MFSunit 2 Part 5

7/29/2019 MFSunit 2 Part 5

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Unit 2

Capital Market Operations

Functions of New Issue Market

Contents of Offer Document

Methods of Floating New Issue

Procedure for Initial Public Offer (IPO)

SEBI Guidelines

Players in New Issue Market

Book Building Process

Secondary Market Operations

NSE,BSE,OTCEI,SEBI


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Secondary Market Operations

Meaning:

The market where existing securities are traded is

referred as Secondary Market orStock Market

Stock exchanges are the important ingredient

of the Capital Market


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As per the Securities Contracts Regulation Act

1956, a stock exchange has been defined as

follows :

It is an association organization or body of

individuals whether incorporated or not,

established for the purpose of assisting, regulating

and controlling business in buying , selling and

dealing in securities


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In brief, Stock exchanges

Constitute a Market

where securities issued by

the Central and State governments,

Public Bodies and

Joint stock companies are traded.


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Functions/Services of Stock Exchanges:

1. The stock market plays very important role in

Financial System

2. It performs several economic functions and

renders services to the investors, Companies

and to economy as a whole.


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The functions are summarized as follows:

1. Liquidity and Marketability of Securities:

Stock exchanges provide liquidity to

securities Since securities can be converted into

cash at any time according to the discretion of

the investor by selling them at the listed prices.


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Marketability of Securities:

They facilitate buying and selling of securities at

listed prices by providing continuous

Marketability to the investors and provides a

ready outlet for dealing in securities.


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3. Supply of Long Term Funds:

Whenever a security is transacted , one investor is

substituted by another , but the company is assured of

long term availability of funds.


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4. Flow of Capital to Profitable Ventures:

The Profitability and Popularity of companies are reflected

in Stock Prices

The prices quoted indicate the Relative Profitability and

Performance of companies.

Funds tend to be attracted towards securities of Profitablecompanies and this facilitates the flow of capital into profitable

channels.


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5. Motivation for Improved Performance:

The performance of the company is reflected on the

prices quoted in the stock market

This public exposure makes a company conscious of

its status in the market and it acts as a motivation to

improve its performance further.


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6. Promotion of Investment:

Stock exchanges mobilize the savings of the public

and promote investment through Capital Formation.

Helps to channelize the surplus funds with

individuals and institutions for productive ventures.


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7. Reflection of Business Cycle:

The changing business conditions in the economy are

immediately reflected on the stock exchanges

Thus a stock market portrays the prevailing economic

situation instantly to all concerned so that suitable

actions can be taken.


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8. Miscellaneous Services:

Stock exchanges Supplies securities of different

kinds with different maturities and yields

It enables the investors to diversify their risks by a

wider portfolio of investment

It also inculcate saving habits among the

community and paves the way for capital formation.


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It guides the investors in choosing securities by

supplying the daily quotation of listed securitiesand by disclosing the trends of dealing on the stock

exchange.

It enables companies and government to raise

resources by providing a ready market for their

securities.


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NSE: National Stock Exchange

The establishment of NSE was a

Step to overcome the Deficiencies

of the existing stock market

and to bring Indian Financial Markets

in line with International Markets.


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Weaknesses of Indian Stock Markets

were identified:

1. Inefficient and Outdated Trading system

2. Outdated Settlement System3. Inability of various stock exchanges to function

Cohesively in terms of legal structure, regulatory

framework, trading and settlement procedures


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Formation of NSE:

The National Stock Exchange of India was set up by

Government of India on the recommendation of

Pherwani Committee in 1991.

The NSE was formed in November 1992

promoted by IDBI, ICICI, LIC, GIC and its

subsidiaries, State Bank of India.


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Objectives:

NSE has the Following Objectives:

1. To establish Nation wide trading facility for all

types of securities

2. To facilitate equal access to investors across

the country

3. To provide fairness, efficiency and

transparency to the securities trading

4. To enable shorter settlement cycles

5. To meet International Securities Market

Standard


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Major Features:

NSE Employs a fully automated screen basedtrading system, investors can trade from 400 cities.

The automated trade matching system securesthe best price available in the market to the

investor


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Bombay Stock Exchange (BSE)

BSE is the oldest Stock Exchange in AsiaIt was established as early as 1875 itself

Historically it was an open outcry floor trading

exchange which was switched to an electronictrading system in 1995.

It took the exchange only fifty days to make this

transition.

This automated, screen-based trading platform

called BSE On-line trading (BOLT) had a capacity

of 8 million orders per day.


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Over The Counter Exchange of India

Presently Stock Market Consists of 22 RegionalStock exchanges

And Two National Stock Exchanges known as

1. NSE

2. OTCEI


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The OTCEI was incorporated in 1990 as a

company under the companies act 1952.

It became fully operational in the year

September 1992

The OTCEI is recognized by the Govt. of India

as a recognized Stock Exchange under Section 4

of the Securities Control Regulation Act, 1956.


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Features of OTCEI:

1. Trading on the OTCEI takes place through a net work

of computers of OTC dealers located at differentplaces within the same city and even across the cities

2. These computers allow dealers to quote , query and

transact through a central OTC computer, using the

telecommunication links.

3. Small and Medium sized companies may be enlisted onthe OTCEI


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4. A company which is listed on any other

recognized stock exchange in India is not

permitted simultaneously for listing on OTCEI

5. The OTCEI has been promoted by all India

financial institutions, namely UTI,ICICI,IDBI,LIC,SBI etc.

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MFSunit 2 Part 5

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