revised guidelines are as below.guidelines are as below.

The index-based market-wide circuit breaker The index-based market-wide circuit breaker system applies at 3 stages of the index system applies at 3 stages of the index movement, either way viz. at 10%, 15% and movement, either way viz. at 10%, 15% and 20%.20%.

Circuit - Breakers Circuit - Breakers

Trigger Limit Trigger Time Market halt duration Pre-open call auction

10% Before 1.00 pmAt or after 1.00 pm upto 2.30 pmAt or after 2.30 pm

45 minutes

15 minutes

No halt

15 minutes

15 minutes

NA

15% Before 1.00 pm

At or after 1.00 pm before 2.00 pm

At or after 2.30 pm

1 hr 45 min

45 minutes

Remainder of the day

15 minutes

15 minutes

NA

20% Any time during market hours

Remainder of the day NA

CNX NIFTY Circuit filter as onCNX NIFTY Circuit filter as on

Index Circuit Filter Trigger Limit Equivalent point (+/-) for Nov 18 , 2013

10% 605.60

15% 908.40

20% 1211.25

Price BandsPrice BandsDaily price bands are applicable on securities as Daily price bands are applicable on securities as

below: below: Daily price bands of 2% (either way)Daily price bands of 2% (either way) Daily price bands of 5% (either way) Daily price bands of 5% (either way) Daily price bands of 10% (either way) Daily price bands of 10% (either way) No price bands are applicable on:No price bands are applicable on:

scrips on which derivative products are available or scrips on which derivative products are available or scrips included in indices on which derivative scrips included in indices on which derivative products are available (unless otherwise specified)*products are available (unless otherwise specified)*

Price bands of 20% (either way) on all remaining Price bands of 20% (either way) on all remaining scrips (including debentures, preference shares etc).scrips (including debentures, preference shares etc).

Types of Secondary MarketsTypes of Secondary Markets

1.1. Direct searchDirect search

2.2. Brokered Brokered

3.3. Dealer Dealer

4.4. AuctionAuction

9595

Screen Based TradingScreen Based Trading The trading on stock exchanges in India used The trading on stock exchanges in India used

to take place through open outcry without use to take place through open outcry without use of information technology for immediate of information technology for immediate matching or recording of trades. This was time matching or recording of trades. This was time consuming and inefficient. This imposed limits consuming and inefficient. This imposed limits on trading volumes and efficiency. In order to on trading volumes and efficiency. In order to provide efficiency, liquidity and transparency provide efficiency, liquidity and transparency NSE introduced a nation-wide on-line fully-NSE introduced a nation-wide on-line fully-automated automated screen based trading system screen based trading system (SBTS)(SBTS)

A member can punch into the computer A member can punch into the computer quantities of securities and the prices at which quantities of securities and the prices at which he likes to transact and the transaction is he likes to transact and the transaction is executed as soon as it finds a matching sale or executed as soon as it finds a matching sale or buy order from a counter party. SBTS buy order from a counter party. SBTS electronically matches orders on a strict electronically matches orders on a strict price/time priority and hence cuts down on time, price/time priority and hence cuts down on time, cost and risk of error, as well as on fraud cost and risk of error, as well as on fraud resulting in improved operational efficiency.resulting in improved operational efficiency.

It allows faster incorporation of price sensitive It allows faster incorporation of price sensitive information into prevailing prices, thus information into prevailing prices, thus increasing the informational efficiency of increasing the informational efficiency of markets. markets.

It enables market participants to see the full It enables market participants to see the full market on real-time, making the market market on real-time, making the market transparent. It allows a large number of transparent. It allows a large number of participants, irrespective of their participants, irrespective of their geographical locations, to trade with one geographical locations, to trade with one another simultaneously, improving the depth another simultaneously, improving the depth and liquidity of the market. It provides full and liquidity of the market. It provides full anonymity by accepting orders, big or small, anonymity by accepting orders, big or small, from members without revealing their from members without revealing their identity, thus providing equal access to identity, thus providing equal access to everybody.everybody.

Secondary MarketSecondary Market

Overview of :Overview of :

1.) Trading and Settlement.1.) Trading and Settlement.

2.) Order Management.2.) Order Management.

Trading SystemTrading System NSE operates on the NSE operates on the 'National Exchange for 'National Exchange for

Automated Trading' (NEAT) Automated Trading' (NEAT) system, a fully system, a fully automated screen based trading system, which automated screen based trading system, which adopts the principle of an order driven market. adopts the principle of an order driven market.

The NSE is connected through a VSAT ( Very Small The NSE is connected through a VSAT ( Very Small Earth-based Aperture Terminal) or through leased Earth-based Aperture Terminal) or through leased telephone lines with all memberstelephone lines with all members

Satellite links are established using VSATs at the Satellite links are established using VSATs at the offices of the trading members. Through the offices of the trading members. Through the network all the members receive complete market network all the members receive complete market information (best order value, best buying price, information (best order value, best buying price, best selling price, order value and last traded)best selling price, order value and last traded)

An investor can place the order for buy or sell at a An investor can place the order for buy or sell at a particular price and particular quantity. The system particular price and particular quantity. The system arranges all orders in the priority of price and within arranges all orders in the priority of price and within price by timeprice by time

The NSE trading system matches orders in such a The NSE trading system matches orders in such a way that the order gets executed at a price which is way that the order gets executed at a price which is either equal to or better than the specified price but either equal to or better than the specified price but never worse than itnever worse than it

The NSE trading system (NEAT) generates and The NSE trading system (NEAT) generates and maintains and issues a unique order numbermaintains and issues a unique order number

If an order is executed then a trade confirmation If an order is executed then a trade confirmation slip is generated which displays the trade number slip is generated which displays the trade number trade time, quantity and price at which the trade trade time, quantity and price at which the trade took place and the corresponding order numbertook place and the corresponding order number

Rolling SettlementRolling Settlement

Rolling settlement is the trading system of Rolling settlement is the trading system of securities in which the transaction (buying or securities in which the transaction (buying or selling of securities) can be squared up by a selling of securities) can be squared up by a counter- transaction on the same day onlycounter- transaction on the same day only

The Rolling system was introduced in India The Rolling system was introduced in India on Jan 10, 2000. Initially settlement period on Jan 10, 2000. Initially settlement period was T + 5 but it has been reduced to T+2 was T + 5 but it has been reduced to T+2 with effect from April 1 2003with effect from April 1 2003

Transaction CycleTransaction Cycle

Trading & SettlementTrading & SettlementProcessProcess

InvestorDepository

Exchange

BrokerClearingHouse

Contd…..Contd…..

Market ParticipantsMarket Participants Exchange – NSE/BSEExchange – NSE/BSE Depository – NSDL/CDSLDepository – NSDL/CDSL Custodian Custodian Depository ParticipantsDepository Participants Clearing Corporation – NSCCL/BOI share HoldingClearing Corporation – NSCCL/BOI share Holding Stock Broker Stock Broker

A broker is an intermediary who arranges to A broker is an intermediary who arranges to buy and sell securities on behalf of clients (the buy and sell securities on behalf of clients (the buyer and the seller) also known as CM – buyer and the seller) also known as CM – Clearing MemberClearing Member

Sub –BrokerSub –Broker Investors Investors

Trading At NSETrading At NSE The trading on stock exchanges in The trading on stock exchanges in

India used to take place through India used to take place through open outcryopen outcry

NSE introduced a nation-wide on-NSE introduced a nation-wide on-line fully-automated screen based line fully-automated screen based trading system NEAT)trading system NEAT)

SBTS electronically matches orders SBTS electronically matches orders on a strict price/time priorityon a strict price/time priority

Order PlacementOrder Placement

NSE has main computer which is connected NSE has main computer which is connected through Very Small Aperture Terminal (VSAT) through Very Small Aperture Terminal (VSAT) installed at its office.installed at its office.

Brokers have terminals (identified as the PCs in Brokers have terminals (identified as the PCs in the Figure 1) installed at their premises which the Figure 1) installed at their premises which are connected through VSATs/leased are connected through VSATs/leased lines/modems.lines/modems.

An investor informs a broker to place an order An investor informs a broker to place an order on his behalf. The broker enters the order on his behalf. The broker enters the order through his PC, which runs under Windows NT through his PC, which runs under Windows NT and sends signal to the Satellite via VSAT/leased and sends signal to the Satellite via VSAT/leased line/modem. The signal is directed to mainframeline/modem. The signal is directed to mainframe

Contd …..Contd ….. The order confirmation message is The order confirmation message is

immediately displayed on the PC of immediately displayed on the PC of the broker. the broker.

This order matches with the existing This order matches with the existing passive order(s), otherwise it waits passive order(s), otherwise it waits for the active orders to enter the for the active orders to enter the system.system.

On order matching, a message is On order matching, a message is broadcast to the respective member.broadcast to the respective member.

ContdContd …. ….

All orders received on the system are sorted All orders received on the system are sorted with the best priced order getting the first with the best priced order getting the first priority for matching i.e., the best buy orders priority for matching i.e., the best buy orders match with the best sell order. Similar pricedmatch with the best sell order. Similar priced

orders are sorted on time priority basis, i.e. the orders are sorted on time priority basis, i.e. the one that came in early gets priority over the later one that came in early gets priority over the later one. one.

Orders are matched automatically by the Orders are matched automatically by the computer keeping the system transparent, computer keeping the system transparent, objective and fair. objective and fair.

Where an order does not find a match, it remains Where an order does not find a match, it remains in the system and is displayed to the whole in the system and is displayed to the whole market, till a fresh order comes in or the earlier market, till a fresh order comes in or the earlier order is cancelled or modified.order is cancelled or modified.

Clearing & SettlementClearing & Settlement

The clearing and settlement mechanism The clearing and settlement mechanism in Indian securities market has witnessed in Indian securities market has witnessed significant changes and several significant changes and several innovations during the last decade.innovations during the last decade.

T+2 rolling settlement has now been T+2 rolling settlement has now been introduced for all securities. The introduced for all securities. The members receive the funds/securities in members receive the funds/securities in accordance with the pay-in/pay-out accordance with the pay-in/pay-out schedules notified by the respective schedules notified by the respective exchanges.exchanges.

Contd …..Contd …..

The obligations of members are The obligations of members are downloaded to members/custodians downloaded to members/custodians by the clearing agencyby the clearing agency

The members/custodians make The members/custodians make available the required securities in available the required securities in their pool accounts with depository their pool accounts with depository participants (DPs) by the prescribed participants (DPs) by the prescribed pay-in time for securities.pay-in time for securities.

Contd …Contd …

The depository transfers the securities The depository transfers the securities from the pool accounts of from the pool accounts of members/custodians to the settlement members/custodians to the settlement account of the clearing agency.account of the clearing agency.

The securities are transferred on the The securities are transferred on the pay-out day by the depository from pay-out day by the depository from the settlement account of the clearing the settlement account of the clearing agency to the pool accounts of agency to the pool accounts of members/custodians.members/custodians.

Settlement Process in CM segment Settlement Process in CM segment of NSEof NSE

Process Process ((1) Trade details from Exchange to NSCCL (real-time and end of day 1) Trade details from Exchange to NSCCL (real-time and end of day

trade file).trade file).(2) NSCCL notifies the consummated trade details to (2) NSCCL notifies the consummated trade details to

CMs/custodians who affirm back. Based on the affirmation, CMs/custodians who affirm back. Based on the affirmation, NSCCL applies multilateral netting and determines obligations.NSCCL applies multilateral netting and determines obligations.

(3) Download of obligation and pay-in advice of funds/securities.(3) Download of obligation and pay-in advice of funds/securities.(4) Instructions to clearing banks to make funds available by pay-in (4) Instructions to clearing banks to make funds available by pay-in

time.time.(5) Instructions to depositories to make securities available by pay-(5) Instructions to depositories to make securities available by pay-

in-time.in-time.(6) Pay-in of securities (NSCCL advises depository to debit pool (6) Pay-in of securities (NSCCL advises depository to debit pool

account ofaccount ofcustodians/CMs and credit its account and depository does it).custodians/CMs and credit its account and depository does it).(7) Pay-in of funds (NSCCL advises Clearing Banks to debit account (7) Pay-in of funds (NSCCL advises Clearing Banks to debit account

ofofcustodians/CMs and credit its account and clearing bank does it).custodians/CMs and credit its account and clearing bank does it).(8) Pay-out of securities (NSCCL advises depository to credit pool (8) Pay-out of securities (NSCCL advises depository to credit pool

account ofaccount ofcustodians/CMs and debit its account and depository does it).custodians/CMs and debit its account and depository does it).(9) Pay-out of funds (NSCCL advises Clearing Banks to credit (9) Pay-out of funds (NSCCL advises Clearing Banks to credit

account ofaccount ofcustodians/CMs and debit its account and clearing bank does it).custodians/CMs and debit its account and clearing bank does it).(10) Depository informs custodians/CMs through DPs.(10) Depository informs custodians/CMs through DPs.(11) Clearing Banks inform custodians/CMs.(11) Clearing Banks inform custodians/CMs.

Settlement CycleSettlement Cycle Rolling Settlement: Rolling Settlement: In a rolling settlement, In a rolling settlement,

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

Activity Day

Trading Rolling Settlement Trading T

Clearing Custodial Confirmation T+1 working days

Delivery Generation T+1 working days

Settlement Securities and Funds pay in T+2 working days

Securities and Funds pay out T+2 working days

Valuation Debt T+2 working days

Post Settlement Auction T+2 working days

Auction Settlement T+ 3 working days

Bad Delivery Reporting T + 4 working days

Rectified bad delivery pay-in and pay-out

T + 6 working days

Re-bad delivery reporting and pickup

T+8 working days

Close out of re-bad delivery and funds pay-in & pay-out

T+ 9 working days

Flow: Trade Processing

Exchange

Customer BrokerTrading Terminal

Place order

Enters order

Order confirm

Clearing Corporation DepositoryTrade Details

Obligation report

Clearing Banks

Funds Availability Security Availability

DP

Security Transfer

Security transferTo CM pool acct

Security transferCC a/c

Carry over or Badla TransactionsCarry over or Badla Transactions Carry over or badla refers to the postponement of the Carry over or badla refers to the postponement of the

settlement of a transaction till the next settlement settlement of a transaction till the next settlement period. It is nothing but a facility to carry forward the period. It is nothing but a facility to carry forward the transaction from one settlement period to one periodtransaction from one settlement period to one period

It involves payment of some charge known as ‘Badla It involves payment of some charge known as ‘Badla charge’ by the speculator. charge’ by the speculator.

Badla charges are fixed on a fortnightly basisBadla charges are fixed on a fortnightly basis To effect Badla transactions, two bargains have to be To effect Badla transactions, two bargains have to be

made. The first one is to cancel the original made. The first one is to cancel the original transaction by squaring it up and secondly he creates transaction by squaring it up and secondly he creates a fresh purchase positions for the next settlementa fresh purchase positions for the next settlement

Badla transactions facilitate short-sellingBadla transactions facilitate short-selling

SHORT SELLINGSHORT SELLING Short selling is defined as selling a stock which Short selling is defined as selling a stock which

the seller does not own at the time of trade. the seller does not own at the time of trade. It increases liquidity in the market, and makes It increases liquidity in the market, and makes

price discovery more efficient. Besides, it curbs price discovery more efficient. Besides, it curbs manipulation of stocks as informed investors manipulation of stocks as informed investors are able to go short on stocks they feel are are able to go short on stocks they feel are higher than fair value.higher than fair value.

This facility was available to non-institutional This facility was available to non-institutional investors. Vide a circular in February 2008, investors. Vide a circular in February 2008, SEBI permitted all classes of investors, viz., SEBI permitted all classes of investors, viz., retail and institutional investors to short sell. retail and institutional investors to short sell.

Selling too heavily without owning securities is Selling too heavily without owning securities is also dangerous if it exceeds a particular limit.also dangerous if it exceeds a particular limit.

In a falling market, short sellers have to In a falling market, short sellers have to purchase to cover their sales position and it purchase to cover their sales position and it automatically arrests a fall in security prices automatically arrests a fall in security prices and vice versa and vice versa

It, however, does not permit naked short sales It, however, does not permit naked short sales and accordingly, requires participants to and accordingly, requires participants to mandatorily honour their obligation of mandatorily honour their obligation of delivering the securities at the time of delivering the securities at the time of settlement.settlement.

It does not permit institutional investor to do day It does not permit institutional investor to do day trading i.e., square-off their transactions intra-trading i.e., square-off their transactions intra-day. In other words, all transactions are be day. In other words, all transactions are be grossed for institutional investors at the grossed for institutional investors at the custodians’ level and the institutions are custodians’ level and the institutions are required to fulfil their obligations on a gross required to fulfil their obligations on a gross basis. basis.

The custodians, however, continue to settle The custodians, however, continue to settle their deliveries on a net basis with the stock their deliveries on a net basis with the stock exchanges.exchanges.

What is a depository?What is a depository? A depository can be compared to a bank. A A depository can be compared to a bank. A

depository holds securities of investors indepository holds securities of investors in electronic electronic form. Besides holding securities, a depository also form. Besides holding securities, a depository also provides services related toprovides services related to transactions in transactions in securities.securities.

A depository interfaces with its investors through A depository interfaces with its investors through its agents called Depository Participants(DPs).its agents called Depository Participants(DPs).

Depositories are those who are Depositories are those who are licensed by the licensed by the Securities and Exchange Board of India(SEBI) Securities and Exchange Board of India(SEBI) to undertake depository functions i.e. holding and to undertake depository functions i.e. holding and handling of securities in electronic form.handling of securities in electronic form.

There are two depositories in India, namely There are two depositories in India, namely National Securities Depository Limited National Securities Depository Limited

(NSDL) and (NSDL) and Central Depository Services (India) LimitedCentral Depository Services (India) Limited

(CDSL). (CDSL).

Currently, almost 99 per cent of the trades in Currently, almost 99 per cent of the trades in India are settled in demat modeIndia are settled in demat mode

The National Securities Depository Ltd. The National Securities Depository Ltd. (NSDL) promoted by (NSDL) promoted by UTI, IDBI and NSE isUTI, IDBI and NSE is the first depository of India.the first depository of India. NSDL started NSDL started operations in November 1996operations in November 1996

The Stock Exchange, Mumbai has promoted The Stock Exchange, Mumbai has promoted Central Depository Services (India) Ltd Central Depository Services (India) Ltd (CDSL) which has drawn plans to set up the (CDSL) which has drawn plans to set up the second depository in the country. It is co-second depository in the country. It is co-sponsored by SBI, Bank of India, Bank of sponsored by SBI, Bank of India, Bank of Baroda and HDFC Bank. It started its Baroda and HDFC Bank. It started its operation from 1999.operation from 1999.

Need for Depository System:Need for Depository System: The trading in physical segment is full of The trading in physical segment is full of

inefficiencies inefficiencies due to handling of largedue to handling of large volumes volumes of certificates and also involves various other of certificates and also involves various other problems like problems like delays in transfer, delay in delays in transfer, delay in settlement, loss in transit, forgery settlement, loss in transit, forgery certificates, stolen certificates, mutilation of certificates, stolen certificates, mutilation of certificates, postal losses, court cases, certificates, postal losses, court cases, litigation etc. litigation etc.

To overcome these deficiencies, To overcome these deficiencies, a new a new system of trading, system of trading, viz. Depository systemviz. Depository system was was introduced, which facilitates investor to hold introduced, which facilitates investor to hold securities in electronic form and to trade in securities in electronic form and to trade in these securities.these securities.

Services offered by NSDL(1996)Services offered by NSDL(1996) The following services are offered by NSDL The following services are offered by NSDL

to the investors, through its agentsto the investors, through its agents viz viz Depository Participants. Depository Participants.

1. Holding the investors securities in 1. Holding the investors securities in electronic electronic form.form.

2. 2. Dematerialisation Dematerialisation and and Rematerialisation Rematerialisation of of securities.securities.

3. 3. Settlement of trades in electronic form.Settlement of trades in electronic form.

4. 4. Electronic credit of public offerings Electronic credit of public offerings and and non-cash corporate actions such as non-cash corporate actions such as rights, rights, bonus etc. bonus etc.

How do you open a depository account?How do you open a depository account? Choose a participant from amongst the Choose a participant from amongst the

participants offering depository services and participants offering depository services and registered with NSDL. registered with NSDL.

a. Fill up an Account a. Fill up an Account Opening Form available Opening Form available with the participant.with the participant.

bb. . Sign ‘Participant-Client Agreement’.Sign ‘Participant-Client Agreement’. cc. . Receive your account number Receive your account number which should which should

be quoted in all your correspondence.be quoted in all your correspondence. dd. Your participant will . Your participant will provide you a statement provide you a statement

of holdings of holdings and statement of transactions (likeand statement of transactions (like a a bank pass book) every fortnight giving details of bank pass book) every fortnight giving details of your holdings and transactions in your account.your holdings and transactions in your account.

How is a depository similar to How is a depository similar to a bank?a bank?

BANK DEPOSITORY

Holds funds in an account Hold securities in an account

Transfers funds betweenaccounts on the instruction ofthe account holder

Transfers securities betweenaccounts on the instruction of theaccount holder

Facilitates transfers withouthaving to handle money

Facilitates transfers of ownershipwithout having to handle securities

Facilitates safekeeping ofmoney

Facilitates safekeeping of shares.

The benefits of participation in a depository areThe benefits of participation in a depository are No bad deliveriesNo bad deliveries Immediate transfer of shares and registration of securities, Immediate transfer of shares and registration of securities,

increasing liquidity ofincreasing liquidity of No stamp duty on transfer of shares;No stamp duty on transfer of shares; Considerable reduction in the handling of large volumes of Considerable reduction in the handling of large volumes of

paperpaper Elimination of risk associated with physical certificates such Elimination of risk associated with physical certificates such

as loss, theft, mutilation andas loss, theft, mutilation and forgeryforgery Reduction in transaction costReduction in transaction cost Pay-in and pay-out of securities and funds on the same day Pay-in and pay-out of securities and funds on the same day

for scrip-less tradesfor scrip-less trades Faster settlement cycleFaster settlement cycle Faster disbursement of corporate benefits like rights and Faster disbursement of corporate benefits like rights and

bonusbonus

Interacting InstitutionsInteracting Institutions Central Depository: Central Depository: The central depository is a The central depository is a

nominee who holds the securities on behalf of the nominee who holds the securities on behalf of the investors and maintains records related to that in an investors and maintains records related to that in an electronic modeelectronic mode

Share Registrar and Transfer Agent : Share Registrar and Transfer Agent : The registrar The registrar is an institution that controls the issuance of securities. The is an institution that controls the issuance of securities. The transfer agent is one who retains the names and addresses transfer agent is one who retains the names and addresses of registered securities owners and reregister traded of registered securities owners and reregister traded securities in the names of new ownerssecurities in the names of new owners

Clearing and Settlement CorporationClearing and Settlement Corporation: It is a centre to do : It is a centre to do trade matching and settle the funds and exchange securitiestrade matching and settle the funds and exchange securities

DEMATERIALISATIONDEMATERIALISATION

Dematerialisation (“Demat” in short form) signifies Dematerialisation (“Demat” in short form) signifies conversion of a share certificate from its physical conversion of a share certificate from its physical form to electronic form for the same number of form to electronic form for the same number of holding which is credited to your demat account holding which is credited to your demat account which you open with a Depository Participant which you open with a Depository Participant (DP).(DP).

A DepositoryA Depository Participant (DP) is your Participant (DP) is your representative (agent) in the depository system representative (agent) in the depository system providing the link between the Company and you providing the link between the Company and you through the Depository.through the Depository.

Dematerialisation ProcessDematerialisation Processaa. . Fill a Dematerialisation Request Form available with Fill a Dematerialisation Request Form available with

your participant.your participant.

b. b. Submit your share certificates along with the above Submit your share certificates along with the above form. (Please write ‘Surrendered forform. (Please write ‘Surrendered for Dematerialisation’ Dematerialisation’ on the face of each certificate before you submit it for on the face of each certificate before you submit it for dematerialisation).dematerialisation).

c. c. Your account will be credited within 15 days.Your account will be credited within 15 days.

d. d. If you wish to convert your electronic shares back to If you wish to convert your electronic shares back to physical shares at a later stage, youphysical shares at a later stage, you may do so by may do so by applying for rematerialistion. Dematerialisation of shares applying for rematerialistion. Dematerialisation of shares is is optional optional and an investor can still hold shares in and an investor can still hold shares in physical form. However, he / she has to physical form. However, he / she has to demat the demat the shares shares if he / she if he / she wishes to sell wishes to sell the same through the the same through the Stock Exchanges.Stock Exchanges.

11. Client/ Investor submit the DRF (Demat Request . Client/ Investor submit the DRF (Demat Request Form) and physical certificates to DP.Form) and physical certificates to DP. DP checks DP checks whether the securities are available for Demat. whether the securities are available for Demat. Client defaces the certificateClient defaces the certificate by stamping by stamping ‘Surrendered for Dematerialization’. DP punches two ‘Surrendered for Dematerialization’. DP punches two holes on the name of the company and draws two holes on the name of the company and draws two parallel lines across the face of the certificateparallel lines across the face of the certificate

2. 2. DP enters the Demat request in his system to be DP enters the Demat request in his system to be sent to NSDL. DP dispatches thesent to NSDL. DP dispatches the physical physical certificates along with the DRF to the R&T Agent.certificates along with the DRF to the R&T Agent.

3. 3. NSDL records the details of the electronic request NSDL records the details of the electronic request in the system and forwards the request to the R&T in the system and forwards the request to the R&T Agent.Agent.

4. 4. R&T Agent, on receiving the physical R&T Agent, on receiving the physical documents and the electronic request, documents and the electronic request, verifiesverifies and checks them. Once the R&T and checks them. Once the R&T Agent is satisfied, dematerialization of the Agent is satisfied, dematerialization of the concerned securities is electronically concerned securities is electronically confirmed to NSDL.confirmed to NSDL.

5. 5. NSDL credits the dematerialized NSDL credits the dematerialized securities to the beneficiary account of the securities to the beneficiary account of the investor and intimates the DP electronically. investor and intimates the DP electronically. The DP issues a statement of transaction to The DP issues a statement of transaction to the clientthe client

Some type of orders Some type of orders

• Limit order Limit order

• Market order Market order

• Day order Day order

• Open Open

• All or noneAll or none

• Any partAny part

• Good through Good through

Types of OrdersTypes of OrdersOrders represent instructions to brokers (agents) as to Orders represent instructions to brokers (agents) as to

how to execute transactions how to execute transactions At Best Order At Best Order – – It is an order which does not specify It is an order which does not specify

any specific price. It must be executed immediately at any specific price. It must be executed immediately at the best possible price. Eg “Buy 100 SBI at best “ the best possible price. Eg “Buy 100 SBI at best “

Market orderMarket order——transact at the best possible price when transact at the best possible price when the order reaches the marketthe order reaches the market

Limit orderLimit order——executeexecute the order only if a specified price, the order only if a specified price, or a better price, exists or a better price, exists

Stop loss orderStop loss order—initiate —initiate a market order when a a market order when a specifies price is reachedspecifies price is reached

Time orderTime order—establish —establish time limitstime limits– day order—the order “dies” (expires) at the end of the dayday order—the order “dies” (expires) at the end of the day– good 'til canceled (GTC)—the order stays alive until canceledgood 'til canceled (GTC)—the order stays alive until canceled

Types of OrderTypes of Order Immediate or Cancel orderImmediate or Cancel order: : It is an order for the It is an order for the

purchase or sale of securities immediately at the quoted purchase or sale of securities immediately at the quoted price. If the order could not be executed at the quoted price. If the order could not be executed at the quoted prices immediately, it should be treated cancelledprices immediately, it should be treated cancelled

Discretionary order:Discretionary order: It is an order to buy or sell It is an order to buy or sell shares at whatever price the broker thinks reasonableshares at whatever price the broker thinks reasonable

Open OrderOpen Order: : It is an order to buy or sell without fixing It is an order to buy or sell without fixing any time limit or price limit on the execution of the orderany time limit or price limit on the execution of the order

Limited Discretionary order:Limited Discretionary order: It is an order to buy It is an order to buy or sell securities within a specified or sell securities within a specified

Figure 3.6 Price-Contingent OrdersFigure 3.6 Price-Contingent Orders

143143

Stock Brokers- ParticipantsStock Brokers- Participants Client/ Commission BrokerClient/ Commission Broker—works for a company with —works for a company with

a seat on the exchange, do simple brokering business a seat on the exchange, do simple brokering business by acting as intermediaries , earn brokerage by acting as intermediaries , earn brokerage

Floor BrokerFloor Broker—independent—independent, freelance broker; who enter , freelance broker; who enter the trading floor and execute orders for their clients, the trading floor and execute orders for their clients, they have to physically trade they have to physically trade

Registered (floor) Trader/ brokerRegistered (floor) Trader/ broker —trades only for his or —trades only for his or her own private accounther own private account

Jobbers/Tatavaniwallas (SJobbers/Tatavaniwallas (Specialist)pecialist)——market maker; market maker; specializes in certain types of stocks (industries)specializes in certain types of stocks (industries)

Badla Financiers/ Badliwallas Badla Financiers/ Badliwallas : are those brokers whose : are those brokers whose main function is to give finance for carry forward deals main function is to give finance for carry forward deals in specified securities in return for interestin specified securities in return for interest

Arbitrageurs: Arbitrageurs: are those brokers who buy securities in one are those brokers who buy securities in one market and sell them in another market to take advantage market and sell them in another market to take advantage of the price differences prevailing in the marketof the price differences prevailing in the market

Bulls/ Tejiwallas: Bulls/ Tejiwallas: are those brokers of a stock exchange are those brokers of a stock exchange who are very optimistic of the rise in prices of the who are very optimistic of the rise in prices of the securitiessecurities

Bears/ Mandiwallas: Bears/ Mandiwallas: are those brokers of a stock are those brokers of a stock exchange who are very pessimistic and expect prices of exchange who are very pessimistic and expect prices of the securities to fallthe securities to fall

Other speculators: Other speculators:

(i)(i) Stags:Stags: are those who neither buy or sell shares in markets. are those who neither buy or sell shares in markets. They apply for new issues and sell at highThey apply for new issues and sell at high

(ii)(ii)Wolves: Wolves: are fast speculatorsare fast speculators

(iii)(iii)Lame ducks: Lame ducks: are bear brokers who sell short at wrong are bear brokers who sell short at wrong moves moves

Listing Listing Listing of securities means that the admitted for Listing of securities means that the admitted for

trading on a recognized stock exchangetrading on a recognized stock exchange Listing is the very basis of stock exchange operationsListing is the very basis of stock exchange operations The listing company has to enter into an agreement The listing company has to enter into an agreement

called the “Listing Agreement” containing 51 clauses called the “Listing Agreement” containing 51 clauses like disclosure information, payment of listing fee etc, like disclosure information, payment of listing fee etc,

The listed shares are generally divided into two The listed shares are generally divided into two categories:categories:

(i)(i)Group A shares (Specified shares or cleared Group A shares (Specified shares or cleared securities) – an equity base of Rs 10 cr, market cap of securities) – an equity base of Rs 10 cr, market cap of Rs 25 -30, a public holding of 35-40%Rs 25 -30, a public holding of 35-40%

(ii)(ii)Group B shares (Non-specified shares or non-cleared Group B shares (Non-specified shares or non-cleared securities) securities)

Types of CapitalTypes of Capital Authorized capital: Authorized capital: is the maximum capital that a company is is the maximum capital that a company is

authorized to raise. It the sum mentioned in the capital clause of authorized to raise. It the sum mentioned in the capital clause of Memorandum of Association (say Rs. 10,00,000/-). It is the Memorandum of Association (say Rs. 10,00,000/-). It is the maximum amount, which the company raises by issuing the maximum amount, which the company raises by issuing the shares and on which the registration fee is paid. This limit cannot shares and on which the registration fee is paid. This limit cannot be exceeded unless the Memorandum of Association is altered. be exceeded unless the Memorandum of Association is altered. Authorized capital are also known as nominal authorized or Authorized capital are also known as nominal authorized or registered capitalregistered capital

Issued capital Issued capital is that part of the authorized capital which is is that part of the authorized capital which is offered by the company for being subscribed by members of the offered by the company for being subscribed by members of the public or anybodypublic or anybody

Subscribed capital Subscribed capital is that part of the issued capital which is is that part of the issued capital which is subscribed (accepted) by the publicsubscribed (accepted) by the public

Called up capital Called up capital is a part of subscribed capital which is a part of subscribed capital which has been called up by the company for payment. For has been called up by the company for payment. For example, if 10,000 shares of Rs. 10 each have been example, if 10,000 shares of Rs. 10 each have been subscribed by the public and of which Rs. 5 per share subscribed by the public and of which Rs. 5 per share has been called up. Then the subscribed capital of the has been called up. Then the subscribed capital of the Company works out to Rs. 1,00,000 of which the called Company works out to Rs. 1,00,000 of which the called up capital of the Company is Rs. 50,000up capital of the Company is Rs. 50,000

Paid Up capital : Paid Up capital : refers to that part of the called up refers to that part of the called up capital which has been actually paid by the capital which has been actually paid by the shareholders. Some of the shareholders might have shareholders. Some of the shareholders might have defaulted in paying the called up money. Such defaulted defaulted in paying the called up money. Such defaulted amount is called as arrears. From the called up capital, amount is called as arrears. From the called up capital, calls in arrears is deducted to obtain the paid up capital. calls in arrears is deducted to obtain the paid up capital.

Listing requirements for New companiesListing requirements for New companies New companies can be listed if their issue & New companies can be listed if their issue &

subscribed equity capital after the public issue is Rs subscribed equity capital after the public issue is Rs 10 cr. In addition after the issue the Networth 10 cr. In addition after the issue the Networth (equity capital + reserves surplus + retained (equity capital + reserves surplus + retained earnings) of the issuer should be 20 crearnings) of the issuer should be 20 cr

For new companies in high technology ( IT, e-For new companies in high technology ( IT, e-commerce , telecommunication, media) commerce , telecommunication, media)

- The minimum post-issue paid-up equity capital The minimum post-issue paid-up equity capital should be Rs 5 crshould be Rs 5 cr

- The minimum market capitalization should be Rs 50 The minimum market capitalization should be Rs 50 crcr

- Post-issue Networth of Rs 20 crPost-issue Networth of Rs 20 cr

Listing requirementsListing requirements At least 60% of each class of securities must be At least 60% of each class of securities must be

offered to the public for subscription and the minimum offered to the public for subscription and the minimum issued capital should be Rs 3 croreissued capital should be Rs 3 crore

The minimum public offer for subscription must be The minimum public offer for subscription must be atleast 25% of each issue and it must be offered thro atleast 25% of each issue and it must be offered thro advertisement in newspaper at least for a period of advertisement in newspaper at least for a period of two daystwo days

A company having more than Rs 5 cr paid-up capital A company having more than Rs 5 cr paid-up capital must list its securities on more than one stock must list its securities on more than one stock exchange. Listing on the regional exchange is a mustexchange. Listing on the regional exchange is a must

Listing must comply with Clause 49 of the listing Listing must comply with Clause 49 of the listing agreementsagreements

Benefits of listing

• Facilitaties Buying and selling of securities

• Visibility (offers wide publicity)

• Market support

• Investors confidence

• Increased demand for products and services

• Overall increase in profitability

• Enables borrowing

• Ensures liquidity

Drawbacks of ListingDrawbacks of Listing

Leads to speculationLeads to speculation Degrades Companies ReputationDegrades Companies Reputation Discloses vital information to competitors Discloses vital information to competitors

Delisting

Stock exchange can delist companies for a number of reasons including :-• Merger with another company • Solvency problems • Name change company asked to be

removed • Failure to comply with exchange rules

Desirable Characteristics of a stock market

Liquidity

Ability to sell an asset quickly at a fairly known price Low transactions costs

Desirable Characteristics of a stock market cont’d

• Availability of information Market efficiency

• Prices react quickly to new information

• Small price fluctuations

• Narrow price spread

•Regulatory improvementRegulatory improvementTransparency and Corporate Transparency and Corporate

GovernanceGovernance

CorporateGovernance

Protection to minorityShareholders

Disclosure

Enhance market

confidence

Strong industry regulator

OUTLINE

• Structure of the Securities Market • Participants in the Securities Market • Primary Equity Market • Public Issue • Secondary Equity Market (Stock Market) • Trading and Settlement • Buying and Selling Shares • Stock Market Indices • SEBI’s Regulation • Stock Market Abroad • Should Trading be Regulated • Government Securities Market • Corporate Debt Market • Money Market

Structure of the Securities

Market

Securities Market

Equity Market

Debt Market

Derivatives Market

Government Securities

Market

Corporate Debt

Market

Money Market

Options Market

Futures Market

Participants In The Securities Market• Regulators

CLB, RBI, SEBI, DEA, DCA

SEC, FRB Stock Exchanges Listed Securities Depositories Brokers FIIs Merchant Bankers or Investment Bankers Mutual Funds Custodians Registrars Underwriters Bankers to an issue Debenture trustees Venture capital funds. Credit rating agencies

Primary market provides opportunity to Primary market provides opportunity to issuers of securities, Government as well as issuers of securities, Government as well as corporates, to raise resources to me et their corporates, to raise resources to me et their requirements of investment and/or discharge requirements of investment and/or discharge some obligationsome obligation

They may issue the securities at face value, They may issue the securities at face value, or at a discount/premium and these securities or at a discount/premium and these securities may take a variety of forms such as equity, may take a variety of forms such as equity, debt or some hybrid instrument. They may debt or some hybrid instrument. They may issue the securities in domestic market and/or issue the securities in domestic market and/or international market through ADR/GDR/ECB international market through ADR/GDR/ECB routeroute

DIP Guidelines, 2000DIP Guidelines, 2000 The issues of capital to public by Indian The issues of capital to public by Indian

companies are governed by the Disclosure companies are governed by the Disclosure and Investor Protection (DIP) Guidelines of and Investor Protection (DIP) Guidelines of SEBI, 2000. SEBI, 2000.

The guidelines provide norms relating to The guidelines provide norms relating to eligibility for companies issuing securities, eligibility for companies issuing securities, pricing of issues, listing requirements, pricing of issues, listing requirements, disclosure norms, lock-in period for disclosure norms, lock-in period for promoters’ contribution, contents of offer promoters’ contribution, contents of offer documents, pre-and post-issue obligations, documents, pre-and post-issue obligations, etc.etc.

Features Of Primary MarketFeatures Of Primary Market1. This is the market for new long term capital. The primary 1. This is the market for new long term capital. The primary

market is the market where the securities are sold for the first market is the market where the securities are sold for the first time. Therefore it is also called time. Therefore it is also called New Issue Market (NIM).New Issue Market (NIM).

2. In a primary issue, the securities are issued by the company 2. In a primary issue, the securities are issued by the company directly to investors.directly to investors.

3. The company receives the money and issue new security 3. The company receives the money and issue new security certificates to the investors.certificates to the investors.

4. Primary issues are used by companies for the purpose of 4. Primary issues are used by companies for the purpose of setting up new business or forsetting up new business or for expanding or modernizing the expanding or modernizing the existing business. existing business.

5. The primary market performs the crucial function of facilitating 5. The primary market performs the crucial function of facilitating capital formation in thecapital formation in the economy.economy.

6. Borrowers in the new issue market may be raising capital for 6. Borrowers in the new issue market may be raising capital for converting private capitalconverting private capital into public capital; this is known as into public capital; this is known as ‘going public’‘going public’

Primary

Equity Market

• PUBLIC ISSUE

• RIGHTS ISSUE

• PRIVATE PLACEMENT

• PREFERENTIAL ALLOTMENT

Public Issue In India

Approval of the board of directors Approval of shareholders Appointment of the lead manager Due diligence by the lead manager Appointment of other intermediaries like co-

managers, advisors, underwriters, bankers, brokers, and

registrars Preparation of the draft prospectus Filing of the draft prospectus with SEBI Application for listing in stock exchanges

Filing of the prospectus (after any modifications suggested by SEBI) with the Registrar of Companies Promotion of the issue Printing and distribution of applications Statutory announcement Collection of applications Processing of applications Determination of the liability of underwriters Finalisation of allotment Giving of demat credit (or dispatch of share certificates) and refund orders Listing of the issue

Initial Public Offering (IPO)Initial Public Offering (IPO)

1.1. What is an IPO?What is an IPO?

2.2. Who are the agents in an IPO?Who are the agents in an IPO?

3.3. What kind of paperwork is involved in an What kind of paperwork is involved in an IPO?IPO?

171171

The agents in an IPOThe agents in an IPO

172172

PUBLIC ISSUESPUBLIC ISSUES

Eligibility Norms I: Eligibility Norms I: Any company issuing securities through the Any company issuing securities through the

offer document has to sat isfy the following conditionsoffer document has to sat isfy the following conditions:: A company making a public issue of securities has to file A company making a public issue of securities has to file

a draft prospectus with SEBI, through an eligible a draft prospectus with SEBI, through an eligible merchant banker, at least 30 days prior to the filing of merchant banker, at least 30 days prior to the filing of prospectus with the Registrar of Companies (RoCs). prospectus with the Registrar of Companies (RoCs).

The filing of offer document is mandatory for a listed The filing of offer document is mandatory for a listed company issuing security through a rights issue where company issuing security through a rights issue where the aggregate value of securities, including premium, if the aggregate value of securities, including premium, if any, exceeds Rs.50 lakhany, exceeds Rs.50 lakh

The issue size does not exceed 5 times the pre- issue net The issue size does not exceed 5 times the pre- issue net worthworth

A company cannot make a public issue unless it has made an application for listing of those securities with stock exchange(s). The company must also have entered into an agreement with the depository for dematerialisation of its securities and also the company should have given an option to subscribers/shareholders/investors to receive the security certificates or securities in dematerialised form with the depository..

The company has a track record of distributable profits in terms of section 205 of the Companies Act, 1956, for at least three (3) out of immediately preceding five (5) years.

The company has a net worth of atleast Rs.1 crore in The company has a net worth of atleast Rs.1 crore in each of the preceding 3 full years (of 12 months each)each of the preceding 3 full years (of 12 months each)

An unlisted company can make an Initial An unlisted company can make an Initial Public Offering (IPO)Public Offering (IPO)

The company has net tangible assets of at The company has net tangible assets of at least Rs.3 crore in each of the preceding 3 least Rs.3 crore in each of the preceding 3 full years (12 months each),of which not more full years (12 months each),of which not more than 50 % is held in monetary assets, than 50 % is held in monetary assets, provided that if more than 50 % of the net provided that if more than 50 % of the net tangible assets are held in monetary assets, tangible assets are held in monetary assets, the company has made firm commitments to the company has made firm commitments to deploy such excess monetary assets in its deploy such excess monetary assets in its business/project.business/project.

Entry Norm II (EN II)Entry Norm II (EN II)

An unlisted company not complying with any of An unlisted company not complying with any of the conditions specified above may make an the conditions specified above may make an initial public offering (IPO)initial public offering (IPO)

Issue shall be through book building route, with Issue shall be through book building route, with at least 50% to be mandatory allotted to the at least 50% to be mandatory allotted to the Qualified Institutional Buyers (QIBs). Qualified Institutional Buyers (QIBs).

The minimum post-issue face value capital The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 yearscompulsory market-making for at least 2 years

Entry Norm III (EN III)Entry Norm III (EN III)

The "project" is appraised and participated to The "project" is appraised and participated to the extent of 15% by FIs/Scheduled the extent of 15% by FIs/Scheduled Commercial Banks of which at least 10% Commercial Banks of which at least 10% comes from the appraiser(s). comes from the appraiser(s).

The minimum post-issue face value capital The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years.compulsory market-making for at least 2 years.Note :-Note :- The company should also satisfy the The company should also satisfy the criteria of having at least 1000 prospective criteria of having at least 1000 prospective allotees. allotees.

Infrastructure companies are exempt from the Infrastructure companies are exempt from the requirement of eligibility norms if their project has requirement of eligibility norms if their project has been appraised by a public financial institution or been appraised by a public financial institution or infrastructure development finance corporation or infrastructure development finance corporation or infrastructure leasing and financing services and not infrastructure leasing and financing services and not less than 5% of the project cost is financed by any of less than 5% of the project cost is financed by any of the institutions, jointly or severally, by way of loan the institutions, jointly or severally, by way of loan and/or subscription to equity or a combination of and/or subscription to equity or a combination of both.both.

For public and rights issues of debt instruments For public and rights issues of debt instruments irrespective of their maturities or conversion period, irrespective of their maturities or conversion period, it is mandatory to obtain credit rating from a it is mandatory to obtain credit rating from a registered credit rating agency and to disclose the registered credit rating agency and to disclose the same in the offer documentsame in the offer document


Issue of securities indematerialised formIssue of securities indematerialised form

- agreement with both depositories- agreement with both depositories

- option to subscribes / shareholders / investors- option to subscribes / shareholders / investors


Exemption to eligibility norms1. Existing banking company2. New Bank3. Infrastructure company whose

a. Project is appraised by a public Financial Institute etc

b. 5% financed by the PFI or equityc. Rights issue of a listed company


If public issue is of a debt instrument irrespective of maturity

- Rating from a recognised rating agency

- If above Rs.100 cr – 2 agencies rating


Public issued not allowed

- if there are any outstanding financial instrument / right entitling existing promoters / shareholders

- if any partly paid up shares are yet to be fully paid or forfeited


Pricing of Securities

- Free

- Differential pricing allowed in firm allotment provided that such price is higher than that offered to public


PROMOTERS CONTRIBUTION AND LOCK-IN REQUIREMENTS

• Promoters Contribution in a Public Issue by Unlisted Companies shall contribute not less than 20% of the post issue capital.

• Promoters Contribution in Case of Public Issues by Listed Companies the promoters shall participate either to the extent of 20% of the proposed issue or ensure post-issue share holding to the extent of 20% of the post-issue capital.


Promoters Contribution in Case of Composite IssuesIn case of composite issues of a listed company, the

promoters contribution shall at the option of the promoter(s) be either 20% of the proposed public issue or 20% of the post-issue capital.

Rights issue component of the composite issue shall be excluded while calculating the post-issue capital.

PUBLIC ISSUESPUBLIC ISSUESSecurities Ineligible for Computation of Promoters

ContributionWhere the promoters of any company making an issue

of securities have acquired equity during the preceding three years, before filing the offer documents with the Board, such equity shall not be considered for computation of promoters contribution if it is;

i. acquired for consideration other than cash and revaluation of assets or capitalisation of in tangible assets is involved in such transaction(s); or

ii. resulting from a bonus issue, out of revaluation reserves or reserves without accrual of cash resources;


In case of public issue by unlisted companies, securities which have been issued to the promoters during the preceding one year, at a price lower than the price at which equity is being offered to public shall not be eligible for computation of promoters contribution.

Provided that the shares for which the difference between the offer price and the issue price for these shares is brought in by the promoters shall be considered eligible


In respect of companies formed by conversion of partnership firms, where the partners of the erstwhile partnership firm and the promoters of the converted company are the same and there is no change in management, the shares allotted to the promoters during previous one year out of the funds brought in during that period shall not be considered eligible for computation of promoters contribution unless such shares have been issued at the same price at which the public offer is made.

Provided that if the partners capital existed in the firm for a period of more than one year on a continuous basis, the shares allotted to promoters against such capital shall be considered eligible.

PUBLIC ISSUESPUBLIC ISSUESNo securities forming part of promoters contribution shall consist of any private placement made by solicitation of subscription from unrelated persons either directly or through any intermediary.

The securities for which a specific written consent has not been obtained from the respective shareholders for inclusion of their subscription in the minimum promoters contribution subject to lock-in shall not be eligible for promoters contribution.

PUBLIC ISSUESPUBLIC ISSUESPromoters Participation in Excess of the Required Minimum Contribution to be Treated as Preferential Allotment

Promoters Contribution to be brought in one day before Public Issue Opens

Provided that where the promoters minimum contribution exceeds Rs.100 crores, the promoters shall bring in Rs.100 crores before the opening of the issue and the remaining contribution shall be brought in by the promoters in advance on pro-rata before the calls are made on public.

PUBLIC ISSUESPUBLIC ISSUESExemption from Requirement of Promoters Contribution

The requirement of promoters contribution shall not be applicable -a. in case of public issue of securities by a company which has

been listed on a stock exchange for at least 3 years and has a track record of dividend payment for at least 3 immediately preceding years.

b. in case of companies where no identifiable promoter or promoter group exists.

c. in case of rights issues.

Provided, in case of (a) and (c) above, the promoters shall disclose their existing shareholding and the extent to which they are participating in the proposed issue, in the offer document.

PUBLIC ISSUESPUBLIC ISSUESLock in of Minimum Specified Promoters

Contribution in Public Issues

In case of any issue of capital to the public the minimum promoters contribution shall be locked in for a period of 3 years from the date of commencement of commercial production or the date of allotment in the public issue whichever is later.

PUBLIC ISSUESPUBLIC ISSUESLock-in of Shares Ineligible for Promoters

Contributionsecurity issued to promoters or other shareholders, out of

revaluation of assets or capitalisation of intangible assets, within a period of 3 preceding years from the date of filing of offer documents with the Board, shall be locked-in for a period of 3 years from the date of allotment of the proposed issue of capital.

Any security to promoters or other shareholders, issued by way of bonus out of revaluation reserves, within a period of 3 preceding years, shall be locked-in for a period of 3 years from the date of allotment of the proposed issue of capital

PUBLIC ISSUESPUBLIC ISSUESPRE- ISSUE OBLIGATIONS

The pre-issue obligations are detailed below:

The lead merchant banker shall exercise due diligence.

• The standard of due diligence shall be such that the merchant banker shall satisfy himself about all the aspects of offering, veracity and adequacy of disclosure in the offer documents.

• The liability of the merchant banker shall continue even after the completion of issue process.

• The lead merchant banker, shall pay requisite fee in accordance with regulation 24A of Securities and Exchange Board of India (Merchant Bankers) Rules and Regulations, 1992 along with draft offer document filed with the Board.

PUBLIC ISSUESPUBLIC ISSUESDocuments to be Submitted alongwith the Offer

Document by the Lead Manager

1. Memorandum of Understanding (MOU) between a lead merchant banker and the issuer company specifying their mutual rights, liabilities and obligations relating to the issue.

2. Inter-se Allocation of Responsibilities- In case a public or rights issue is managed by more than one merchant bankers the rights, obligations and responsibilities of each merchant banker shall be demarcated.

3. Agreement responsibility of LMB that LMB well in case of under subscription at an issue.

PUBLIC ISSUESPUBLIC ISSUESOffer Document to be Made PublicThe draft offer document filed with the Board shall be

made public for a period of 21 days from the date of filing the offer document with the Board.

No Complaints CertificateAfter a period of 21 days from the date the draft offer

document was made public, the Lead Merchant Banker shall file a statement with the Board :

1. giving a list of complaints received by it, 2. a statement by it whether it is proposed to amend

the draft offer document or not, and;3. highlight those amendments.

PUBLIC ISSUESPUBLIC ISSUESMandatory Collection Centres

The minimum number of collection centres for an issue of capital shall be-

a. the four metropolitan centres situated at Mumbai, Delhi,

Calcutta and Chennai b. all such centres where the stock exchanges are located in the region

in which the registered office of the company is situated.

c. the regional division of collection centres is indicated by SEBI.

The issuer company shall be free to appoint as many collection centres as it may deem fit in addition to the above minimum requirement.

PUBLIC ISSUESPUBLIC ISSUESAppointment of Compliance Officer

An issuer company shall appoint a compliance officer who shall directly liaise with the Board with regard to compliance with various laws, rules, regulations and other directives issued by the Board and investors complaints related matter.

The name of the compliance officer so appointed shall be intimated to the Board.

PUBLIC ISSUESPUBLIC ISSUESRule 19(2) (b) of SC (R) Rules, 1957

In case of a public issue by an unlisted company, the net offer to public shall be at least 10% or 25% of the post-issue capital as the case may be.

In case of a public issue by a listed company, the net

offer to public shall be at least 10% or 25% of the issue size.

An infrastructure company, satisfying the requirements in Clause 2.4.1 (iii) of Chapter II, inviting subscription from public may shall not attract the above clauses


Only 10% of securities issued by a company can be offered to the public for subscription two days if :

(i) minimum twenty lacs securities are offered to the public (excluding reservation, firm allotment and promoter's contribution); and

(ii) the size of the offer to the public i.e. the offer price multiplied by the number of securities offered to the public at point (i) above, is minimum Rs.100 crores.

(iii) the issue was made only through book building method with allocation of 60% of the issue size to the qualified institutional buyers as specified by SEBI.

PUBLIC ISSUESPUBLIC ISSUES Terms of the Issue Minimum Number of Share Applications and Application

Money in public issue

i) In case of public issue at par, the minimum number of shares for which an application is to be made, shall be fixed at 200 shares of face value of Rs.10/- each.

ii) Where the public issue is at a premium or comprises security, whether convertible or non-convertible, or the public issue is of more than one security, the minimum application moneys payable in respect of each security by each applicant, shall not be less than Rs 2000/- irrespective of the size of premium subject to applications being for a multiple of tradeable lots;

PUBLIC ISSUESPUBLIC ISSUESiv. The minimum tradeable lot, in case of shares of face

value of Rs.10/- each, shall at the option of the issuer/offeror, be fixed on the basis of offer price as given below:

v. The minimum application moneys to be paid by an applicant along with the application money shall not be less than 25% of the issue price.

v. The minimum number of instruments for which an application has to be made shall be not less than the tradeable lot.

PUBLIC ISSUESPUBLIC ISSUESSecurities Issued to be Made Fully Paid Up

a. If the subscription money is proposed to be received in calls, the calls shall be structured in such a manner that the entire subscription money is called within 12 months from the date of allotment.

b. If the investor fails to pay call money within 12 months the subscription money already paid may be forfeited.

c. If the issue size is above Rs.500 crores and is subject to monitoring requirement as per Clause 8.17.1 of SEBI DIP guidelines, it shall not be necessary to call the entire subscription money within 12 months.


Restriction on further Capital Issues

No company shall make any further issue of capital in any form, till the securities issued earlier have been listed or application moneys refunded on account of non-listing or under subscription, etc. (a) No company shall, pending conversion of Fully Convertible Debentures (FCDs) or Partly Convertible Debentures (PCDs), issue any shares by way of bonus or rights unless similar benefit is extended to the holders of such FCDs or PCDs, through reservation of shares in proportion to such convertible part of FCDs/PCDs. (b) The share so reserved may be issued at the time of conversion(s) of such debentures on the same terms on which the bonus or rights issue was made.

PUBLIC ISSUESPUBLIC ISSUESPeriod of SubscriptionPublic Issues(a) Subscription list for public issues shall be kept open for at least 3 working days and not more than 10 working days. (b) The public issue made by an infrastructure company, may be kept open for a maximum period of 21 working days.(c) The period of operation of subscription list of public issue shall be disclosed in the prospectus.

Rights IssuesRights issues shall be kept open for at least 30 days and not more than 60 days.


The Lead Merchant Banker shall ensure that the particulars as per audited statements contained in the offer document are not more than 6 months old from issue opening date.

In respect of a Government company making a public issue, the auditors report in the prospectus shall not be more than six months old as on the date of filing of the prospectus with the Registrar of Companies or the Stock Exchange as the case may be. .


Compliance Officer to be Appointed by Lead Merchant Banker

The merchant bankers shall appoint a senior officer as Compliance Officer to ensure that all Rules, Regulations, Guidelines, Notifications etc. issued by the Board, the Government of India, and other regulatory organizations are complied with.

The Compliance Officer shall co-ordinate with regulatory authorities in various matters and provide necessary guidance as also ensure compliance internally.

The Compliance Officer shall also ensure that observations made/ deficiencies pointed out by the Board do not recur.


Incentives to Prospective Shareholders

The issuer shall not offer any incentives to the prospective investors by way of medical insurance scheme, lucky draw, prizes, etc.

Issue of Debentures Bearing Interest Less Than Bank Rate

Whenever FCDs are issued bearing interest at a rate less than the Bank Rate, the offer document shall contain disclosures about the price that would work out to the investor, taking into account the notional interest loss on the investment from the date of allotment of FCDs to the date(s) of conversions).


Requirement of Monitoring Agency

In case of issues exceeding Rs.500 crores, the issuer shall make arrangements for the use of proceeds of the issue to be monitored by one of the financial institutions.

A copy of the monitoring report as per the format specified at Schedule-XIX, shall be filed with the Board by the said monitoring agency, on a half yearly basis, till the completion of project, for the purposes of record.


Safety Net or Buy Back Arrangement

Any safety net scheme or buy-back arrangements of the shares proposed in any public issue shall be finalised by issuer company with the lead merchant banker in advance and disclosed in the prospectus.

Such buy back or safety net arrangements shall be made available only to all original resident individual allottees.

Such buy back or safety net facility shall be limited upto a maximum of 1000 shares per allottee and the offer shall be valid at least for a period of 6 months from the last date of despatch of securities.

The financial capacity of the person making available buy back or safety net facility shall be disclosed in the draft prospectus.


Utilisation of funds in case of Rights Issues

The issuer company may utilise funds collected against rights issues after satisfying regional stock exchange that minimum 90% subscription has been received.

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Background on Common StockBackground on Common Stock

– Common stock = certificate representing partial Common stock = certificate representing partial ownership in a corporationownership in a corporation

– Issued by corporations that need long-term Issued by corporations that need long-term fundsfunds Issued in the primary marketIssued in the primary market Stock is then traded in the secondary market, Stock is then traded in the secondary market,

creating liquidity for investorscreating liquidity for investors

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Background on Common StockBackground on Common Stock Ownership and voting rightsOwnership and voting rights

– Owners of common stock vote on:Owners of common stock vote on: Election of board of directorsElection of board of directors Authorization to issue new sharesAuthorization to issue new shares Amendments to corporate charterAmendments to corporate charter Other major eventsOther major events

– Many investor assign their vote to management Many investor assign their vote to management via a proxyvia a proxy

– Households own about half of all common stock, Households own about half of all common stock, the rest is owned by institutional investorsthe rest is owned by institutional investors

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Background on Preferred StockBackground on Preferred Stock

Represents equity interest, but usually no Represents equity interest, but usually no voting rightsvoting rights

Stated fixed annual dividendStated fixed annual dividend Dividend may be omittedDividend may be omitted

– Cumulative provisionCumulative provision

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Public Placement of StockPublic Placement of Stock

Initial public offerings (IPOs)Initial public offerings (IPOs) First-time offering of shares to the publicFirst-time offering of shares to the public Firm must provide information to publicFirm must provide information to public

– ProspectusProspectus Firm is assisted by a securities firmFirm is assisted by a securities firm

– Performance of IPOsPerformance of IPOs Price generally rises on first dayPrice generally rises on first day

– Internet firmsInternet firms Longer-term performance of IPOs is poorLonger-term performance of IPOs is poor

Public Issue In India

Approval of the board of directors Approval of shareholders Appointment of the lead manager Due diligence by the lead manager Appointment of other intermediaries like co-

managers,

advisors, underwriters, bankers, brokers, and

registrars Preparation of the draft prospectus Filing of the draft prospectus with SEBI Application for listing in stock exchanges

Filing of the prospectus (after any modifications suggested by SEBI) with the Registrar of Companies Promotion of the issue Printing and distribution of applications Statutory announcement Collection of applications Processing of applications Determination of the liability of underwriters Finalisation of allotment Giving of demat credit (or dispatch of share certificates) and refund orders Listing of the issue

Public Issues in the U.S

In the U.S., public offerings of both stocks and bonds are

typically marketed by investment bankers who perform

the role of underwriters. Generally, the lead investment

banker forms an underwriting syndicate with other

investment bankers to share the responsibility of the

issue.

Pricing of IssuesPricing of Issues Free PricingFree Pricing SEBI does not play any role in price fixation.SEBI does not play any role in price fixation. Fixed Price/Book BuildingFixed Price/Book Building The company and merchant banker are however required The company and merchant banker are however required

to give full disclosures of the parameters which they had to give full disclosures of the parameters which they had considered while deciding the issue price.considered while deciding the issue price.

Book BuildingBook Building A process undertaken by which a demand for the A process undertaken by which a demand for the

securities proposed to be issued by a body securities proposed to be issued by a body corporate is elicited and built up and the price for corporate is elicited and built up and the price for the securities is assessed on the basis of the bids the securities is assessed on the basis of the bids obtained for the quantum of securities offered for obtained for the quantum of securities offered for subscription by the issuer. This method provides subscription by the issuer. This method provides an opportunity to the market to discover price for an opportunity to the market to discover price for securities.securities.

Book BuildingBook Building Options in Book buildingOptions in Book building

75 % Book Building75 % Book Building 100 % book Building100 % book Building

Books remain open for 7 working days ( Fixed price issue 10 Books remain open for 7 working days ( Fixed price issue 10 days)days)

Only Electronic BiddingOnly Electronic Bidding Bids to be submitted through Syndicate membersBids to be submitted through Syndicate members Issue completed and trading commenced on T + 16 basisIssue completed and trading commenced on T + 16 basis Floor price disclosed one day prior to bid dateFloor price disclosed one day prior to bid date Price band of 20 %Price band of 20 % Green Shoe optionGreen Shoe option

An option of allocating shares in excess of the shares An option of allocating shares in excess of the shares included in the public issue and operating a post-included in the public issue and operating a post-listing price stabilizing mechanism in accordance with listing price stabilizing mechanism in accordance with the provisions of Chapter VIII-A of DIP Guidelines, the provisions of Chapter VIII-A of DIP Guidelines, which is granted to a company to be exercised which is granted to a company to be exercised through a Stabilising Agent.through a Stabilising Agent.

Features Fixed Price Process

Book Building Process

Pricing Price at which the securities are offered/allotted is known in advance to the investor

Price at which securities will be offered/allotted is not known in advance to the investor. Only an indicative price range is known.

Demand Demand for the securities offered is known only after the closure of the issue

Demand for the securities offered can be known everyday as the book is built.

Payment Payment if made at the time of subscription wherein refund is given after allocation.

Payment only after allocation.

Difference between shares offered through book building and offer of shares through normal public issue

Book Building: Book building is a method of offering shares to

investors in which the issue price is not fixed in advance (as is done in a fixed

price offer) but is determined through a bidding process. Book Building is

basically a process used in IPOs for efficient price discovery. It is a mechanism

where, during the period for which the IPO is open, bids are collected from

investors at various prices, which are above or equal to the floor price. The

offer price is determined after the bid closing dateUnder Book Building, investors bid for shares at the floor price or above and after the closure of the book building process the price is determined for allotment of shares.In case of Book Building, the demand can be known everyday as the book is being built. But in case of the public issue the demand is known at the close of the issue.Cut-Off Price: In a Book building issue, the issuer is required to indicate either the price band or a floor price in the prospectus. The actual discovered issue price can be any price in the price band or any price above the floor price. This issue price is called “Cut-Off Price”. The issuer and lead manager decides this after considering the book and the investors’ appetite for the stock.

Steps in Book BuildingSteps in Book Building1.1.The issuer appoints a lead merchant banker as a ‘book runner’The issuer appoints a lead merchant banker as a ‘book runner’

2. The book runner then advices the company on the issue and 2. The book runner then advices the company on the issue and helps the issuer to decide the number of securities to be issued helps the issuer to decide the number of securities to be issued and the price band.and the price band.

3. The issuer with the book runner, also appoints syndicate 3. The issuer with the book runner, also appoints syndicate members with whom the investors can place the orders.members with whom the investors can place the orders.

4. Then the issuers advertises the issue and sends the application 4. Then the issuers advertises the issue and sends the application form through the syndicate members to the prospective form through the syndicate members to the prospective members.members.

5. On opening the issue, the interested investors place their 5. On opening the issue, the interested investors place their orders into the orders with the syndicate members who puts orders into the orders with the syndicate members who puts these orders in the ‘electronic book’. This process is called these orders in the ‘electronic book’. This process is called Bidding.Bidding.

6. The bidding is open for a stipulated time usually for a minimum 6. The bidding is open for a stipulated time usually for a minimum of 5 days.of 5 days.

7. The investor can bid at any price within the price 7. The investor can bid at any price within the price band which is 20% spread and can be modified band which is 20% spread and can be modified during the bidding period. The issuing company is during the bidding period. The issuing company is allowed to disclose the floor price prior to the bid allowed to disclose the floor price prior to the bid opening date but should not do in the red herring opening date but should not do in the red herring prospectus[ It is an interim prospectus, that carries a prospectus[ It is an interim prospectus, that carries a passage in red stating that the company is not selling passage in red stating that the company is not selling the shares without the approval of the regulator]the shares without the approval of the regulator]

8. On the close of the book building period the book 8. On the close of the book building period the book runner evaluates the bids based on the criteria such runner evaluates the bids based on the criteria such as price aggression, quality of investors, as price aggression, quality of investors,

9. The book builder helps the issuer company in 9. The book builder helps the issuer company in arriving the final price at which the it is willing to arriving the final price at which the it is willing to issue the sharesissue the shares

Book building can be done Book building can be done by two waysby two ways

1.1. It can opt for 75% book building processIt can opt for 75% book building process

2.2. It can opt for 100% book building processIt can opt for 100% book building process

In case of 75% book building, 75% of the net public offer In case of 75% book building, 75% of the net public offer has to be made through book building route in which not has to be made through book building route in which not more than 60% of the net public offer can be allocated to more than 60% of the net public offer can be allocated to the Qualified institutional buyers(QIB) and not less than the Qualified institutional buyers(QIB) and not less than 15% of the net offer to the public can be allocated to non-15% of the net offer to the public can be allocated to non-institutional buyers applying for more than 1000 shares.institutional buyers applying for more than 1000 shares.

In case of 100% book building the entire net public offer has In case of 100% book building the entire net public offer has to be made through book building in which not more than to be made through book building in which not more than 60% of the net offer to public offer can be allocated to the 60% of the net offer to public offer can be allocated to the QIBs, not less than 15% of the net offer to the public can be QIBs, not less than 15% of the net offer to the public can be allocated to the non-institutional buyers and not less than allocated to the non-institutional buyers and not less than 25% of the net public offer can be allocated to the retail 25% of the net public offer can be allocated to the retail individual investors.individual investors.

PromoterPromoter The promoter has been defined as a person or persons who are in The promoter has been defined as a person or persons who are in

over-all control of the companyover-all control of the company Promoters Contribution should not be less than 20% of post issue Promoters Contribution should not be less than 20% of post issue

of capital in case of offers for sale and public issues by unlisted of capital in case of offers for sale and public issues by unlisted companies.companies.

To bring Full amount of promoter contribution To bring Full amount of promoter contribution including premium one day prior to issue opening including premium one day prior to issue opening date.date.

ExceptionsExceptions Public issue of securities listed on a stock exchange Public issue of securities listed on a stock exchange

for at least 3 years with a dividend payment record for at least 3 years with a dividend payment record of 3 immediate preceding yearsof 3 immediate preceding years

No identifiable promoter or group existNo identifiable promoter or group exist Rights IssueRights Issue

Lock In of SecuritiesLock In of Securities Promoters minimum contribution in any public issue Promoters minimum contribution in any public issue

locked in for 3 years. locked in for 3 years. The Contribution over and above 20 % (minimum) is The Contribution over and above 20 % (minimum) is

locked in for one year.locked in for one year. The locked in securities can be pledged with banks as The locked in securities can be pledged with banks as

collateral.collateral.

Merchant BankerMerchant Banker

Governed by SEBI Merchant Bank Governed by SEBI Merchant Bank Regulations Act 1992Regulations Act 1992

Need to be a Body Corporate other than Need to be a Body Corporate other than NBFC NBFC

Required to have a compliance officerRequired to have a compliance officer

Merchant BankerMerchant Banker Pre-issue process:-Pre-issue process:- The due diligence of company’s operations/ management/ The due diligence of company’s operations/ management/

business plans/ legalbusiness plans/ legal Drafting and design of Offer documents, Prospectus, statutory Drafting and design of Offer documents, Prospectus, statutory

advertisements and memorandum containing salient features of advertisements and memorandum containing salient features of the Prospectus. the Prospectus.

The BRLMs shall ensure compliance with stipulated requirements The BRLMs shall ensure compliance with stipulated requirements and completion of prescribed formalities with the Stock and completion of prescribed formalities with the Stock Exchanges, RoC and SEBI including finalisation of Prospectus Exchanges, RoC and SEBI including finalisation of Prospectus and RoC filing. and RoC filing.

Appointment of other intermediaries viz., Registrar(s), Printers, Appointment of other intermediaries viz., Registrar(s), Printers, Advertising Agency and Bankers to the Offer is also included in Advertising Agency and Bankers to the Offer is also included in the pre-issue processes. the pre-issue processes.

The LM also draws up the various marketing strategies for the The LM also draws up the various marketing strategies for the issue.issue.

Post issue:-Post issue:- Including management of escrow accounts, coordinate non-Including management of escrow accounts, coordinate non-

institutional allocation,institutional allocation, intimation of allocation and dispatch of refunds to bidders intimation of allocation and dispatch of refunds to bidders Finalization of trading and dealing of instruments and dispatch of Finalization of trading and dealing of instruments and dispatch of certificates and demat of delivery of shares, with the various certificates and demat of delivery of shares, with the various

agencies connected with the work such as the Registrar(s) to the agencies connected with the work such as the Registrar(s) to the Offer andOffer and

Bankers to the Offer and the bank handling refund businessBankers to the Offer and the bank handling refund business..

Credit RatingCredit Rating Sebi Credit rating regulations ACT 1999Sebi Credit rating regulations ACT 1999 Promoted by PFI, SCB, Foreign Banks operating in Promoted by PFI, SCB, Foreign Banks operating in

India, Foreign credit rating agencies with 5 yrs of exp. India, Foreign credit rating agencies with 5 yrs of exp. Body corporate having continuous net worth of 100 Body corporate having continuous net worth of 100 crores for previous 5 yrs.crores for previous 5 yrs.

Minimum Net worth of 5 crores.Minimum Net worth of 5 crores. A CRA cannot rate A CRA cannot rate

A security issued by its promoterA security issued by its promoter Security issued by an associate , subsidiary ,an Security issued by an associate , subsidiary ,an

associate promoter of CRA if they have a associate promoter of CRA if they have a common chairman, director and employees.common chairman, director and employees.

For all debt issue greater than or equal to 100 crores , For all debt issue greater than or equal to 100 crores , has to be rated by two different agencies.has to be rated by two different agencies.

ADR/GDRADR/GDR Method of raising foreign currency resourcesMethod of raising foreign currency resources

Foreign Convertible currency bondsForeign Convertible currency bonds ADR/GDR ADR/GDR

Depository Receipt – negotiable instrument in the form of a Depository Receipt – negotiable instrument in the form of a certificate denominated in US dollarscertificate denominated in US dollars

Certificates are issued by an overseas depository bank Certificates are issued by an overseas depository bank against underlying shares deposited by the issuing company against underlying shares deposited by the issuing company with the bankwith the bank

The DR’s are issued by the bank to the investorsThe DR’s are issued by the bank to the investors It is a non voting equity holding with all other benefits It is a non voting equity holding with all other benefits

accrued.accrued. Permits cross border trading and settlement , minimize Permits cross border trading and settlement , minimize

transaction costs and broaden the capital base for transaction costs and broaden the capital base for Institutional Investors.Institutional Investors.

Contd…Contd…

ADR GDRNegotiable U S certificate representing ownership of shares in a Non U S corp..

Issued to public or private to markets inside or outside U S

Quoted and traded in $ in U S markets

Allows issuer to raise capital in two or more markets simultaneously

To facilitate the purchase, holding and sale of non U S Securities by U S investors.

Underlying shares correspond to GDR are fixed in ratio i.e. 1 GDR = 10 shares

ADR’s and GDR’s are identical in legal, technical ,operational and administrative point of view

VA Linux: a dramatic exampleVA Linux: a dramatic example

IPO price: $30IPO price: $30 First day closing price: $239.25First day closing price: $239.25 Today’s price: $5.28Today’s price: $5.28

Replicate this picture using Replicate this picture using finance.yahoo.com (LNUX)finance.yahoo.com (LNUX)

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Figure 3.3 Average Initial Returns for Figure 3.3 Average Initial Returns for IPOs in Various CountriesIPOs in Various Countries

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Private placementsPrivate placements

Private placementPrivate placement: sale to a limited: sale to a limitednumber of sophisticated investors notnumber of sophisticated investors notrequiring the protection of registrationrequiring the protection of registration

Allowed under Rule 144AAllowed under Rule 144A Dominated by institutionsDominated by institutions Very active market for debt securitiesVery active market for debt securities Not active for stock offeringsNot active for stock offerings

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AuctionsAuctions Initiated by Exchange on behalf of trading members for Initiated by Exchange on behalf of trading members for settlement related reasons.settlement related reasons. On the securities pay-in day, NSCCL identifies short On the securities pay-in day, NSCCL identifies short

deliveries and the respective clearing member is debited by deliveries and the respective clearing member is debited by an amount equivalent to the securities not delivered by him an amount equivalent to the securities not delivered by him and valued at a valuation priceand valued at a valuation price

NSCCL conducts a buying-in auction for security shortages NSCCL conducts a buying-in auction for security shortages on the day after the pay-out day through the NSE trading on the day after the pay-out day through the NSE trading system. If the buy-in auction price is more than the valuation system. If the buy-in auction price is more than the valuation price, the member is required to make good the difference.price, the member is required to make good the difference.

Close Out – all shortages not bought are deemed closed at Close Out – all shortages not bought are deemed closed at highest price of the trading period or closing price on highest price of the trading period or closing price on auction day plus 20%auction day plus 20%

Order ManagementOrder Management

NSE is Order driven marketNSE is Order driven market Order management consists ofOrder management consists of

– Entering ordersEntering orders– Order modificationOrder modification– Order cancellationOrder cancellation– Order matchingOrder matching

Entering OrderEntering Order Active vs. Passive Order (price, time Active vs. Passive Order (price, time

stamping)stamping) Order BookOrder Book

– Regular lot, Stop loss, special terms, retail Regular lot, Stop loss, special terms, retail debt order, auction ordersdebt order, auction orders

Symbol and SeriesSymbol and Series QuantityQuantity PricePrice Principal or ClientPrincipal or Client Order types/conditionsOrder types/conditions

Order modificationOrder modification

Modify during market hours Modify during market hours Change unexecuted quantity, priceChange unexecuted quantity, price Cannot change client codeCannot change client code Cannot exceed price limitsCannot exceed price limits User value is adjustedUser value is adjusted

RoadmapRoadmap

1.1. Type of marketsType of markets– Primary marketsPrimary markets– Secondary marketsSecondary markets

2.2. Types of OrdersTypes of Orders

3.3. Trading mechanismsTrading mechanisms

4.4. US securities marketsUS securities markets

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Trading MechanismsTrading Mechanisms

1.1. Over the Counter marketsOver the Counter markets

2.2. Electronic communication networks Electronic communication networks (ECNs)(ECNs)

3.3. Specialists marketsSpecialists markets

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RoadmapRoadmap

1.1. Type of marketsType of markets– Primary marketsPrimary markets– Secondary marketsSecondary markets

2.2. Types of OrdersTypes of Orders

3.3. Trading mechanismsTrading mechanisms

4.4. US securities marketsUS securities markets

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U.S. Security MarketsU.S. Security Markets

Nasdaq (National Association of Security Dealers Nasdaq (National Association of Security Dealers Automated Quotation System)Automated Quotation System)

– Levels of subscribersLevels of subscribers1.1. Level 1 – inside quotesLevel 1 – inside quotes2.2. Level 2 – receives all quotes but they can’t enter quotesLevel 2 – receives all quotes but they can’t enter quotes3.3. Level 3 – dealers making marketsLevel 3 – dealers making markets

– SuperMontageSuperMontage

Organized Exchanges Organized Exchanges – New York Stock ExchangeNew York Stock Exchange– American Stock ExchangeAmerican Stock Exchange– Regionals (e.g. Boston Stock Exchange)Regionals (e.g. Boston Stock Exchange)

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Market Structures in Other CountriesMarket Structures in Other Countries

London - predominately electronic tradingLondon - predominately electronic trading Euronext – market formed by combination of Euronext – market formed by combination of

the Paris, Amsterdam and Brussels the Paris, Amsterdam and Brussels exchangesexchanges

Tokyo Stock ExchangeTokyo Stock Exchange

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Investment Banking and Investment Banking and UnderwritingUnderwriting

Investment banker—specialist in issuing Investment banker—specialist in issuing securitiessecurities– advice—concerning market conditionsadvice—concerning market conditions– underwriting—take risk of issuing securitiesunderwriting—take risk of issuing securities– distribution—syndicates (diversification)distribution—syndicates (diversification)

Prospectus—documents the new issue; Prospectus—documents the new issue; indicates the terms of the issue, use of indicates the terms of the issue, use of funds, and so forthfunds, and so forth

Investment Banking Investment Banking ArrangementsArrangements

Types of Arrangements: Types of Arrangements: – Negotiated purchase—issuing firm negotiates Negotiated purchase—issuing firm negotiates

terms with investment bankerterms with investment banker– Competitive bid purchase—investment bankers Competitive bid purchase—investment bankers

bid on the issuebid on the issue– Best Efforts—investment banker sells on a Best Efforts—investment banker sells on a

contingency basis; gives a “best effort” to sell contingency basis; gives a “best effort” to sell the issue, but there is no firm commitment that the issue, but there is no firm commitment that the entire amount will be soldthe entire amount will be sold

Public Versus Private Public Versus Private PlacementsPlacements

Public placements (offerings)—must register with Public placements (offerings)—must register with the SEC; sold to the publicthe SEC; sold to the public– Initial Public Offerings (IPOs)—first time a sells stock to Initial Public Offerings (IPOs)—first time a sells stock to

the investing publicthe investing public IPOs generally are underpricedIPOs generally are underpriced Investment bankers generally are involved in the market after Investment bankers generally are involved in the market after

the initial offering of the stockthe initial offering of the stock

Private placements—sell to a limited number of Private placements—sell to a limited number of sophisticated investors; not registered sophisticated investors; not registered – Institutional investorsInstitutional investors– Market is more active for debt than equity Market is more active for debt than equity

Stock (Bond) MarketsStock (Bond) Markets

Organized exchanges—physical locationsOrganized exchanges—physical locations– NYSENYSE– AMEXAMEX

OTC market—electronic networkOTC market—electronic network– NASDAQNASDAQ

Third market—trading exchange-listed stocks on the OTCThird market—trading exchange-listed stocks on the OTC– Institutional investors with large blocksInstitutional investors with large blocks

Fourth market—direct trades of exchange-listed stocksFourth market—direct trades of exchange-listed stocks– Institutional investors with large blocksInstitutional investors with large blocks– Electronic Communications Networks (ECNs)Electronic Communications Networks (ECNs)

Regulation & SupervisionRegulation & SupervisionA A few questions few questions

• Ever wondered how the capital markets Ever wondered how the capital markets workwork

• Who sets the rulesWho sets the rules

• What does the stock exchange doWhat does the stock exchange do

• What is the role of the stock brokerWhat is the role of the stock broker

• How to become a registered broker How to become a registered broker

LegislationsLegislations Capital Issues (Control) Act, 1947Capital Issues (Control) Act, 1947 SEBI Act, 1992SEBI Act, 1992 Securities Contracts (Regulation) Act, 1956Securities Contracts (Regulation) Act, 1956 Depositories Act, 1996Depositories Act, 1996 Companies Act, 1956Companies Act, 1956 Prevention of Money Laundering Act, 2002Prevention of Money Laundering Act, 2002

The Regulator

• Foremost authority presiding over the capital markets

• With mission to promote and maintain Fair, efficient , secure and transparent market and to facilitate the orderly development of the stock exchange

Role and Functions of Role and Functions of a stock exchange a stock exchange

Established for the Established for the purpose of assisting, purpose of assisting, regulating and controlling regulating and controlling business of buying, business of buying, selling and dealing in selling and dealing in securities securities

Role and Functions of Role and Functions of a stock exchange cont’d a stock exchange cont’d

• Provides a market for the trading of Provides a market for the trading of securities to individuals and securities to individuals and organizations seeking to invest their organizations seeking to invest their saving or excess funds through the saving or excess funds through the purchase of securitiespurchase of securities

Role and Functions of a stock exchange cont’d

Provides a physical location for buying and selling securities that have been listed for trading on that exchange

Role and Functions of a stock exchange cont’d

Establishes rules for fair trading practices and regulates the trading activities of its members according to those rules

Role and Functions of Role and Functions of

a stock exchange a stock exchange cont’dcont’dThe exchange itself does not buy or sell the securities, nor does it set prices for them

FairFair

The exchange assures that The exchange assures that no investor will have an no investor will have an undue advantage over other undue advantage over other market participantsmarket participants

Efficient marketEfficient market

This means that orders This means that orders are executed and are executed and transactions are settled transactions are settled in the fastest possible in the fastest possible wayway

TransparencyTransparency

Investor make informed and Investor make informed and intelligent decision about the intelligent decision about the particular stock based on particular stock based on informationinformation

Transparency cont’d Transparency cont’d

Listed companies must Listed companies must disclose information in disclose information in timely, complete and timely, complete and accurate manner to the accurate manner to the Exchange and the public on Exchange and the public on a regular basisa regular basis

Transparency cont’dTransparency cont’d

Required information include stock Required information include stock price, corporate conditions and price, corporate conditions and developments dividend, mergers developments dividend, mergers and joint ventures, and and joint ventures, and management changes etcmanagement changes etc

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Stock ExchangesStock Exchanges

Organized exchangesOrganized exchanges– Execute secondary market transactionsExecute secondary market transactions– Examples: NYSE, AMEX, Midwest, PacificExamples: NYSE, AMEX, Midwest, Pacific– NYSE is largest, controlling 80 percent of value NYSE is largest, controlling 80 percent of value

of all organized exchangesof all organized exchanges Must own a seat on exchange in order to tradeMust own a seat on exchange in order to trade Trading resembles an auctionTrading resembles an auction

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Stock ExchangesStock Exchanges Over-the-counter marketOver-the-counter market

No trading floorNo trading floor Telecommunications networkTelecommunications network

– NasdaqNasdaq National Association of Securities Dealers Automatic National Association of Securities Dealers Automatic

QuotationsQuotations Thousands of small firms, plus high-tech giantsThousands of small firms, plus high-tech giants

– Pink sheetsPink sheets Tiny firms that do not meet requirements for NASDAQTiny firms that do not meet requirements for NASDAQ

Financing the exchange Financing the exchange

• Transaction fees paid by members for each Transaction fees paid by members for each order executed order executed

• Fees paid by firms when their securities are Fees paid by firms when their securities are originally listed originally listed

• Annual fees by firms Annual fees by firms • Entrance fees from new members Entrance fees from new members • sale of historic trading and market sale of historic trading and market

information information

Major challenges for the ExchangesMajor challenges for the Exchanges

• Cross border trading

• Issuers and investors are expanding their horizons beyond their home markets

• Investors becoming much more demanding

Stock Market In India As of January 2005 there were 23 stock exchanges

recognised by the central government.

The most important development in the Indian stock

market was the establishment of the National Stock

Exchange (NSE) in 1994.

Within a short period it emerged as the largest stock

exchange surging ahead of the Bombay Stock

Exchange (BSE)

National Stock Exchange (NSE) The NSE is a ringless, national, computerised

exchange.

The NSE has two segments: The Capital Market Segment and the Wholesale Debt Market Segment.

Trading members in the Capital Market Segment are through VSATs. The trading members in the Whole- sale Debt Market are linked through leased lines.

The NSE has opted for an order-driven system.

All trades on NSE are guaranteed by the National Securities Clearing Corporation.

NSENSE At the end of March 2008, there were 1,381 At the end of March 2008, there were 1,381

companies listed at NSE and 1,236 companies listed at NSE and 1,236 companies were available for trading. The companies were available for trading. The Capital Market segment of NSE reported a Capital Market segment of NSE reported a trading volume of Rs.35,51,038 crore during trading volume of Rs.35,51,038 crore during 2007-08 and at the end of March 2008, the 2007-08 and at the end of March 2008, the NSE Market Capitalisation was Rs.48,58,122 NSE Market Capitalisation was Rs.48,58,122 crore.crore.

The derivatives trading on the NSE commenced with the The derivatives trading on the NSE commenced with the S&P CNX Nifty Index Futures on June 12, 2000. The S&P CNX Nifty Index Futures on June 12, 2000. The trading in index options commenced on June 4, 2001 and trading in index options commenced on June 4, 2001 and trading in options on individual securities commenced on trading in options on individual securities commenced on July 2, 2001. Single stock futures were launched on July 2, 2001. Single stock futures were launched on November 9, 2001. Thereafter, a wide range of products November 9, 2001. Thereafter, a wide range of products have been introduced in the derivatives segment on the have been introduced in the derivatives segment on the NSE. NSE.

The Index futures and options are available on Indices - The Index futures and options are available on Indices - S&P CNX Nifty, CNX Nifty Junior, CNX 100, CNX IT, Bank S&P CNX Nifty, CNX Nifty Junior, CNX 100, CNX IT, Bank Nifty and Nifty Midcap 50.Nifty and Nifty Midcap 50.

Single stock futures are available on more than 250 stocks. Single stock futures are available on more than 250 stocks. The mini derivative contracts (futures and options) on S&P The mini derivative contracts (futures and options) on S&P CNX Nifty were introduced for trading on January 1, 2008 CNX Nifty were introduced for trading on January 1, 2008 while the Long term Options Contracts on S&P CNX Nifty while the Long term Options Contracts on S&P CNX Nifty were launched on March 3, 2008were launched on March 3, 2008

Bombay Stock Exchange (BSE) The BSE switched from the open outcry system to

the screen-based system in 1995.

Jobbers play an important role on the BSE. A jobber

is a broker who offers a two-way quote or a bid-ask

quote.

Since both jobbers and brokers feed their orders, the BSE has adopted a ‘quote-driven’ system and an ‘order-driven’ system.

Stock Market Indices Around The World

• Dow Jones

• S & P 500

• Nikkei 225

• FTSE 100

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Stock IndexesStock Indexes

Dow Jones Industrial AverageDow Jones Industrial Average– Price-weighted averagePrice-weighted average– 30 large U.S. firms30 large U.S. firms

Standard and Poor’s (S&P) 500Standard and Poor’s (S&P) 500– Value-weightedValue-weighted– 500 large U.S. firms500 large U.S. firms

New York Stock Exchange IndexesNew York Stock Exchange Indexes Other Stock IndexesOther Stock Indexes

– Amex, NASDAQAmex, NASDAQ

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Stock IndexesStock Indexes

Investing in stock indexesInvesting in stock indexes IndexingIndexing Has become very popularHas become very popular

– Lower transactions costsLower transactions costs– Studies find that actively-managed funds do not outperform Studies find that actively-managed funds do not outperform

stock indexesstock indexes

– Examples of publicly traded stock indexesExamples of publicly traded stock indexes SPDRsSPDRs DiamondsDiamonds

i – Bex

i – SEC BOND INDEX (i – BEX) is the most popular

bond market index in India. There are two versions of i-

BEX.

Total return index This tracks the total returns. It

captures interest payment (accrued and actual) and

capital gains/losses

• Principal return index This index reflects movements of net prices in the market, that is prices quoted in the market exclusive of accrued interest

Thrust Of SEBI’s Regulation of Equity Market

PRIMARY MARKET

ACCESS : RESTRICTED

INSTRUMENTS : MULTIPLIED

PRICING : RELAXED

DISCLOSURE NORMS : TIGHTENED

RESPONSIBILITY OF MERCHANT BANKERS : ENHANCED

FOCUS INVESTORS : SHIFTED … INST’NAL

METHOD : BOOK BUILDING

SECONDARY MARKET

TRADING : COMPUTERISED

TRADING COSTS : LOWERED

TRANSPARENCY : ENHANCED

MARKETS : INTEGRATED

GLOBALISATION : ENCOURAGED

MANAGEMENT : STRENGTHENED

SPECULATION : HEIGHTENED

SETTLEMENT : SHIFTED TO ELECTRONIC MODE

New York Stock Exchange

Trading through a system of brokers and specialists

Brokers … link … investors … market

Specialists … dual role

a. Match buy and sell orders when the prevailing

prices permit them to do so

b. Buy and sell on their own account when they

cannot match customer orders.

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Institutional Participation in Stock Institutional Participation in Stock MarketsMarkets

Program trading by institutionsProgram trading by institutions Simultaneously buying and selling of a portfolio of at Simultaneously buying and selling of a portfolio of at

least 15 different stocks valued at more than $1 millionleast 15 different stocks valued at more than $1 million Most commonly used by securities firmsMost commonly used by securities firms ProgramProgram refers to the use of computers refers to the use of computers

– Impact on stock volatilityImpact on stock volatility Often blamed for rise or fall in stock marketOften blamed for rise or fall in stock market Studies show that program trading does not increase Studies show that program trading does not increase

volatilityvolatility

Tokyo Stock Exchange

The TSE divides stocks into two sections: First Section: 1200 most

actively traded stocks. Second section: 400 less actively traded

stocks.

Trading in the larger stock of the First Section … on the floor of the

exchange.

Remaining stocks in the First Section and the Second Section are

traded electronically.

The TSE relies on saitories who match orders but do not trade on

their own.

A saitori maintains a public limit order book, matches market and

limit orders, and slows down price movements when simple matching of orders would result in price changes greater than what is prescribed by the exchange.

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Investor Monitoring of Firms in Investor Monitoring of Firms in the Stock Marketthe Stock Market

Shareholder activismShareholder activism An investor who is dissatisfied with the way An investor who is dissatisfied with the way

managers are running a firm has 3 choices:managers are running a firm has 3 choices:– Do nothingDo nothing– Sell the stockSell the stock– Engage in shareholder activismEngage in shareholder activism

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Corporate Monitoring of Firms in Corporate Monitoring of Firms in the Stock Marketthe Stock Market

Potential benefits of an acquisitionPotential benefits of an acquisition Market for corporate controlMarket for corporate control

– If price declines due to poor management: If price declines due to poor management: subject to possible takeoversubject to possible takeover

Barriers to corporate controlBarriers to corporate control– Antitakeover amendmentsAntitakeover amendments– Poison pillsPoison pills– Golden parachutesGolden parachutes

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Impact of the 1987 Stock Market Impact of the 1987 Stock Market Crash on Financial MarketsCrash on Financial Markets

– October 19, 1987October 19, 1987 U.S. stock market declined almost 23%U.S. stock market declined almost 23%

Impact on diversified stock portfoliosImpact on diversified stock portfolios– Because even diversified portfolios contain Because even diversified portfolios contain

systematic, or market, risk, these portfolios fall systematic, or market, risk, these portfolios fall with overall market declineswith overall market declines

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Globalization of Stock MarketsGlobalization of Stock Markets

How barriers to international stock trading How barriers to international stock trading have decreasedhave decreased– Reduction in information costsReduction in information costs– Reduction in exchange rate riskReduction in exchange rate risk

Foreign stock offerings in the United StatesForeign stock offerings in the United States International placement processInternational placement process Global stock exchange characteristicsGlobal stock exchange characteristics Emerging stock marketsEmerging stock markets

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Methods used to invest in foreign sharesMethods used to invest in foreign shares– Direct purchasesDirect purchases– American Depository Receipts (ADRs)American Depository Receipts (ADRs)– International mutual fundsInternational mutual funds– World equity benchmark sharesWorld equity benchmark shares

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Global diversification and integration among Global diversification and integration among stock marketsstock markets– Integration of markets during the 1987 crashIntegration of markets during the 1987 crash

All major stock markets declined, indicating the All major stock markets declined, indicating the underlying cause systematically affected all marketsunderlying cause systematically affected all markets

– Integration of markets during mini-crashesIntegration of markets during mini-crashes Ex: August 27, 1998 “Bloody Thursday”Ex: August 27, 1998 “Bloody Thursday”

– Russian financial crisisRussian financial crisis

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