FINANCIAL MARKETS

UNIT - I
Financial Markets include any place or system that provides buyers and sellers the means to trade
financial instruments, including bonds, equities, the various international currencies, and derivatives.
Financial markets facilitate the interaction between those who need capital with those who have capital to
invest. In addition to making it possible to raise capital, financial markets allow participants to transfer risk
(generally through derivatives) and promote commerce.
It serves as an agent between the investors and collector by mobilizing capital between them.
FUNCTIONS OF FINANCIAL MARKETS ROLE OF FINANCIAL MARKETS:
1. Price determination 1. Facilitating savings
2. Funds mobilization 2. Providing loans
3. Liquidity 3. Allocating capital to more productive use
4. Risk sharing 4. Facilitating transactions
5. Easy access 5. Providing forward markets
6. Reduction in transaction costs and provision 6. Providing a market for equity
of the information
7. Capital formation

STRUCTURE OF INDIAN FINANCIAL MARKET

MEANING
A market where short-term funds are borrowed and lent is called money market. Money market is a
market for short term financial assets, which are near substitutes for money. Money Market is a marketplace
for short-term borrowing, lending & trading of low-risk and highly liquid financial instruments.

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DEFINITION OF MONEY MARKET:
According to the Reserve Bank of India, “money market is the centre for dealing. mainly of short-
term character, in money assets; it meets the short-term requirements of borrowings and provides liquidity or
cash to the lenders. It is the place where short term surplus investible funds at the disposal of financial and
other institutions and individuals are bid by borrowers’ agents comprising institutions and individuals and
also the government itself.”
CHARACTERISTICS OF MONEY MARKET FUNCTIONS OF MONEY MARKET
1. Short-term funds 1. Financing trade
2. Maturity period 2. Financing industry
3. Conversion of cash 3. Liquidity of investment
4. No formal place 4. Investment priorities
5. Sub-markets 5. Profitable investment
6. Role of market 6. Self-sufficiency of commercial bank
7. Highly organized banking system 7. Investment safety
8. Existence of secondary market 8. Help to central bank
9. Demand and supply of funds 9. Indicator of industrial development
10. Wholesale market 10. Barometer of national development of economy
11. Flexibility 11. Borrowings by the government
12. Presence of a central bank 12. Savings and investment

OBJECTIVE OF MONEY MARKET MONEY MARKET INSTRUMENTS OR PLAYERS OF

MONEY MARKET
1. Short-term financing 1. Treasury bills market
2. Liquidity management 2. Commercial bills market
3. Low-risk investments 3. Commercial paper markets
4. Benchmark interest rates 4. Certificates of deposit markets'
5. Monetary policy implementation 5. Bankers acceptance
6. Market stability and transparency 6. Repurchase agreement
7. Money market mutual funds
8. Call money

DIFFICULTIES AND PROBLEMS OF MONEY MARKET

1. Existence Of Unorganized Money Market
2. Lack Of Integration
3. Multiplicity In Interest Rates
4. Inadequate Funds
5. Seasonal Stringency Of Money
6. Inadequate Credit Instruments
7. Inefficient And Corrupt Management
DIFFICULTIES AND PROBLEMS OF CAPITAL MARKET
1. Inadequate Stock Exchanges 2. Existence of Grey Market
3. Defective Operations of Stock Exchanges 4. Stock invest not Popular
5. Odd Lot Shares Problem 6. Inefficient Banking and Postal Services
7. Inadequate Protection to Investors 8. Inadequate market Instruments
9. Lacks Transparency 10. Insider Trading
11. Stockbroking System Defective 12. Delay in Delivery
13. Vague Prospectus 14. Poor Liquidity
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 TREASURY BILLS MARKET
Treasury bills are money market instruments issued by the Government of India as a promissory note with
guaranteed repayment at a later date. Funds collected through such tools are typically used to meet short term
requirements of the government, hence, to reduce the overall fiscal deficit of a country.

COMMERCIAL BILLS MARKET OR DISCOUNT MARKET

Section 5 of the negotiable Instruments Act defines a bill of exchange as “an instrument in
writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain
sum of money only to, or to the order of a certain person or to the beater of the instrument”.
COMMERCIAL PAPER MARKET
Commercial paper is a short-term debt instrument corporations issue to finance their operations,
investments and other activities. It is debt that matures within 270 days and generally has an average maturity
of 15-45 days. The issuer promises to pay the principal amount of the paper plus any applicable interest on
the predetermined maturity date. The commercial paper does not have collateral backing it, so it is
considered unsecured debt.
CERTIFICATE OF DEPOSIT MARKET
A Certificate of Deposit (CD) is a money market instrument which is issued in a dematerialized form
against funds deposited in a bank for a specific period. The Reserve Bank of India (RBI) issues guidelines for
Certificate of Deposit from time to time.
BANKERS ACCEPTANCE MARKET
Bankers acceptance (BA) is a negotiable piece of paper that functions like a post-dated check. A bank,
rather than an account holder, guarantees the payment. Banker’s acceptances (also known as bills of
exchange) are used by companies as a relatively safe form of payment for large transactions. BAs can also be
short-term debt instruments, similar to U.S. Treasury bills that trade at a discount to face value in the money
markets.
REPURCHASE AGREEMENT
 A repurchase agreement, or "repo," is a short-term agreement to sell securities in order to buy them back
at a slightly higher price.
 The one selling the repo is effectively borrowing, and the other party is lending since the lender is credited
the implicit interest in the difference in prices from initiation to repurchase.
 Repos and reverse repos are thus used for short-term borrowing and lending, often with a tenor of
overnight to 48 hours.
REPOS AND REVERSE REPOS:
Repo is a transaction in which one party sells a security to another party agreeing to repurchase it at
specified date and time. Reverse repo is the opposite of repo. A party buys a security from another party with
a commitment to sell it back at a specified time and future.
MONEY MARKET MUTUAL FUNDS
Investors interested in the money market can access it most easily through money market mutual funds.
However, smaller investors still need a rudimentary understanding of the Treasury bills, commercial paper,
bankers' acceptances, repurchase agreements, and certificates of deposit (CDs) that make up the bulk of
money market mutual fund portfolios. In this article, we show you how money market funds work and how
they can benefit you.

CALL MONEY MARKET

1. Call money is any type of short-term, interest-earning financial loan that the borrower has to pay back
immediately whenever the lender demands it.
2. The call money is the most important segment of the Indian financial system.
3. Call money allows banks to earn interest, known as the call loan rate, on their surplus funds.
4. It consists of overnight money and money at short notice for a period of upto 14 days.

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 5. The call money market essentially serves the purpose of equilibrating the short-term liquidity position of
banks and other participants.

FEATURES OF CALL MONEY

 A call money loan is a short-term, interest-bearing loan made by one financial institution to another
financial institution.
 Because of the loan's short term, it does not have regular principal and interest payments, which longer-
term loans may have.
 The call loan rate is the interest rate charged on a call loan between financial institutions.
 Brokers use call money as a short-term source of funding to keep margin accounts open for their
customers who want to leverage their investments.
 The funds can be transferred quickly between lenders and brokerage houses. As a result, it is the
second most liquid asset on a balance sheet, trailing only cash.
 If the lending bank calls the funds, the broker can issue a margin call, which typically results in the
automatic sale of securities in a client's account (to convert the securities to cash) to repay the bank.
 The interest rate charged on loans used to purchase securities, known as margin rates, varies according to
the call money rate set by banks.

FUNCTIONS OF CALL MONEY

 The call money market is run by brokers who keep in touch with the city's banks and connect the
borrowing and lending banks.
 The market's primary function is to redistribute the pool of day-to-day surplus funds of banks among
other banks in temporary cash deficit.
 Call money is used to meet the day-to-day cash needs of banks. Banks that are short on cash borrow from
other commercial banks for a period of 1-14 days.
 Call-money is the term used when a bank borrows money for a single day. Notice money is any money
borrowed for more than one day but no more than 14 days.
 The call rate is the rate at which these transactions take place. As a result, banks use call money to fill
temporary fund mismatches and maintain short-term liquidity. It is the focal point through which the
RBI can influence interest rates.
UNORGANISED MONEY MARKET
Money market is a market for lending and borrowing of short term funds. The money market in India is
dichotomous by nature. It comprises of both, the organised sector and the unorganised sector. The activities
of the unorganised sector are largely confined to the rural areas.
The unorganised sector includes the following:
1. Indigenous bankers
2. Money lenders
3. Unregulated non-bank financial intermediaries:
1. Chit funds
2. Nidhi
3. Loan companies
CAPITAL MARKET
MEANING OF CAPITAL MARKET
Any location or system that gives buyers and sellers the ability to exchange and trade in financial assets,
such as bonds, shares, different international currencies, and derivatives, is referred to as a financial market.
The connection between people with capital to invest and those who need capital is facilitated by these
financial markets.

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 The Capital Market is a marketplace that acts as the meeting point for the suppliers and the interested
parties in savings and investments.
The capital Markets are of two main types. The Primary markets and the secondary markets.
ROLE, IMPORTANCE AND FEATURES OF CAPITAL MARKET IN INDIA
1. Mobilization of savings and acceleration of 2. Proper channelization of funds
capital formation
3. Raising long-term capital 4. Provision of variety of services
5. Promotion of industrial growth 6. Development of backward areas
7. Ready and continuous market 8. Foreign capital
9. Technical assistance 10. Easy liquidity
11. Reliable guide to performance

PRIMARY MARKET
The primary market is also known as new issues market, which refers to the market where securities, such
as stocks, primary bonds, and debentures, are created and issued for the first time by companies or
governments in order to raise capital. In finance we refer to the market where new securities are bought and
sold for the first time as primary market. In the primary market, companies or governments sell their
securities directly to investors, who purchase them for the first time. The primary market plays an important
role in the economy as it provides companies and governments with a way to raise funds, and investors with
an opportunity to invest in new securities.

SECONDARY MARKET
The secondary market refers to the market where previously issued financial instruments, such as stocks,
bonds, and derivatives, are bought and sold by investors. It is distinct from the primary market, where new
securities are issued and sold to the public for the first time.
The secondary market, also known as the aftermarket, is a financial market where investors buy and sell
previously issued securities, such as stocks, bonds, options, and futures contracts. It is a market where
securities that were previously sold in the primary market are traded among investors rather than being sold
directly by the issuing company.

DIFFERENCE BETWEEN MONEY MARKET AND CAPITAL MARKET

S.NO BASIS OF CAPITAL MARKET MONEY MARKET
DIFFERENCES
1. TERM OF Provides long term funds Provides short term funds
FINANCE
2. NATURE OF Capital used for fixed and working Capital usually used for working
FINANCE capital needs capital needs
3. MAIN Mobilization and effective utilization Lending and borrowing to
FUNCTIONS through lending facilitate liquidity
4. PARTICIPANTS Primary and secondary, with stock Call money market, treasury
exchanges acting as a bridge for market, commercial bills market,
buying and selling of securities market for certificate of deposits
and commercial papers
5. LINK Act as a link between investors and Acts as a link between depositor
entrepreneurs and borrower
6. UNDERWRITING Its primary function Not a primary function

7. INSTITUTIONS Investment houses and mortgage Commercial banks and discount

banks houses
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8. ASSISTANCE Provided to central and state Provides to government by
governments, public and local discounting treasury bills, etc
bodies, etc
9. NEGOTIATION Funds are lent after a prolonged Dealings can take place without any
negotiation between the lending personal contact negotiations are not
financial institutions and the formal.
borrowing corporate entity..
10. MARKET PLACE Dealings are conducted through the Dealings are conducted through
mechanism of stock exchanges. the over-the-online-market.

11. CLAIMS Bonds and share Financial claims, assets and

securities.
12. RISK High credit and market risk Low credit and market risk

13. PRICE High Not Much

FLUCTUATION
14. LIQUIDITY Low High

15. PRICE Price discovery mechanism exists No price discovery mechanism

DISCOVERY
16. CAPITAL Ensures optimal allocation of No Price discovery mechanism
ALLOCATION financial resources through price exists
mechanism
17. DOMINANT Non-banking financial companies Commercial banks
INSTITUTIONS and special financial institutions.
18. REGULATOR Besides central bank, special Central bank
regulatory authority like SEBI, etc.
FINANCIAL INVESTMENT
 A financial investment is a financial product like a crypto currency or a stock that is bought with the goal of
making money.
 Each investment has specific risks, advantages and disadvantages that will determine how and when
investors buy or sell them.
 Both individuals and companies make financial investments with the intent of maximizing income or
earning a profit. These investments are held for a specific interval of time that is called a time horizon.
13 COMMON TYPES OF FINANCIAL INVESTMENTS IN 2024
1. Annuities 2. money market accounts
3. Bonds 4. mutual funds
5. Certificates of deposit 6. options
7. Commodities 8. real estate
9. Exchange traded funds (etfs) 10. retirement plans
11. High-yield savings accounts 12. stocks

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 UNIT II
PRIMARY MARKET OR NEW ISSUE MARKETS
The primary market is also known as new issues market, which refers to the market where securities,
such as stocks, primary bonds, and debentures, are created and issued for the first time by companies or
governments in order to raise capital. In finance we refer to the market where new securities are bought and
sold for the first time as primary market.
In the primary market, companies or governments sell their securities directly to investors, who
purchase them for the first time. The primary market plays an important role in the economy as it provides
companies and governments with a way to raise funds, and investors with an opportunity to invest in new
securities.

FUNCTIONS OF PRIMARY MARKET OR NEW ISSUE TYPES OF PRIMARY MARKET

MARKET INSTRUMENTS
1. Raising capital 1. Equity shares
2. Price discovery 2. Debentures
3. Facilitating the transfer of risk 3. Bonds
4. Providing investment opportunities 4. Right issue
5. Regulations of primary market 5. IPO
6. FPO

TYPES OF PRIMARY MARKET ISSUANCE OR MECHANISM OF NEW ISSUE MARKET OR

METHODS OF LOATING NEW ISSUE
Upon securities issuance, investors can acquire them through various channels. There are five primary
market issue types:
1. PUBLIC ISSUE: This common method involves a company offering securities to the public, typically
through an Initial Public Offering (IPO). This allows companies to raise funds from the capital
market, with the securities listed for trading on stock exchanges. The IPO process transforms a
privately held company into a publicly-traded one, facilitating capital for expansion and debt
repayment.
2. PRIVATE PLACEMENT: Companies can offer securities to a select group of investors, comprising
both individuals and institutions. Private placements, which include bonds and stocks, are less
regulated than IPOs, offering simplicity and cost-effectiveness. This method is suitable for start-ups
or early-stage companies.
3. PREFERENTIAL ISSUE: A quick method for capital infusion, preferential issues involve companies
offering shares or convertible securities to a specific investor group. Shareholders with preference
shares receive dividends before ordinary shareholders.
4. QUALIFIED INSTITUTIONAL PLACEMENT (QIP): QIP is a private placement where listed companies
issue securities to Qualified Institutional Buyers (QIBs). QIBs, possessing financial expertise,
include entities like Foreign Institutional Investors, Mutual Funds, and Insurers. QIP processes are
simpler and less time- consuming than preferential allotments.
5. RIGHTS AND BONUS ISSUES: In rights issues, existing investors can purchase additional securities at
a predetermined price, enhancing their control without additional costs. Bonus issues involve the
issuance of free shares to existing shareholders, though they do not introduce fresh capital.

PROCESS OF ISSUING SECURITIES IN THE PRIMARY MARKET OR NEW ISSUE MARKET

A. Preparation Of Prospectus
B. Appointment Of Lead Managers And Underwriters
C. Pricing Of Shares Or Securities
D. To Receive Application
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E. Allotment Of Shares Or Securities
F. Listing On The Stock Exchange
G. To Make Calls On Shares

ADVANTAGES OF PRIMARY DISADVANTAGES OF PRIMARY MARKET

MARKET
1. TRANSPARENCY 1. TIME-CONSUMING
2. FAIR PRICING 2. RISK OF UNDER SUBSCRIPTION
3. BOOSTS ECONOMY 3. REGULATORY HURDLES
4. AVAILABILITY TO ALL 4. HIGH COST

UNDERWRITING
MEANING:
Underwriting is an essential aspect while offering a new issue. An underwriter’s role in a primary
marketplace includes purchasing unsold shares if it cannot manage to sell the required number of shares to
the public. A financial institution may act as an underwriter, earning a commission on underwriting.
Underwriting is an agreement whereby the underwriter promises to subscribe to a specified no of shares or
debentures or a specified amount of stock in the event of public not subscribing to the issue. It is a guarantee
for the marketing of shares.
FUNCTIONS OR ROLE OF UNDERWRITERS DIFFERENT TYPES OF UNDERWRITERS
1. Risk assessment A) Institutional underwriter
2. Helps in preparing the drhp 1. Insurance underwriter – LIC,GIC
3. Provides a guarantee to the issuing company 2. Mortgage underwriter - IDBI
4. Decision making 3. Loan underwriter - ICICI
5. Financial stability B) Non-Institutional underwriters
6. Ensuring compliance 1. Securities underwriter - NBFC
7. Market analysis
8. Client on boarding
9. Compliance
10. Documentation review
11. Communication
12. Monitoring and portfolio management

A MERCHANT BANKER
A merchant banker is one who underwrites corporate securities and advises clients on issues like
corporate mergers. A bank, a company, a firm or even a proprietary concern can act as a merchant banker.
DEFINITION OF MERCHANT BANKING
1. A merchant banker means any person who is engaged in the business of issue management by making
arrangements for selling/buying/subscribing to securities or acting as manager / consultant / advisor or
rendering of corporate advisory service in relation to such issue management.
2. Merchant Banking may be defined as "an institution which covers a wide range of activities such as
management of customer services, portfolio management, credit syndication, acceptance of credit,
counseling, insurance etc".
CHARACTERISTICS OF MERCHANT BANKING FUNCTIONS OF MERCHANT BANKERS
1. Advisory in nature 1. Raising funds for their clients
2. Financial arrangement 2. Underwriting
3. Fees based 3. Advice in expansion and modernization of
companies
4. Portfolio management 4. Project management
5. Corporate reconstructing 5. Foreign exchange services
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 6. Stock broker 6. Portfolio management
7. Innovative approach 7. Special attention to small industries and
entrepreneur
8. High proportion of decision makers 8. Leasing services
9. Rapid decision process 9. Managing pulic issue of companies
10. Large information 10. Handling government consent for industrial
projects
11. Emphasis on fees and commission income 11. Services to public sector units
12. Intense environmental contact 12. Revival of sick industrial units
13. Handle promotional activity 13. Money market operations

THE ROLES OF MERCHANT BANKER IN INDIA

1. Works as a stock broker.
2. Private Placement Securities
3. Managing Public Issue of Securities
4. Works in improving promotional activities.
5. Works as an underwriter..
6. Helps the company better understand their finances, especially the total costs that will be required.
7. Helps initiate credit.
8. Delivers a diverse range of economic solutions.
9. Provides counseling. This helps the people thoroughly understand their project, whether it would be right
for them, risks, budgets, how to move forwards, etc.
10. It is the responsibility of the merchant banker to structure and manage the company’s profile.
11. They ensure that all the necessary registrations are done and cleared.
12. It ensures that the company always stays legal, i.e. the company follows all the mandatory rules and
regulations.
13. It works towards arranging, managing, and monitoring foreign money.
14. Provides tax counseling.
15. Works towards providing them with instructions regarding the date and dividend rate.

CONDITIONS BY SEBI FOR MERCHANT BANKERS

SEBI has laid the following conditions on the merchant bankers, for conducting their operations. They are
1. SEBI will give authorization for a merchant banker to operate for 3 years only. Without SEBI’s authorization,
merchant bankers cannot operate.
2. The minimum net worth of merchant banker should be Rs. 1 crore.
3. Merchant banker has to pay authorization fee, annual fee and renewal fee.
4. All issue of shares must be managed by one authorized merchant banker. It should be the lead manager.
5. The responsibility of the lead manager will be clearly indicated by SEBI.
6. Lead managers are responsible for allotment of securities, refunds, etc.
7. Merchant banker will submit to SEBI all returns and send reports regarding the issue of shares.
8. A code of conduct for merchant bankers will be given by SEBI, which has to be followed by them.
9. Any violation by the merchant banker will lead to the revocation of authorization by SEBI.

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 UNIT III
SECONDARY MARKET
The secondary market refers to the market where previously issued financial instruments, such as stocks,
bonds, and derivatives, are bought and sold by investors. It is distinct from the primary market, where new
securities are issued and sold to the public for the first time.
The secondary market, also known as the aftermarket, is a financial market where investors buy and sell
previously issued securities, such as stocks, bonds, options, and futures contracts. It is a market where
securities that were previously sold in the primary market are traded among investors rather than being sold
directly by the issuing company.
The secondary market provides investors with liquidity, enabling them to sell their securities easily and
quickly if they need to raise cash. Additionally, it allows investors to buy securities to add to their portfolio,
adjust their asset allocation, or hedge against market risks.

FEATURES OF SECONDARY MARKET

The secondary market is pivotal for stock market liquidity, empowering traders to transact freely. Investors
benefit by easily selling and buying securities within market hours.
1. Liquidity
2. Price discovery
3. Transparency
4. Accessibility
5. Market orders
FUNCTIONS OR ROLE OF THE SECONDARY MARKET
1. Raising capital for business 2. Economic boost
3. Mobilizing savings for investment 4. Pricing parameter
5. Facilitating company growth 6. Credit quality
7. Creating investment opportunities for small investors 8. Easy access to securities
9. Barometer of the economy 10. Easy liquidity gateway
11. Trading securities

TYPES OF SECONDARY MARKET

There are two main types of secondary markets: exchange-traded markets and over-the-counter markets. Exchange-
traded markets, such as the New York Stock Exchange (NYSE) and the Nasdaq Stock Market, have centralized trading
locations, while over-the-counter markets, such as the bond market, have decentralized trading locations.
1. STOCK EXCHANGES
2. OVER-THE-COUNTER (OTC) MARKETS

BENEFITS OR ADVANTAGES OF SECONDARY RISKS OR DEMERITS OR CHALLENGES OF

MARKET AFTERMARKETS
1. Liquidity 1. Market volatility
2. Price discovery 2. Insider trading
3. Risk reduction 3. Market manipulation
4. Capital formation 4. Systemic risk
5. Source of income 5. Lack of control
6. Safety
7. Economic growth
8. Market value
9. Access to cash
10. Creditworthiness

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 STOCK EXCHANGE
MEANING OF STOCK EXCHANGES
 It is a place where the buyer and seller can exchange stocks/securities
 As a market, the stock exchange facilitates the exchange of a security (share, debenture etc.) into money
and vice versa.
 There is trading of existing shares only
 Ownership of existing securities is exchanged between investors. The company is not involved at all.
 Prices are determined by demand and supply for the security.

DEFINITION OF STOCK EXCHANGES

According to Securities Contracts (Regulation) Act 1956, Stock exchange means any body of individuals,
whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of
buying and selling or dealing in securities.

History
 Security trading in India goes back to the 18th century when the East India Company began
trading in loan securities.
o Corporate shares started being traded in the 1830s in Bombay with the stock of Bank and
Cotton presses
o The simple and informal beginnings of stock exchanges in India take one back to the
1850s when 22 stockbrokers began trading opposite the Town Hall of Bombay under a
banyan tree
o The shift continued taking place as the number of brokers increased, finally settling in
1874 at what is known as Dalal Street
o This as yet informal group known as the Native Share and Stockbrokers Association
organized themselves as the Bombay Stock Exchange (BSE) in 1875
 The BSE is the oldest stock exchange in Asia and was the first to be granted permanent
recognition under the Securities Contract Regulation Act, 1956
o The BSE was followed by the Ahmedabad Stock Exchange in 1894 which focused on
trading in shares of textile mills
o The Calcutta Stock Exchange began operations in 1908 and began trading shares of
plantations and jute mills
o The Madras Stock Exchange followed, being set up in 1920

 In post-Independent India
o The BSE dominated the volume of trading after Independence. However, the low level of
transparency and undependable clearing and settlement systems, increased the need for
a financial market regulator
o It was at this time, the Securities and Exchange Board of India(SEBI) was born in 1988 as
a non-statutory body, which was further given statutory status in 1992
o The need for another stock exchange large enough to compete with BSE and need for
transparency in stock market, gave birth to the National Stock Exchange(NSE)

 The Current Stock Exchange scenario

o After the country gained independence, 23 stock exchanges were added apart from the BSE
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 o As per SEBI’s data (as on January 2020), there are about nine exchanges in India, but only a few
are active and permanent:
1. Bombay Stock Exchange (BSE)
2. National Stock Exchange (NSE)
3. Multi-Commodity Exchange (MCX)
4. National Commodity and Derivates Exchange (NCDEX)
5. India International Exchange (India INX)
6. NSE IFSC
7. Indian Commodity Exchange (ICEX)
8. Calcutta Stock Exchange (CSE)
9. Metropolitan Stock Exchange (MSE)

LISTING PROCEDURE IN STOCK EXCHANGE

The following are the steps to be followed in listing of a company’s securities in a stock exchange:
1. The promoters should first decide on the stock exchange or exchanges where they want the shares to be
listed.
2. They should contact the authorities to the respective stock exchange/ exchanges where they propose to
list.
3. They should discuss with the stock exchange authorities the requirements and eligibility for listing.
4. The proposed Memorandum of Association, Articles of Association and Prospectus should be submitted
for necessary examination to the stock exchange authorities
5. The company then finalizes the Memorandum, Articles and Prospectus
6. Securities are issued and allotted.
7. The company enters into a listing agreement by paying the prescribed fees and submitting the necessary
documents and particulars.
8. Shares are then and are available for trading.

TRADING AND SETTLEMENT PROCEDURE

 Trading in securities is executed through an on-line, electronic trading system.
 All buying and selling of shares and debentures are done are done through a computer
 A stock exchange has its main computer system with many terminals spread across the country.
 Trading in securities is done through brokers who are members of the stock exchange.

PROCESS OF TRADING
1. Selection of a broker
2. Opening a demat account with depository
3. Placing the order
4. An order confirmation slip
5. Executing the order
6. Contract note
7. Settlement procedure

ROLE OF STOCK EXCHANGES

1. Raising capital for business 2. Facilitating company growth
3. Common forms of capital raising 4. Profit sharing
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 5. Limited partnership 6. Creating investment opportunities for small investors
7. Venture capital 8. Government capital raising for development projects
9. Corporate partners 10. Barometer of the economy
11. Mobilizing savings for investment

FUNCTIONS OF STOCK EXCHANGE FEATURES OF STOCK EXCHANGE:

1. Role of an economic barometer 1. A market for securities
2. Valuation of securities 2. Second-hand securities
3. Transactional safety 3. Regulate trade in securities
4. Contributor to economic growth 4. Dealings only in registered securities
5. Making the public aware of equity investment 5. Transaction
6. Offers scope for speculation 6. Recognition
7. Facilitates liquidity 7. Measuring device
8. Better capital allocation 8. Operates as per rules
9. Encourages investment and savings

SPECULATIVE TRANSACTION
Speculation (also known as speculative trading) is a financial term that refers to the act of purchasing
an asset (a commodity, good or real estate) that has a substantial risk of losing value but also holds the hope of
gaining value in the near future. An investor who's into speculative trading purchases an asset in an attempt
to gain profit from small fluctuations in the market. These are high-risk, high gain investments that are made for
a short amount of time and once the investor gets the desired profit, the investment is sold. For example- An
investor who invests in foreign currency buys some currency in the hopes of selling it at an appreciated rate
when market fluctuations happen. This type of speculation is known as currency speculation.

TYPES OF SPECULATIVE TRANSACTION

1. Option dealings
1. Call option
2. Put option
2. Margin trading
3. Arbitrage
4. Wash sales
5. Cornering
6. Rigging
7. Blank transfers

SPECULATORS
The speculators are not genuine investors. They buy securities with a hope to sell them in future at a profit.
They are not interested in holding the securities for longer period. Hence, their very object of buying the
securities is to sell them and not to retain them. They are interested only in price differentials.
In reality, there is not a hundred percent speculator or an investor. Each investor is to a certain extent a
speculator. Similarly, every speculator to a certain extent is an investor. Thus, the difference between the two is
a matter of degree only.
KINDS OF SPECULATORS
1. Bull 2. Jobber
3. Bear 4. Broker
5. Stag 6. Contango
7. Lame Duck. 8. backwardation

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 SEBI – SECURITIES EXCHANGE BOARD OF INDIA
SEBI stands for the Securities and Exchange Board of India. It is a statutory regulatory body established
by the Government of India in 1992 to protect the interests of investors investing in securities, along with
regulating the securities market.
History of SEBI
The establishment of SEBI marked a significant milestone in the history of the securities market, as it
aimed to bring about comprehensive reforms in the capital market and ensure clarity and investor protection.
Before the formation of SEBI, the regulation of the securities market in India was primarily overseen by
the Controller of Capital Issues (CCI). However, with the changing dynamics of the financial landscape and the
need for a more independent and specialised regulatory body. SEBI was created.
SEBI was granted autonomous powers through the SEBI Act of 1992, allowing it to regulate and
supervise the securities market in a comprehensive manner. It has undergone several reforms and enhancements
over the years to adapt to the evolving financial landscape. It has introduced various regulations and guidelines
to promote good governance, prevent market manipulation, and enhance investor confidence.
Organisational structure of SEBI
SEBI has over 20 departments, all of which are supervised by their respective department heads, which in
turn are administered by a hierarchy in general. The regulatory body is managed by its members, which consist
of the following:
 The chairman is nominated by the Union Government of India.
 Two members from the Union Finance Ministry.
 One member from the Reserve Bank of India.
 The remaining five members are nominated by the Union Government of India.

SEBI has its headquarters in Mumbai and has regional offices in New Delhi, Kolkata, Chennai, and
Ahmedabad, along with local offices in Jaipur and Bangalore, and offices at Guwahati, Bhubaneshwar, Patna,
Kochi, and Chandigarh.
OBJECTIVES OF SEBI
1. Investor protection
2. Regulation and development of the securities market
3. Prevention of insider
4. Promotion of fair practices and code of conduct
5. Prohibition of fraudulent and unfair trade practices
6. Development of a secondary market

FUNCTIONS OF SEBI:
1. Safeguarding the interests of Indian investors, while educating them about securities markets and their
intermediaries.
2. Facilitating the development and seamless functioning of the securities market.
3. Regulating the business operations within the securities market.
4. Providing a regulatory platform for portfolio managers, bankers, stockbrokers, investment advisers,
merchant bankers, registrars, share transfer agents, and other market participants.
5. Overseeing and regulating the responsibilities of depositors, credit rating agencies, custodians of
securities, foreign portfolio investors, and other involved entities.
6. Prohibiting fraudulent and unfair trade practices associated with the securities market.
7. Monitoring company takeovers and acquisitions of shares.
8. Ensuring the efficiency and contemporary relevance of the securities market through thorough research
and developmental strategies.
9.

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ROLE OF SEBI IMPORTANT SEBI RULES AND GUIDELINES
1. Regulatory role 1. SEBI (prohibition of insider trading) regulations,
2015
2. Supervisory role 2. SEBI (listing obligations and disclosure
requirements) regulations, 2015
3. Developmental role 3. SEBI (substantial acquisition of shares and
takeovers) regulations, 2011
4. Investor protection role 4. SEBI (issue of capital and disclosure requirements)
regulations. 2018
5. Enforcement role 5. SEBI (prohibition of fraudulent and unfair trade
practices) regulations
6. Market development role 6. SEBI (mutual fund) regulations, 1996
7. Promoting transparency and disclosure 7. SEBI (issue of capital and disclosure requirements)
regulations, 2018
8. Promoting Corporate Governance 8. SEBI (buyback of securities) regulations, 2018
9. Regulating Mutual Funds 9. SEBI (credit rating agencies) regulations, 1999
10. Regulating Credit Rating Agencies
11. Regulating Insider Trading
12. Promoting Investor Education and
Awareness
13. Regulating Stock Exchanges
14. Regulating Foreign Investments

DIFFERENCE BETWEEN PRIMARY MARKET AND SECONDARY MARKET

Basis of Primary Market Secondary Market
Comparison

Meaning A platform that offers security for the The market where investors trade already
first time is the primary market. issued securities is known as the secondary
market.

Another name New issue market (NIM). Aftermarket or share market.

Type of product Products are limited and mainly Many products, such as shares, warrants,
include IPO and FPO (Follow-on derivatives, and more, are available.
Public Offer).

Purchase type All the purchases in this market The issuer (company raising capital) is not
happen directly. involved in the trading.

Frequency of Security can be sold to the investors Here the traders can buy and sell the shares as
selling just once in this market. often they want.

Parties involved The company and the investors are Here investors buy and sell the securities
involved in buying and selling the among themselves.
security.

Beneficiary Company Investor

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How to identify Investors primarily rely on prospectus Several tools are available to the investors to
investment? and word-of-mouth publicity to pick help them pick good investments, such as price
an investment in the primary market. to earnings (P/E), price to book (P/B), price to
sales (P/S), and more.

Intermediary Underwriters are the intermediaries in Here the intermediaries are the brokers.
the primary market.

Purpose Help new and existing companies to It does not provide funding to companies;
raise capital for expansion and instead, it helps investors to make money.
diversification.

Price The company sells the shares to the Both buy and sell-side investors work toward
investors at a fixed price. finding the best price for the trade.

Presence There is no organization set up for the There is a geographical setup and
primary market organizational presence for the secondary
market.

Rules and The company issuing securities goes Here investors and brokers need to follow the
Regulations through a lot of regulation and due rules set by the exchange and the governing
diligence. agency.

UNIT-4
COMMERICAL BANK
COMMERCIAL BANK:
Commercial banks are the oldest institution in financial market in India.
STRUCTURE OF BANK IN INDIA:
Banks in India have been traditional in providing credit to industry they have given short-term credit for financing
working capital requirements.

FUNCTIONS OF COMMERICAL BANK :

1. Bankers of the issue
2. Travellers cheques and cash credit
3. Merchant Banking
4. Mutual fund
5. Factoring
6. Retail Banking
7. Automated Teller Machine.

IDBI(Industrial Development Bank of India) :

IDBI is the acronym for the Industrial Development Bank of India. Established in 1964 as a fully owned
subsidiary of the Reserve Bank of India (RBI), IDBI's main objective was to provide financial aid and credit
facilities to bolster the growth of industry in India. This was started initial as a subsidiary bank of RBI in July 1964.
But subsequently,by 1976 it became an independent and autonomous bank.

OBJECTIVES OF IDBI :
The main objects of IDBI Bank Limited, inter alia, are as under:
 To establish and carry on business of banking in all forms within India and outside India,
 To finance, promote or develop industry and assist in the development of Industries.

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FUNCTIONS OF IDBI:
 Direct Finance:  Indirect Finance :
1. Project loan 1. Refinancing
2. Soft loan 2. Rediscounting of bills
3. Underwriting of securities 3. Providing seed capital to new entrepreneurs.
4. Equipment finance  Special Assistance
5. Technical development funds loans.  General Assistance

IFCI(Industrial Finance Corporation of India) :

This bank was setup in the year 1948.To provide medium and long term credit to industrial concerns. IFCI
Ltd (IFCI) was set up as a Statutory Corporation (“then Industrial Finance Corporation of India”) in 1948
for providing medium and long-term finance to industry. The main aim of the incorporation of IFCI was to
provide long-term finance to the manufacturing and industrial sector of the country.

FUNCTION OF IFCI :
1. Granting of Loans 2. Agent of Central Govt
3. Guaranteeing of Loans 4. Project Finance
5. Contribution to Share Capital 6. Promotional activities
7. Underwriting of Securities

LIC(Life Insurance Corporation) :

The LIC was setup in 1956 after amalgamating 245 companies and was governed by the insurance act of 1938 u/s
27(A). life Insurance Corporation of India (LIC) is an Indian multinational public sector life insurance company
headquartered in Mumbai.

FUNCTION OF LIC :
1. Socially Oriented Sector 2. Reforms
3. Influence in Private Corporate Sector 4. New Business Officers
5. Withdrawal from Capital Market

GIC(GENERAL INSURANCE CORPORATION) :

While the LIC is regulated by the Institution act of 1938 under section 27A,the GIC is governed by the same act
u/s 27B.GIC was formed a govt company u/s 9 of the General Institution Business (Nationalization) Act 1972 and
registered as private company under the companies act, and it's four subsidiaries,viz.

UTI (UNIT TRUST OF INDIA) :

On the line of investment trust started UK, the Indian govt also wanted to promote an investment trust which can attract
the savings of middle and lower income group people.
Structure and Management of UTI :
1. Prudential Exposure Norms 2. Category Of Investors
3. Investment Of Investors 4. Tax Benefits
5. Confidence Of Investors 6. Government Policy Of Investment
7. Liquidity Schemes 8. Promotion Of New Companies
9. Reasonable Returns

MUTUAL FUNDS :
The growth of any economy very much depends on the extent of promoting investment in the corporate sector.
TYPES OF MUTUAL FUNDS :
1. From The Point Of Investors : 2. From The Point Of Promoters :
 Open-Ended Mutual Fund  Stock Funds

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  Close-Ended Mutual Fund  Bond Funds
 Growth-Oriented Mutual Fund  Balance Funds
 Income-Oriented Mutual Fund  Index Funds
 Specialized Mutual Fund  Money Market Funds
 Domestic Mutual Fund  Dual Funds
 Off-Share Mutual Fund  Leverage Funds
 Specialised Funds
 Real Estate Funds

UNIT V
MEANING OF LEASING :
Leasing as a Financial concept, is an arrangement between two parties, the leasing company or lessor and the user
or lessee.
DEFINITION :
"Lease is a form of contract transferring the use or occupancy of lamd, space, structure or equipment, in
consideration of a payment, usually in the form of a rent".
FORMS OF LEASING :
 Sales and leaseback  Straight lease and modified lease
 Direct leasing  Primary and secondary lease
 Leveraged lease  Sale and leaseback.

TYPES OF LEASING:
1. FINANCE LEASE: A finance lease is one in which risks and rewards incidental to the ownership of the leased asset
are transferred to the lessee but not the actual owner. Thus , in the case of a finance lease, we can say that
notional ownership is passed to the lessee.
2. OPERATING LEASE: Operating lease is a contract wherein the owner, called the Lessor, permits the user,
called the Lesse, to use of an asset for a particular period which is shorter than the economic life of the asset
without any transfer of ownership rights.
3. LEVERAGE LEASE: A leveraged lease is a lease agreement that is financed through the lessor with help
from a third-party financial institution. In a leveraged lease, an asset is rented with borrowed funds.
4. CONVEYANCE LEASE: This legal contract, lease, title or deed can be referred to as an instrument of
conveyance which is used to solidify the deal made between the buyer and the seller. The document, be it a
contract, lease, title or deed will include all the terms that the seller and buyer have agreed upon.

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 VENTURE CAPITAL
ORIGIN OF VENTURE CAPITAL :
The venture capital in India is of recent origin. the need for venture capital was keenly felt around 1985. The
origins of venture capital can be traced back to the post-World War II era, when investors began to realize the
potential of funding high-risk, high-reward projects. The first VC firm, American Research and Development
Corporation (ARDC) was founded in 1946 by Georges Doriot.

DEFINITION OF A VENTURE CAPITAL :

A venture capital company is defined as "a financing institution which joins an entrepreneur as a co-promoter in a
project and shares the risks and rewards of the enterprise."

VENTURE CAPITAL IN INDIA:

The venture capital industry began to take shape in India in the late 1980s, with the formal establishment
of venture capital activities in 1988 when the Indian government granted legal status to these initiatives.
FEATURES OF VENTURE CAPITAL
1. Finance New Ventures
2. High Risk
3. Lack Of Liquidity
4. Equity Participation
5. Long-Term Horizon
6. Participation In Management

FUNCTIONS OF VENTURE CAPITAL :

 Venture capital provides finance as well as skills to new enterprises and new ventures of existing ones
based on high technology innovations. It provides seed capital to finance innovations even in the pre-
start stage.
 venture capitalist develops a business plan (in partnership with the entrepreneur) which will detail the
market opportunity, the product, the development and financial needs.
 the venture capitalist has to assess the intrinsic merits of the technological innovation, ensure that the
innovation is directed at a clearly defined market opportunity and satisfies himself that the management
team at the helm of affairs is competent enough to achieve the targets of the business plan.
 Therefore, venture capitalist helps the firm to move to the exploitation stage, i.e., launching of the
innovation.
 The venture capitalist is expected to perform not only the role of a financier but also a skilled faceted
intermediary supplying a broad spectrum of specialist services- technical, commercial, managerial,
financial and entrepreneurial.
 It acts as a trigger in launching new business and as a catalyst in stimulating existing firms to achieve
optimum performance.
 Venture capitalist assists the entrepreneurs in locating, interviewing and employing outstanding
corporate achievers to professionalize the firm.

ADVANTAGES AND DISADVANTAGES OF VC

Advantages
 Help gain business expertise
 Business owners do not have to repay
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  Helps in making valuable connections
 Helps to raise additional capital
 Aids in upgrading technology
Disadvantages :
 Reduction of ownership stake
 Give rise to a conflict of interest
 Receiving approval can be time-
 Availing VC can be challenging

TYPES OF VENTURE CAPITAL

Venture capital can be broadly divided according to the growth stage of the company receiving the
investment. Generally speaking, the younger a company is, the greater the risk for investors.
The stages of VC investment are:
 Pre-Seed: This is the earliest stage of business development when the founders try to turn an idea into
a concrete business plan. They may enroll in a business accelerator to secure early funding and
mentorship.
 Seed Funding: This is the point where a new business seeks to launch its first product. Since there are
no revenue streams yet, the company will need VCs to fund all of its operations.
 Early-Stage Funding: Once a business has developed a product, it will need additional capital to ramp
up production and sales before it can become self-funding. The business will then need one or more
funding rounds, typically denoted incrementally as Series A, Series B, etc.

FACTORING

MEANING OF FACTORING :
The word "Factor" has been derived from the Latin word 'FACERE' Which means to make or to do.
DEFINITION :
According to V.A.AVADHANI,"Factoring is a service of financial nature involving the conversion of credit bills
into cash."
FUNCTIONS OF FACTORING : TYPES OF FACTORING :
1. Purchase and collection of debts  Full service factoring or without recourse
factoring
2. Sales ledger management  With recourse factoring
3. Credit investigation and undertaking of credit risk  Maturity factoring
4. Provision of finance against debts  Bulk factoring
5. Rendering consultancy services  Invoice factoring
 Agency factoring
 Limited factoring
 International factoring
 Suppliers guarantee factoring
 Buyer based factoring
 Seller based factoring

SECURITISATION OF ASSET
SECURITISATION OF ASSET :
Securitisation of debt or asset refers to the process of liquidating. Asset securitization is defined as a process
whereby assets like loans and receivables are used to create and sell asset backed securities. The assets which can be used
for securitisation include receivables from the government departments, loan assets like housing loan and automobile
loans, leased assets and credit card receivables etc.

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DEFINITION :
" A carefully structured process whereby loans and other receivables are packaged, underwriting and sold in the
form of assets backed securities."
Securitization is a process by which a company clubs its different financial assets/debts to form a
consolidated financial instrument which is issued to investors. In return, the investors in such securities get
interest. Description: This process enhances liquidity in the market.

TYPES OF SECURITISATION:
ASSET-BLOCKED:
Asset-backed securities include commercial debt, student loans, and similar loans that aren’t backed by a
mortgage. These become assets in the books of the financial organisation that is offering the credit. The
government has allowed these organisations to go after the personal assets of defaulters who fail to pay the
installments on time
MORTGAGE-BACKED SECURITIES:
Mortgage-backed securities are bonds that are backed by real estate properties or loans that have
collateral in the form of a vehicle, etc. Investors who buy these securities receive the receipt of
the interest payments on the concerned debts as often banks tend to ask the borrowers to send the interest
amount directly to these investors.

SECURITISATION IN INDIA :
The concept of assets securitization is slowly entering into the Indian soil. Financial institution have not
yet come forward to make use of this avenue for financing on a large scale. Securitization in India began in the
early nineties, with CRISIL rating the first securitization program in 1991-92. Initially it started as a device for
bilateral acquisitions of portfolios of finance companies. These were forms of quasi-securitizations, with
portfolios moving from the balance sheet of one originator to that of another. Originally these transactions
included provisions that provided recourse to the originator as well as new loan sales through the direct
assignment route, which was structured using the true sale concept. Through most of the 90s, securitization of
auto loans was the mainstay of the Indian markets. But since 2000, Residential Mortgage Backed Securities
(RMBS) have fuelled the growth of the market.

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