Class 10 CBSE Financial Market Notes

By Abhiram Mohan

Chapter 2: Securities Market

Introduction to Securities Market

 Securities Market: A platform where financial instruments like stocks, bonds, and
derivatives are bought and sold.
 Functions:
o Mobilizing savings for investment.
o Facilitating the raising of capital.
o Providing liquidity and marketability.
o Pricing of securities.
o Promoting transparency and fairness.

Primary Market

 Primary Market: The market where new securities are issued and sold for the first
time.
o Initial Public Offering (IPO): When a company offers its shares to the public
for the first time.
o Further Public Offering (FPO): When an already listed company issues
additional shares to the public.
o Rights Issue: Existing shareholders are offered additional shares in proportion
to their holdings.
o Private Placement: Sale of securities to a relatively small number of select
investors.
o Importance:
 Enables companies to raise capital directly from investors.
 Helps in capital formation and economic development.

Secondary Market

 Secondary Market: The market where existing securities are traded among investors.
o Stock Exchanges: Organized and regulated markets where securities are
bought and sold.
 Examples: Bombay Stock Exchange (BSE), National Stock Exchange
(NSE).
o Over-The-Counter (OTC) Market: Decentralized market where trading
takes place directly between parties.
o Importance:
 Provides liquidity and marketability to securities.
 Ensures continuous price discovery.
 Reflects the true value of securities through supply and demand.

Participants in Securities Market

1. Investors:
o Individuals and institutions who buy and sell securities.
o Types: Retail investors, institutional investors (e.g., mutual funds, pension
funds).
2. Issuers:
o Companies or government entities that issue securities to raise capital.
3. Intermediaries:
o Stockbrokers: Facilitate buying and selling of securities on behalf of clients.
o Investment Bankers: Assist companies in issuing new securities and
underwriting.
o Mutual Funds: Pool money from investors to invest in a diversified portfolio
of securities.
o Depositories: Hold securities in electronic form and facilitate their transfer
(e.g., NSDL, CDSL).
o Registrars and Transfer Agents: Maintain records of shareholder
transactions.
4. Regulators:
o Ensure the securities market operates efficiently, fairly, and transparently.
o Securities and Exchange Board of India (SEBI): The main regulatory body
in India.
 Functions: Protecting investor interests, promoting and regulating the
securities market, enforcing securities laws.

Types of Securities

1. Equity Securities:
o Common Shares: Represent ownership in a company, provide voting rights,
and potential dividends.
o Preferred Shares: Offer fixed dividends and have priority over common
shares in asset distribution.
2. Debt Securities:
o Bonds: Long-term debt instruments issued by corporations or governments,
with periodic interest payments and principal repayment at maturity.
o Debentures: Unsecured debt instruments, backed only by the creditworthiness
of the issuer.
3. Derivatives:
o Futures: Contracts to buy or sell an asset at a future date at a predetermined
price.
o Options: Contracts that give the holder the right, but not the obligation, to buy
or sell an asset at a future date at a predetermined price.

Stock Exchanges

 Role: Provide a structured and regulated environment for the trading of securities,
ensuring transparency, liquidity, and efficient price discovery.
 Major Indian Stock Exchanges:
o Bombay Stock Exchange (BSE):
  Established in 1875.
 Asia's first stock exchange.
 Uses SENSEX as its benchmark index.
o National Stock Exchange (NSE):
 Established in 1992.
 Known for its electronic trading system.
 Uses NIFTY 50 as its benchmark index.

Regulatory Framework

 Securities and Exchange Board of India (SEBI):

o Establishment: Formed in 1992 to regulate the securities market in India.
o Objectives:
 Protect investor interests.
 Promote and develop the securities market.
 Regulate market participants and intermediaries.
o Functions:
 Registering and regulating stock exchanges, brokers, and other market
intermediaries.
 Prohibiting fraudulent and unfair trade practices.
 Monitoring corporate governance of listed companies.
 Promoting investor education and awareness.

Investment Instruments

1. Shares/Stocks:
o Units of ownership in a company.
o Provide potential for capital appreciation and dividends.
2. Bonds:
o Debt instruments issued by entities to raise funds.
o Offer fixed interest payments and return of principal at maturity.
3. Mutual Funds:
o Investment vehicles that pool funds from investors to buy a diversified
portfolio of securities.
o Types: Equity funds, debt funds, balanced funds.
4. Exchange-Traded Funds (ETFs):
o Funds that are traded on stock exchanges, similar to stocks.
o Typically track an index, commodity, or basket of assets.
5. Certificates of Deposit (CDs):
o Time deposits offered by banks with fixed maturity dates and interest rates.
o Considered low-risk investments.

Key Terms

 Bull Market: A market condition where prices are rising or expected to rise.
o Indicators: High investor confidence, increased trading volumes, rising stock
prices.
 Bear Market: A market condition where prices are falling or expected to fall.
 o Indicators: Low investor confidence, decreased trading volumes, falling stock
prices.
 Market Capitalization: The total market value of a company's outstanding shares.
o Formula: Market Capitalization = Share Price × Number of Outstanding
Shares.
 Dividend: A portion of a company's earnings distributed to shareholders.
o Types: Cash dividends, stock dividends.
 Index: A statistical measure of the changes in a portfolio of stocks representing a
portion of the overall market.
o Examples: SENSEX (BSE), NIFTY 50 (NSE).

Conclusion

The securities market plays a crucial role in the economy by enabling the mobilization of
resources, providing liquidity to investments, and facilitating price discovery. Understanding
the primary and secondary markets, the types of securities, the role of stock exchanges, and
the regulatory framework is essential for making informed investment decisions and
participating effectively in the financial markets.