UNIT-III

Primary, Secondary and Capital Markets

3.1 Primary, Secondary and Capital Markets: New issue market-meaning-functions-methods floating new issue - intermediaries in the new issue market merchants’ bankers and their functions

There are many people and organizations that need capital. Similarly, there are some people and organizations that have surplus capital. They want to dispose of (or invest in) surplus capital. Capital markets are the meeting place for individuals or organizations in these two broad categories.

Meaning and definition of capital markets

A capital market is simply a market for long-term funds. A market for buying and selling equity, debt and other securities. Generally, we deal with long-term securities with a maturity of more than one year.

Capital markets are a way to channel long-term finance to meet the diverse needs of industry, commerce and government. And local government. According to W.H., his husband and J.C. Docker bay, "Capital markets are mainly used to specify long-term credit activities that feature investment-type securities."

Therefore, the capital market can be defined as an organized mechanism for the effective and smooth transfer of capital or financial resources from investors to entrepreneurs.

Capital market characteristics

1. A means of flowing capital from investors to borrowers.
2. Generally, we handle long-term securities.
3. All operations of new issuance and existing securities are conducted in the capital markets.
4. We handle many types of financial products. These include stocks, preferred stock, corporate bonds, bonds and more. These are known as securities. This is why the capital markets are known as the "stock market".
5. Works through many intermediaries such as banks, merchant bankers, brokers, underwriters, investment trusts and more. These serve as links between investors and borrowers.
6. Capital market components (players) include individuals and institutions. These include individual investors, investment trust companies, banks, stock exchanges and specialized financial institutions.

Capital market function

Efficient capital market functions include:

1. Mobilize long-term savings to finance long-term investments.
2. Providing entrepreneurs with risk capital in the form of equity or quasi-equity.
3. Provides liquidity through a mechanism that allows investors to sell their financial assets.
4. Improve the efficiency of capital allocation through a competitive pricing mechanism.
5. Efficiently disseminate information so that participants can develop informed opinions about investment, withdrawal, reinvestment, etc.
6. Allows for quick valuation of financial instruments – both equity and debt.
7. We provide insurance against market risk through derivative transactions and default risk through investment protection funds.
8. Provide operational efficiency through:

1. Simplified transaction procedure.
2. Reduction of settlement time and
3. Reduction of transaction costs.

9. Develop integrations between (a) debt and financial sectors, (b) equity and debt products, and (c) long-term and short-term funds.

10. Direct the flow of funds to efficient channels through investment, withdrawal and reinvestment.

Importance of capital markets

The importance of capital markets is outlined below.

1. Savings Mobilization: Capital markets help mobilize national savings. It gives retail investors the opportunity to use their savings in more productive channels.

2.     Capital formation: Investing in infrastructure requires a large amount of investment. Such large numbers of individuals cannot be collected from one or a small number of individuals. Capital markets offer the opportunity to raise money from many who have an investable surplus. In short, capital markets play an important role in capital formation at a higher rate.

3.     Economic development: With the help of capital markets, the idle funds of the savers are directed to the production sector. In this way, capital markets help the country's rapid industrialization and economic development.

4.     Integrate different parts of the financial system: Different components of the financial system include new issue markets, money markets, stock exchanges and more. It is the capital markets that help establish close contact between different parts of the financial system. This is essential for economic growth.

5.     Stock Market Promotion: A healthy capital market promotes an organized stock market. Stock exchanges facilitate the marketability of securities. The off-the-shelf market is available to buyers and sellers of securities.

6.     Foreign capital: Multinationals and foreign investors are ready to invest in countries with well-developed capital markets. Therefore, not only is the capital market useful for raising foreign capital, but foreign technology is also within the reach of the locals.

7.     Economic Welfare: Capital markets help improve the productivity and productivity of the economy. It raises the national income of the country. As such, it helps to promote the economic welfare of the country.

8.     Innovation: Introducing new financial products, discovering new sources of funding, introducing new processes, etc. are some of the innovations introduced in the capital markets. Innovation guarantees growth.

Capital Market Components

There are four main components to the capital market. They are (a) primary markets, (b) government securities markets, (c) financial institutions, and (d) secondary markets.

These elements of the capital markets will be discussed in more detail on the next page.

A. Primary Market / New Issue Market (NIM)

Every company needs money. You may need short-term or long-term funding. Short-term funding requirements can be met through banks, lenders, institutions and more. If a company wants to raise long-term capital, it goes to the primary market. The primary market is an important component of the capital market. In the primary market, securities are purchased directly from the issuer.

Meaning of Primary Market

The primary market is a new problem market. Also called a new market. It's a market for fresh capital. It deals with new securities that were previously unavailable to investors. Business and government. Raise long-term funding from the primary market by issuing financial securities.

Both new and existing companies can issue new securities in the primary market. It also discusses raising new capital by the government or its agencies.

The primary market is made up of all institutions that handle fresh securities. These securities may take the form of stocks, preferred stock, corporate bonds, rights issues, deposits and more.

Primary market features

The main functions of the primary market can be divided into three service functions. They are origination, underwriting, and distribution.

1. Origination: Origination refers to the work of investigating, analyzing, and processing new project proposals. Origination begins before the problem actually hits the market. The function of origination is performed by a commercial bank, all Indian financial institutions, or a merchant banker that may be a private sector.

2. Underwriting: When a company issue shares to the public, it is uncertain whether the entire shares will be underwritten to the public. Therefore, a company may underwrite shares or bonds to ensure a full subscription (or at least 90%) of the shares. The act of guaranteeing the sale of a company's stock or bonds, even before it is made public, is called underwriting. This is a contract between the company and the underwriter (individual or individual company), which agrees to underwrite that portion of the shares or bonds that the general public has not subscribed to. The company or person engaged in the underwriting is called the underwriter.

3. Distribution: This is the function of selling securities to the final investor. This service is run by brokers and agents. They are in direct and regular contact with the ultimate investor.

How to raise money in the primary market (how to raise new issues)

Companies can raise money from the primary market in a variety of ways. Methods include public issuance, sale, private placement, rights issue, and bidding methods.

Public issues

This is the most common way to raise long-term funding. That means raising money directly from the people. This method invites subscriptions from the general public through the publication of prospectuses (and the publication of advertisements in newspapers). Based on the prospectus offer, investors apply for the number of securities they are willing to take. Upon application for securities, the company allocates shares, corporate bonds, etc.

Types of public offering: There are two types of public offering: initial public offering and subsequent public offering.

1. Initial Public Offering (IPO): This is the first public offering in life of an unlisted company offering an initial public offering of a security, an offer to sell an existing security, or both. In short, it's the first way a company raises stocks or securities to sell stocks to the public.

2.     Subsequent Public Offering (FPO): This is an offer by a listed company to sell securities. This is to offer either a new issue of securities or a tender offer by an already listed company through the offer document.

How to determine the price of a new stock

Equity offerings by companies are offered to investors in two forms: (a) fixed price offer and (b) book building.

Fixed Price Offer Method

In this case, the company will determine the issue price and announce the number of shares to be issued. If the price is very high, the investor will apply for a smaller number of shares. On the other hand, if the issue price is too low, the investor will apply for more shares. This leads to a significant excess of subscriptions.

The main steps involved in issuing shares using the fixed price offering method are as follows.

1. Merchant bunker selection

2. Issuance of prospectus

3. Application for shares

4. Allotment of shares to applicants

5. Issuance of stock certificates

Book building method

Introduced on the recommendation of a committee chaired by Y.H. Malegam in October 1995. With this method, the company does not pre-price the securities. Instead, it provides investors with the opportunity to bid collectively. Then use the bid to reach the consensus price. All applications received will be arranged and the final offer price (called the cut-off price) will be reached. The cut off price is usually the weighted average price at which the majority of investors are willing to buy securities. In short, book building means selling securities to investors at an acceptable price with the help of an intermediary called a bookrunner. This includes selling securities to public and institutional bidders based on a given price range or price range. The price range cannot exceed 20% of the minimum price. The lowest price is the lowest price an investor can bid on. The merchant bunker will consult with the issuer to make corrections. Therefore, book building refers to the process by which the pricing of issues is left to the investor.

Today, most IPOs in India use book building techniques. According to the 1997 SEBI guidelines, the book building process may apply to 100% of publications if the publication size is 100 chlores or larger.

Offer of sales method In this method, the company does not go public directly, but provides it through an intermediary such as an issuing company, a merchant bank, an investment bank, or a stock broker.

With this method, the sale of securities is a two-step process. In the first phase, the issuer sells the shares at a price agreed with the issuer, broker or other intermediary. In the second phase, the intermediary resells the security to the final investor at market-related prices. This price will be higher. The difference between the purchase price and the issue price represents the profit of the intermediary. The intermediary is responsible for covering various costs. The selling method is also called a purchase transaction. This method is not common in India.

Private placement of securities

A private placement is the issuance of a company's securities directed directly to one investor or a small group of investors. In general, an investor is a chosen individual, such as a financial institution or other existing company, or a friend or relative of a promoter. Private companies cannot issue prospectuses. Therefore, we usually raise capital through private placement. A public limited company can also raise capital by issuing shares privately and without inviting the general public to subscribe to the shares. The Companies Act defines a privately placed issue as requiring a subscription from 50 members. Prospectus will not be issued in private placement. In this case, the complicated steps required in the case of public issues are avoided. Therefore, issuance costs are kept to a minimum. The funding process is also very simple. However, the number of shares that can be issued by private placement is generally limited.

Therefore, a private placement is the sale of newly issued securities by an issuer directly to a small number of investors through a merchant banker.

Rights issue

A rights issue is a way for an existing company to raise money in the market. In this way, the existing company issues shares to the existing shareholders in proportion to the number of shares already held by the existing shareholders. Therefore, a rights issue is the issuance of new shares that gives existing shareholders the pre-emptive right to subscribe for new shares in a proportional distribution.

According to Article 81 (1) of the Companies Act, if a company wishes to increase its tendered capital by issuing additional shares, such shares must first be issued to existing shareholders in proportion to its existing shareholding. Not. Existing shareholders can accept or deny their rights. Shareholders who do not want to acquire the appropriate shares can sell their rights to others. If the shareholders do not subscribe or transfer the rights, the company may go public.

A rights issue company must send a circulation to all existing shareholders. The Circular must provide information on how the additional funds will be used and their impact on the profitability of the company. Companies typically need to give shareholders a time limit of at least one to two months before they are made available to the public in order to exercise their rights. The new company cannot raise the right problem.

Promoters often offer rights issues at attractive prices, at discounted prices rather than market prices, for a variety of reasons. The reason is as follows. (A) want to fully subscribe to the problem, (b) reward shareholders, (c) the market price may not reflect the true value of the stock or may be overpriced, (d) preferred Increase investment in the company to avoid stakes.

e. Other ways to issue securities

Apart from the above methods, there are several other ways to issue securities. They are:

1. Bid method: In the bid method, the issue price is not determined in advance. The company has announced a public issue without showing the issue price. We are looking for bids from various parties. Participants in the bid submit a maximum offer that indicates the maximum price they are willing to pay. You also need to specify the number of shares you want to buy. After receiving various offers, the company may decide on a price so that the entire issue is fairly subscribed to or sold to the parties participating in the bid.

2. Issuance of bonus shares: The conversion of a company's accumulated reserves and retained earnings into paid-in capital is called bonus issuance. It simply refers to the company's existing reserves and surplus capitalization.

3. Employee Offerings: Companies are currently preferentially issuing shares to employees (including full-time directors). It attracts, retains and motivates employees by creating a sense of belonging and loyalty. Shares are usually issued at a discounted price. The company may issue shares to employees under two systems: (a) employee stock options and (b) employee stock purchases.

4. Offer to Creditors: At the time of recapitalization, creditors may be issued shares with full settlement of the loan.

5. Offering to Customers: Utilities provide stock to customers.

Public Notice Procedure

Under public issuance, new shares / bonds may be offered to the public directly through a prospectus (offer document) or indirectly through a sales offer involving a financial intermediary or issuer.The main steps related to public issues are:

1. Draft Prospectus: You need to prepare a Draft Prospectus with all the information you need. A publicly issued or rights issue company or listed company that is worth more than Rs. Rs 500,000 must submit a draft offer document to SEBI for its observation. After getting the observations from SEBI, the company can go further. The company can begin issuing SEBI observation letters within three months of the date.

2. Enforcement of entry criteria: SEBI sets out specific entry criteria (parameters) for accessing the primary market. A company can enter the primary market only if it meets these entry criteria.

3. Appointment of Underwriters: Underwriters may be appointed to ensure full subscription.

4. Appointment of Bankers: Generally, a company shall appoint its own banker to act as a collection agent. Bankers, along with the branch network, process the funds raised during public issuance.

5. Start the assignment procedure: When the problem is subscribed to the minimum level, the registrar will start the assignment procedure.

6. Appointing a broker to the problem: An authorized member of the stock exchange is appointed as a broker to the problem.

7. Document Submission: Documents such as the draft prospectus must be submitted to the company registrar along with a copy of the contract signed with the lead underwriter, underwriter, banker, registrant and broker.

8. Print Prospectus and Application: After submitting the above documents, the Prospectus and Application will be printed and issued to all Merchant Bankers, Underwriters and Brokers.

9. Posting the issue: It is very important to send a letter to the stock exchange where the issue is proposed.

10. Newspaper publication: The next step is to publish a summary version of the prospectus and start and end dates for publication in major English daily and local newspapers.

11. Share Allocation: After issuance is complete, all applications will be scrutinized, tabulated and shares will be allocated to the applications received.

Primary Market / Capital Market Players or Participants (or Mediators)

There are many players (intermediaries) in the primary market (or capital market). The important players are:

1. Merchant Bunker: Merchant bunker plays an important role in attracting public funds to capital issues. They act as problem managers, lead managers or co-managers (feature details are on the next page)

2. Registrar to a problem: A registrar is an intermediary who carries out all activities related to new problem management. They are appointed by the company in consultation with the Merchant Bunker on this issue.

3. Bankers: Some commercial banks act as collection agents and some act as coordinating bankers. Some bankers act as merchant bankers and some are brokers. They play an important role in the transfer of funds, remittances, and secure storage.

4. Broker: Acts as an intermediary for buying and selling securities in the primary and secondary markets. They have a network of sub-brokers that spans the length and breadth of the country.

5. Underwriters: Investment bankers typically act as underwriters. They agreed to acquire a certain number of shares or bonds offered to the public if the issue was not fully subscribed to by the general public. Underwriters include financial institutions, banks, investment trusts and brokers.

Characteristics of Indian Capital Markets

The Indian capital markets have the following special features:

1. Increasing reliance on debt certificates for equity, especially borrowing from financial institutions.

2. Issuance of bonds, specifically convertible bonds that are automatically or forcibly converted into shares, without the usual options given to investors.

3. It became an option for the purpose of raising mega issues for the purpose of acquisitions and mergers, and avoiding borrowing from financial institutions fearing discipline and conversion clauses by large companies.

4. Avoid underwriting by some companies to reduce costs and avoid FI scrutiny. It became an option.

5. The rapid growth of investment trusts and banking subsidiaries for financial services will lead to greater mobilization of savings from the capital markets.

India's primary market flaws

India's primary market has the following flaws:

1. The new issue market cannot mobilize sufficient savings from the public. Only 10% of household savings go to the primary market.

2. Merchant bunker does not pay close attention to technical, administrative and feasibility aspects when evaluating project proposals. In fact, they don't seem to play a development role. As a result, small investors are fooled by businesses.

3. There is an excessive delay in the allocation process. This will discourage small investors from approaching the primary market to invest their money.

4. In general, investors tend to prefer bonds such as preferred stocks and corporate bonds. They are hesitant to invest in stocks. There is risk aversion in the new issue market. This hinders a healthy primary market.

5. There are functional and institutional gaps in the new issue market. The wholesale market has not yet been developed for new issues and primary markets.

6. For investors from quasi-urban and rural areas, they have to bear more costs to send the application to the centers where banks are allowed to accept them. Related costs include bank charges, postage and more. All of this will discourage small local investors.

Over the years, SEBI and the central government have devised a set of regulatory measures to boost new issue markets.

B. Government securities market

This is another component of the capital markets. Government. We will borrow funds from banks, financial institutions and the general public to raise funds for expenditures that exceed revenues. One of the important sources of borrowed funds is government issuance. Securities. government. Securities are products issued in the form of marketable debt by central government, state governments, semi-government agencies, public institutions, and financial institutions such as IDBI, IFCI, and SFC. They consist of dated securities issued by both the central and state governments, including government-owned financial institutions. These are government debts. Government. Securities are also known as gilts. Gold refers to gold. Therefore, the government. Securities or gilts are as pure as gold. This means that they are completely risk-free (there is no default risk).

The securities market is a market with a government. Securities are traded. It is the most important market in any financial system . Therefore, it is a benchmark for other markets. Government securities are issued due to the following issues:

1. Central government
2. State government
3. Semi-governmental authorities such as local governments (city companies, local governments, etc.)
4. Autonomous bodies such as metropolitan authorities, port trusts, development trusts, and state power commissions.
5. Public sector companies
6. Other government agencies such as SFC, NABARD, LDB, SIDC, Housing Commission.

Features of the Gilt Market

1. The gilt market is one of the oldest markets in India. The market for these securities is an important part of the Indian stock market. The main characteristics of the government securities market are as follows.
2. The supply of government bonds in the market arises from the issuance of central government, local governments, other semi-governmental and autonomous bodies as described above.
3. Government securities are also held by the Reserve Bank of India (RBI) for the purposes and sale of these securities and for use as an important means of financial management.
4. Securities issued by government agencies are government-guaranteed securities and are completely secure with respect to interest payments and principal repayments.
5. Gilts bear a fixed interest rate that is generally lower than the interest rates of other securities.

1. The maturity of these securities is fixed.
2. Interest on government securities is paid semi-annually.
3. Interest on these securities is exempt from income tax in accordance with the restrictions under the Income Tax Act.
4. The gilt market is an “over-the-counter” market and each sale and purpose must be negotiated individually.
5. The gilt market is basically limited to institutional investors.

C. Financial institution

Financial institutions are the most active component of India's capital markets. There are special financial institutions that provide medium- to long-term loans to large companies. Such institutions can help promote new companies, expand and develop existing companies, and more. The major special financial institutions in the Indian capital are IDBI, IFCI, ICICI, UTI, LIC, NIDC and SFC.

New financial products in capital markets

As the capital markets evolve, new financial products are being introduced to meet market demands. Some of the new financial products introduced in recent years may be briefly described as:

1. Floating rate notes: Interest rates on these bonds are not fixed. This is a concept introduced primarily to deal with market declines or to provide a cushion when interest rates in the economy fall. This helps issuers hedge losses caused by interest rate fluctuations. Therefore, there are provisions to mitigate interest risk and guarantee minimum interest on your investment. In India, SBI was the first to introduce the Fed for retail investors.

2.     Zero interest rate bond: There is no regular interest payment. These are sold at a significant discounted price. These can be converted into stocks or convertible bonds

3.     Significant Discount Bonds: These bonds are sold at a significant discount price at the time of issuance. These are zero coupon bonds that have a very long maturity (for example, 15 years). There is no interest payment. IDBI was the primary financial organization to supply DDB in 1992.

4.     Auction-related corporate bonds: These are hybrids of CP and corporate bonds. These are safe, redeemable and non-convertible products. Interest in them is determined by the market. These will be placed privately in the bid. ANZ Grind lays has designed this new instrument for the Ashok Leyland Finance.

5.     Secure Premium Notes: These are issued with removable warrants. This warrant entitles the holder to apply for or request an allotment of one share only if the SPN has been paid in full. Conversion of removable warrant to shares will be made within the deadline notified by the company. There is a lock-in during the period when interest is not paid on the investment amount. TISCO was the first company to publicly issue SPN (1992) with proper issuance.

6.     Option Bonds: Option bonds may be converted into shares or preferred stock at the investor's option, subject to the conditions stated in the prospectus. These can be cumulative or non-cumulative. For cumulative bonds, interest is accumulated and paid at maturity. For non-cumulative bonds, interest is paid on a regular basis.

7.     Warrants: Stock warrants are an option for investors to purchase a specified number of shares at a specified price over a specified period of time. Warrant holders must abandon the warrant and purchase shares by paying cash called the "strike price" of the warrant. When you exercise the option, the warrant holder becomes a shareholder. Warrants are not yet popular in India due to the complex nature of musical instruments.

8.     Preferred stock with warrants: These have a certain number of warrants. These warrants give holders the right to apply for shares at a premium at any time in one or more stages from the third to fifth year of the allotment date.

9.     Convertible Bonds with Detachable Stock Warrants: This product gives holders the option to purchase a specified number of shares from the company at a given price within a certain period of time.

10. Interest-free convertible bonds: With these products, interest is not paid to the holder until the lock-in period. After the notice period, these bonds will be automatically and forcibly converted into shares.

11. Fully Convertible Bonds with Interest: This product has no interest for the specified period. After this period, you will be given the option to apply for shares at a premium with no additional payment. However, interest will be paid at the prescribed interest rate from the first conversion date to the second / final conversion date and equity will be issued in lieu of interest.

12. Non-voting shares: The 1997 company bill proposed allowing companies to issue non-voting shares. These are quasi-equity products with different rights. These shares do not have voting rights. Their split ratios are also not pre-determined like preferred stocks.

13. Reverse Float Bonds: These bonds are the latest entrants to the Indian capital markets. These are floating rate bonds that are inversely proportional to the short-term interest rate

14. Perpetual Bonds: These are debt securities with no maturity date. Investors receive a flow of interest payments forever.

Key takeaways:

1. A capital market is simply a market for long-term funds.
2. A market for buying and selling equity, debt and other securities. Generally, we deal with long-term securities with a maturity of more than one year.
3. Capital markets are the meeting place for individuals or organizations in these two broad categories.
4. The primary market is an important component of the capital market. In the primary market, securities are purchased directly from the issuer.
5. The primary market is a new problem market. Also called a new market. It's a market for fresh capital.
6. Based on the prospectus offer, investors apply for the number of securities they are willing to take.
7. In short, book building means selling securities to investors at an acceptable price with the help of an intermediary called a bookrunner.
8. A private placement is the issuance of a company's securities directed directly to one investor or a small group of investors.
9. A rights issue is a way for an existing company to raise money in the market. In this way, the existing company issues shares to the existing shareholders in proportion to the number of shares already held by the existing shareholders.
10. Financial institutions are the most active component of India's capital markets. There are special financial institutions that provide medium- to long-term loans to large companies.

3.2 Recent trends in new issue market - Stock Exchanges-Functions-Structure of stock exchanges-BSE-NSE- listing of securities- Advantages of listing-methods of trading in stock exchanges-on line trading-stock indices

Stock Exchange

The first stock exchange organized in India was the Bombay Stock Exchange. It started in 1877. Later, the Armaderbird Stock Exchange and the Calcutta Stock Exchange were launched in 1894 and 1908, respectively. Currently, there are 24 stock exchanges in India. In Europe, stock exchanges are often referred to as stock exchanges.

Stock Exchange / Meaning and Definition of Stock Exchange

This is an organized market for the buying and selling of corporation, government, and quasi-government securities. Body. It is the center of stocks, corporate bonds and government. Securities are bought and sold.

According to Pile, "a stock exchange is a market where securities listed on it can be bought and sold for either investment or speculation."

The Securities Contracts (Regulations) Act of 1956 states that stock exchanges are "organizations of individuals, whether incorporated or not, established to support, regulate, and manage businesses in the buying and selling and trading of securities. , Organization, or organization ".

According to Hartley Wizards, "a stock exchange is like a vast warehouse where securities are taken off the shelves and sold nationwide at a fixed price in a catalog called the official list."

In short, the stock exchange is the place or market where listed securities are bought and sold.

Features of the stock exchange

1. An organized capital market.
2. Some are incorporated and some are not (groups or individual groups).
3. An open market for buying and selling securities.
4. Only listed securities can be traded on the stock exchange.
5. Works under established rules and regulations.
6. Securities are bought and sold for investment or speculative purposes.

Economic function of the stock exchange

Stock exchanges perform the following important economic functions:

1. Secure liquidity to capital: The stock exchange provides a place to convert stocks and stocks into cash. Those who have surplus cash can invest in securities (by buying securities), and those who have shortage cash can sell their securities and convert them into cash.

2.     Continuous Market for Securities: Provides a continuous and ready market for buying and selling securities. It provides a ready market for those who want to buy and sell securities

3.     Mobilize Savings: Helps to mobilize savings and surplus funds for individuals, businesses and other institutions. This directs the flow of capital in the most profitable channels.

4.     Capital formation: Stock exchanges publish the correct prices for various securities. Therefore, people will invest in securities that generate higher returns. It promotes savings and investment habits among the people. In this way, the stock exchange promotes national capital formation

5.     Valuation of securities: The price at which the transaction takes place is recorded and published in the form of market quotes. From price quotes, investors can assess the value of their holdings.

6.     Economic Development: Promote national industrial growth and economic development by encouraging industrial investment. New and existing concerns raise capital through the stock exchange.

7.     Safeguards for Investors: Investor interests are highly protected by the stock exchange. Brokers must trade strictly in accordance with the rules set by the stock exchange. Therefore, they cannot overcharge investors.

8.     Barometer of Economic Situation: Stock exchanges reflect the changes taking place in a country's economy. Just as a weather clock tells you in which direction the wind is blowing, the stock exchange acts as an indicator of each stage of the business cycle (boom, recession, recession, recovery)

9.     Public Debt Platform: Government. You need to raise a huge amount of money for your development activities. The stock exchange acts as a government market. Securities. Therefore, stock exchanges provide a platform for raising public debt.

10. Supporting Banks: Stock exchanges help banks maintain liquidity by increasing the amount of highly marketable securities.

11. Securities Pricing: New issuance of issued securities in the primary market is based on stock exchange prices. Therefore, it helps in pricing securities.

Therefore, the stock exchange is very important to the country. It provides the mobility needed for capital. It guides the flow of capital to profitable and successful companies. It is essential for a company to function properly. Without a stock exchange, even the government will be difficult to borrow because of its various plans. It helps traders, investors, industrialists and bankers. Therefore, it is described as a business of business.

Benefits of the stock exchange

A. Benefits for investors

1. The stock exchange acts as a guide to friends, philosophers and investors by providing information.

1. About the prices of various securities.
2. Provide a market ready for buying and selling securities.
3. It increases investor liquidity.
4. Protect the interests of investors through strict rules and regulations.
5. It allows investors to know the present value of their securities.
6. Help investors make wise investment decisions by providing useful information about a company's financial position.
7. Listed securities holders can easily raise a loan by inserting it as collateral.

B. Benefits for businesses

1. Companies are enjoying a higher reputation and credibility in the market. The image of the corporate goes up.
2. Companies can raise large amounts of capital from various types of securities.
3. It enjoys the market for that stock.
4. The market price of stocks and corporate bonds will be high. This enhances the bargaining power of the company in the event of a merger or merger.

C. Benefits for the community and the country

1. The stock exchange encourages people to sell their savings and invest in stocks and corporate bonds.
2. Through capital formation, stock exchanges allow companies to undertake expansion and modernization. The stock exchange is an "Alibaba cave" where the business community withdraws unlimited money.
3. Help the government raise funds through the sale of government securities. This allows the government to embark on projects of national importance and social value.
4. Direct your savings to productive channels.
5. It helps to make better use of national financial resources.
6. It is an effective indicator of the country's general economic situation.

Stock exchange member

Only exchange members can buy and sell securities on the stock exchange floor. Non-members (customers) can only buy and sell securities through brokers who are members of the stock exchange. To trade securities on an authorized stock exchange, brokers must register their name with SEBI as a broker.

Brokers are major players in the secondary market. They have the potential to act in a variety of abilities as principals, agents, speculators, and so on.

Types of stock exchange members

The various types of members of the stock exchange are:

1. Jobbers: -They are stock exchange securities dealers. They cannot trade on behalf of the masses. They buy and sell securities in their own name. Their main job is to make a profit from price fluctuations.

2. Commission brokers: -They are none other than brokers. They do not buy or sell securities on behalf of their clients due to fees. You are allowed to do business directly with non-members. They do not buy or sell under their own name.

3. Tarawaniwaras: -They are like craftsmen. They process transactions on a commission basis for brokers. They may buy and sell securities in their accounts and act as brokers on behalf of the general public.

4. Sub-broker: -The sub-broker is an agent for the stock broker. They are hired by brokers to get a business. They cannot run a business in their own name. They are also known as Remisier.

5. Arbitrators: -They are brokers. They buy securities in one market and sell the same in another to make opportunistic profits.

6. Certified Clerk: -A Certified Clerk is a clerk appointed by a stock exchange to support the business of securities trading.

Speculation

Speculation is an attempt to gain capital gains from stock market scrip price fluctuations in a short period of time. A person who makes such a transaction is called a speculator. They buy and sell securities frequently and are not interested in holding them for long periods of time. Speculation carries a high risk. If the speculator's expectations come true, he can make a profit, but if that doesn't work, the loss can be harmful.

Types of speculators

For different types of speculators:

1. Bull: Bull or Teziwara is a speculator who buys stock in the hope of selling at a higher price in the future. He believes that prices are lower now and will rise in the future.

2. Bear: A bear or Mandiwara is a speculator who sells securities with the intention of buying them at a lower price at a later date. He expects prices to fall within the future.

3. Lame duck: Lame duck is a bear speculator. He finds it difficult to fulfill his promises and struggles like a lame duck. This happens because the securities are not available in the market he has agreed to sell, and at the same time the other party has no intention of deferring the transaction.

4. Stag: Stag is a member who does not buy or sell securities. He applies for shares within the new issue market. He expects the stock to rise soon and sell at a premium.

5. Wolves: Wolves are fast speculators and brokers. He quickly recognizes changes in market trends, trades quickly, and makes quick profits.

Speculative transactions

Some of the speculative transactions are:

1. Options Trading: This is an arrangement or right to buy or sell securities at a given price on or before a specified date in the future.

2. Wash Sale: A device that allows speculators to make huge profits by drawing misleading pictures in the market. This is a sort of fictitious transaction during which a speculator sells a security and buys it at a better price through another broker. Therefore, he creates false or misleading opinions on the market about the price of securities.

3. Rigging: The process of creating artificial conditions in the market that boost the market value of a particular security. Bulls buy securities, generate demand for them, and sell them at high prices.

4. Arbitrage: The process of buying securities from a low-priced market and selling them in another high-priced market.

5. Cornering: Speculators may make up the entire or majority of the supply of a particular security with the aim of creating rarity for existing contracts. This is called cornering.

6. Blank transfer: If the transferor (seller) simply signs the transfer form without specifying the transferee (buyer) name, it is called a blank transfer. In this case, you can transfer more shares simply by issuing a transfer certificate together with the share certificate. No new transfer certificate is required for each transfer. Therefore, you can save on registration fees, stamp duty, and other costs.

7. Margin Trading: In this method, the client opens an account with the broker. The client deposits cash or securities in this account. He also agrees to always keep a minimum margin in his account. When a broker buys securities on behalf of a client, it is deducted from his account (the client's account) and vice versa. If you have a debit balance, it will be automatically protected by the client's securities at the broker. If the minimum agreed amount is not reached, the client will need to deposit more money in his account or more securities. If the price is favourable, the client can instruct the broker to sell the security. When such securities are sold, they will be credited to his account. The client may have a larger margin to make further purchases.

Factors Affecting Stock Exchange Prices

Stock exchange prices depend on the following factors:

1. The financial position of the company
2. Supply and demand location
3. Lending interest rate
4. FII attitudes and trends in global financial markets.
5. Government. Policies (credit policy, financial policy, tax policy, etc.)
6. Business cycle
7. Speculative activity

Defects in the Indian Stock Exchange (or Capital Markets)

The Indian stock market suffers from many weaknesses.

The key weaknesses are:

1. Speculative activities: Most stock exchange transactions are forward contracts with a speculative motive to derive profits from short-term price fluctuations. There are only a few real transactions. Therefore, the market is unaffected by the free interaction of supply and demand for securities.

2. Insider Trading: Insider trading is commonplace in India. Insiders are people who have access to undisclosed price-sensitive information. Thanks to their position in the company, they use such information for their own benefit.

3. Liquidity: Indian stock exchanges suffer from low liquidity. There are about 8,000 listed companies in India, but only a few are actively trading. Only those securities are in flux. This means that the liquidity of other stocks is very low.

4. Decrease in variable securities: There is a shortage of variable securities on the Indian stock exchange. Only a small portion of the total inventory is for sale. Financial institutions and corporations’ control over 75% of scrips. But they aren't selling their holdings. UTI, GIC, LIC, etc. indulge in purchase rather than sale. This will result in a shortage of trading stock. Therefore, the market becomes very volatile. It is subject to simple price fixing.

5. Lack of Transparency: Many brokers violate regulations to fool the innocent investment community. Information about the volume of transactions executed at the highest and lowest prices is not available to investors. In short, trading on the stock exchange is not transparent.

6. High Volatility: The Indian stock market has been exposed to high volatility in recent years. Stock prices fluctuate from hour to hour. High volatility does not facilitate the smooth functioning of the stock market.

7. Financial Institution Advantages: India's stock market is dominated by a small number of financial institutions such as UTI, LIC and GIC. This means that these few financial institutions can have a significant impact on the stock market. This actually reduces the level of competition in the stock market. This is not a healthy trend for stock market growth.

8. Merchant Banker Competition: The increase in the number of merchant bankers in the stock market has led to unhealthy competition in the stock market. Merchant bankers help raise funds for projects where there are no malicious promoters. Investors are the ultimate victims.

9. Lack of professionalism: Some brokers are very talented and professional. At the same time, the majority of brokers are less specialized. They lack proper education, business skills, infrastructure equipment and more. Therefore, they are unable to provide the proper service to their clients.

India's major stock exchanges

Currently, there are 24 publicly certified stock exchanges in India. Furthermore, OTCEI and NSE are beginning to function in Japan. Below is a brief description of the major SEs.

1. Bombay Stock Exchange (BSE)

BSE is one of the oldest stock exchanges in India and Asia. The "Native Stock Brokers Association" was formed and established in 1887. BSE is a very active stock exchange and holds the largest number of listed securities in India. Almost 70% to 80% of all transactions in India are conducted independently at BSE. By March 2006, there were 3,049 companies traded on BSE. BSE is now a national stock exchange as BSE has begun to allow members to install computer terminals outside the city of Mumbai (formerly Bombay). It is the only stock exchange in India that is permanently approved by the government.

In 2005, BSE was given the status of a full-fledged public limited company with the new name "Bombay Stock Exchange Limited". BSE has computerized its trading system by introducing BOLT (Bombay on Line Trading) in March 1995. BSE operates BOLT with 50,000 rupees (500,000) traders a day in 275 cities. The average daily sales of BSE is close to Rs. 200 rolls.

Here are some facts about BSE:

1. The BSE Exchange is the first in India to launch US dollar adaptation of equity derivatives, free float indexes and BSE Sensex, and the exchange has promoted Internet trading policies.
2. The BSE Exchange was the first exchange in India to obtain ISO approval for supervision, authorization and settlement.
3. The BSE Exchange is India's first private service for economic training.
4. Its online trading system is implemented by the internationally renowned information security management system standard.

Bombay Online Trading System (BOLT)

BSE Online Trading was founded in 1995 and is the first exchange to be founded in Asia. It has the largest number of listed companies in the world and currently has more than 7,700 traded commodities and 4937 companies listed on the exchange.

Investors only need an online trading account to trade online through BSE. Trading can be done during trading hours from anywhere in the world. In fact, BSE has replaced the open cry system with automated trading. The Open Cry System is a common communication method for stock exchange investors to shout and use hand gestures to convey and transfer information about buy and sell orders. This is typically done in the "pit" area of   the trading floor and involves many face-to-face interactions. However, using an electronic trading system makes trading easier, faster and cheaper. There is less tendency for market makers and brokers / dealers to operate.

The Bolt system has allowed the exchange to achieve the following objectives:

1. Reduce and eliminate operational inefficiencies inherent in manual systems
2. Improve the trading capacity of stock exchanges
3. Improve market transparency and eliminate unmatched transaction and reporting delays
4. Promote fairness and quick matching
5. Provides online and offline monitoring, control and monitoring of the market
6. Smooth market operations using technology while maintaining the flexibility of traditional trading practices
7. Centrally set various limits, rules, and controls
8. Provide transaction data to the broker via electronic media to interface with the broker's back office system
9. Provides a sophisticated and easy-to-use graphical user interface (GUI) for all users of the system
10. Provide public information about scrip prices and indexes to all users of the system, enabling stock exchanges to sell the information.
11. Provide analytical data for use on the stock exchange

2. National Stock Exchange (NSE)

The establishment of the National Stock Exchange of India (NSE) in 1992 is one of the key developments in India's capital markets. Since 1991, the industry and investment community have felt the need. NSE is gradually becoming a major stock exchange in terms of technology, systems and practices. NSE is India's largest and most modern stock exchange. In addition, it is the third largest exchange in the world after the two exchanges operating in the United States.

NSE boasts a screen-based trading system. At NSE, the available systems provide both trading members and participants with complete market transparency of trading operations to find the right match. NSE does not have a trading floor like a traditional stock exchange. Trading is screen-based, using a fully automatic ordering machine. The screen shows the entire market information at the push of a button. At the same time, the system provides concealment of the identity of market operations. The screen shows all the information that is dynamically updated. Market participants are sitting in their offices, so they have all the benefits of back-office support.

Ability to contact their members. The NSE trading segments are:

1. Wholesale Bond Market Segments,
2. Capital market segments, and
3. Trading futures and options.

List of securities

Stock exchanges do not handle securities for all companies. Only listed securities are traded on the stock market . To list a security, the company must apply to the stock exchange. The stock exchange decides whether to list the company's securities. If the stock exchange grants permission to trade securities

Such companies will then be included in the official trading list of the stock exchange. This is technically known as the listing of securities. Therefore, listing a security means permission to formally cite stocks and bonds on the trading floor of the stock exchange. Listing a security is a sanction on the right to trade the security on the stock exchange. In short, listing means approving securities traded on the stock exchange. If the security is not listed, you are not allowed to trade on the stock exchange.

Purpose of listing

The main purposes of the list are:

1. To ensure proper supervision and control of securities transactions.
2. To protect the interests of shareholders and investors.
3. To avoid concentration of economic power.
4. To secure a securities marketing facility.
5. To ensure the liquidity of securities.
6. Regulate securities transactions.

List benefits

A. Benefits for the company: -

1. Provides a continuous market for securities (securities include stocks, corporate bonds, bonds, etc.)
2. Increase the liquidity of securities.
3. It enhances the fame of the company.
4. It ensures wide publicity.
5. Easier to raise funds.
6. It gives the company some tax benefits.

B. Benefits for Investors: -

1. Provides transaction security.
2. Make it easy to dispose of securities quickly when needed. This means that listing increases the liquidity of securities.
3. It gives securities holders some tax benefits.
4. Listed securities require higher collateral value for bank loan purposes.
5. Provides an indirect check for operations by the administrator.

Disadvantages of the list

1. It leads to speculation
2. The value of listed securities may fluctuate significantly. This can damage your company's reputation.
3. Disclose important information such as dividends and declared bonuses to competitors.
4. Companies have to spend a lot of money on the process of putting securities public

Classification of listed securities

Listed stocks are generally divided into two categories: Group A stocks (clearing securities) and Group B stocks (unclearing securities). Group A stocks represent large, well-established companies with a broad investor base. These stocks are actively traded. Futures trading is permitted on Group A stocks. These facilities are not available for Group B shares. These are not actively traded. The forward function is not available for these securities.

Listing requirements (listing procedure)

Companies that intend to list their securities on the exchange must meet certain requirements. Application for listing is made in the prescribed format. Must be supported in the following documents:

a) Memorandums and articles.

b) A copy of all prospectuses or statements instead of prospectuses.

c) A copy of the contract with the balance sheet, audited account, promoter, underwriter, broker, etc.

d) Consent from SEBI.

e) Details of issued and corporate bonds and confiscated shares.

f) Details of declared bonus issuance and dividends.

g) An overview of the history of the company.

h) Agreement with Managing Directors, etc.

i) Promises regarding compliance with the provisions of the Companies Act and the Securities Contract (Regulatory) Act and the rules set forth therein.

After applying to the stock exchange, the stock exchange listing committee will review the details of the application. You need to make sure that your company meets the requirements or criteria for listing

Trading procedure on the stock exchange (transaction mechanism or trading method on the stock exchange)

Outsiders cannot buy or sell securities on the stock exchange. They have to approach the broker. Transactions can only be made through brokers. They are members of the stock exchange. For trading on the exchange, follow these steps:

1. Broker selection: Individuals cannot buy or sell securities directly on the stock exchange. He can only do so through a broker. Therefore, he needs to choose a broker to buy or sell. The intended investor or seller may appoint his bank for this purpose. Banks may help you choose a broker.

2.     Place an order: After selecting a broker, the next step is to place an order to buy or sell securities. The broker will also guide the client about the type of security to buy and when it is appropriate. If the client sells the security, the broker shall notify him of the favorable time of the sale.

3.     Contract conclusion: The trading floor of a stock exchange is divided into various parts called trading posts. Different posts deal with different types of securities. The broker's authorized clerk goes to the relevant post and announces his intention to buy or sell securities. If the other party agrees, the transaction will be completed. The bargains are listed in the notebook by both parties. A confirmation note is created and passed to the client as soon as the order is fulfilled.

4.     Contract: After issuing the confirmation memo, sign the contract between the broker and the client. This contract includes transaction fees (broker fees), the number of shares bought and sold, and the prices bought and sold

5.     Settlement: The settlement includes payment to the seller of the shares and delivery of the share certificate to the buyer of the shares after receiving the price. The settlement procedure depends on the nature of the transaction. All transactions on the stock exchange can be divided into two ready delivery contracts and forward delivery contracts.

6.     Instant Delivery Agreement: An instant delivery agreement includes the actual payment in cash by the buyer and the delivery of securities by the seller. Instant delivery contracts are settled on the same day or within the period set by the stock exchange authorities.

7.     Forward Contracts: These contracts are entered into unintentionally for the delivery of securities. Forward delivery securities traders are interested in profits from future price fluctuations. Such transactions are settled on the settlement date set by the stock exchange authorities. Such an agreement may be postponed to the next settlement date if both parties agree. Such postponements are called "carryovers" or "badras." Therefore, "carryover" or "badra" means the postponement of a transaction from one settlement period to the next.

Rolling settlement

Rolling settlement was introduced instead of account period settlement. In January 1998, SEBI introduced a rolling payment system. With this payment system, transactions executed on a particular day are settled based on that day's net debt. Currently, transactions related to rolling settlement are settled on a T + 2 day basis. Where T represents the trading date. This means that transactions executed on the first day (for example, Monday) must be settled on the third day (Wednesday), that is, after the two-day gap.

This cycle is going well, resulting in a large series of transactions delivered daily. Rolling payments help increase market liquidity, as daily transactions are fully settled. Since January 2, 2002, all scripts have been co-created.

Key takeaways:

1. The first stock exchange organized in India was the Bombay Stock Exchange. It started in 1877
2. According to Hartley Wizards, "a stock exchange is like a vast warehouse where securities are taken off the shelves and sold nationwide at a fixed price in a catalog called the official list."
3. The stock exchange is very important to the country. It provides the mobility needed for capital.
4. It guides the flow of capital to profitable and successful companies. It is essential for a company to function properly.
5. Without a stock exchange, even the government will have difficulties to borrow because of its various plans.
6. Only exchange members can buy and sell securities on the stock exchange floor.
7. Non-members (customers) can only buy and sell securities through brokers who are members of the stock exchange.
8. Speculation carries a high risk. If the speculator's expectations come true, he can make a profit, but if that doesn't work, the loss can be harmful.
9. BSE Online Trading was founded in 1995 and is the first exchange to be founded in Asia.
10. The establishment of the National Stock Exchange of India (NSE) in 1992 is one of the key developments in India's capital markets

References:

1. Kohn, Meir: Financial Institutions and Markets, Tata McGraw Hill.
2. Bhole L.M: Financial Institutions and Markets, Tata McGraw Hill.
3. Desai, Vasantha: The Indian Financial System, Himalaya Publishing House.
4. Machiraju.R.H: Indian Financial System, Vikas Publishing House.
5. Varshney, P.N., & D K Mittal, D.K.: Indian Financial System, Sultan Chand & Sons
6. Pathak, V. Bharati: Indian Financial System, Pearson Education.
7. Gordon E. &Natarajan K.: Financial Markets & Services, Himalaya Publishing House.