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Unit 2 Capital Market Operations

Functions of New Issue Market Contents of Offer Document Methods of Floating New Issue Procedure for Initial Public Offer (IPO) SEBI Guidelines Players in New Issue Market Book Building Process Secondary Market Operations NSE,BSE,OTCEI,SEBI

Secondary Market Operations


Meaning: The market where existing securities are traded is referred as Secondary Market or Stock Market

Stock exchanges are the important ingredient


of the Capital Market

As per the Securities Contracts Regulation Act 1956, a stock exchange has been defined as follows : It is an association organization or body of individuals whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying , selling and dealing in securities

In brief, Stock exchanges


Constitute a Market where securities issued by

the Central and State governments,


Public Bodies and Joint stock companies are traded.

Functions/Services of Stock Exchanges:


1. The stock market plays very important role in

Financial System
2. It performs several economic functions and

renders services to the investors, Companies


and to economy as a whole.

The functions are summarized as follows: 1. Liquidity and Marketability of Securities:


Stock exchanges provide liquidity to securities Since securities can be converted into cash at any time according to the discretion of the investor by selling them at the listed prices.

Marketability of Securities:
They facilitate buying and selling of securities at listed prices by providing continuous Marketability to the investors and provides a ready outlet for dealing in securities.

2. Safety of Funds:
Stock exchanges have to function under strict rules and

regulations in order to ensure the safety of funds invested.


Over trading , illegitimate speculation etc. are prevented through carefully designed set of rules.

This helps to strengthen the investors confidence and promote larger investment.

3. Supply of Long Term Funds: Whenever a security is transacted , one investor is

substituted by another , but the company is assured of


long term availability of funds.

4. Flow of Capital to Profitable Ventures:


The Profitability and Popularity of companies are reflected in Stock Prices The prices quoted indicate the Relative Profitability and

Performance of companies.
Funds tend to be attracted towards securities of Profitable companies and this facilitates the flow of capital into profitable channels.

5. Motivation for Improved Performance:

The performance of the company is reflected on the

prices quoted in the stock market

This public exposure makes a company conscious of


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

improve its performance further.

6. Promotion of Investment:

Stock exchanges mobilize the savings of the public

and promote investment through Capital Formation.


Helps to channelize the surplus funds with individuals and institutions for productive ventures.

7. Reflection of Business Cycle:

The changing business conditions in the economy are

immediately reflected on the stock exchanges


Thus a stock market portrays the prevailing economic

situation instantly to all concerned so that suitable


actions can be taken.

8. Miscellaneous Services:

Stock exchanges Supplies securities of different

kinds with different maturities and yields

It enables the investors to diversify their risks by a wider portfolio of investment

It also inculcate saving habits among the


community and paves the way for capital formation.

It guides the investors in choosing securities by


supplying the daily quotation of listed securities

and by disclosing the trends of dealing on the stock


exchange. It enables companies and government to raise

resources by providing a ready market for their


securities.

NSE: National Stock Exchange


The establishment of NSE was a Step to overcome the Deficiencies

of the existing stock market


and to bring Indian Financial Markets in line with International Markets.

Weaknesses of Indian Stock Markets were identified:

1. Inefficient and Outdated Trading system


2. Outdated Settlement System

3. Inability of various stock exchanges to function


Cohesively in terms of legal structure, regulatory

framework, trading and settlement procedures

Formation of NSE:
The National Stock Exchange of India was set up by Government of India on the recommendation of Pherwani Committee in 1991. The NSE was formed in November 1992

promoted by IDBI, ICICI, LIC, GIC and its


subsidiaries, State Bank of India.

Objectives: NSE has the Following Objectives: 1. To establish Nation wide trading facility for all types of securities 2. To facilitate equal access to investors across the country 3. To provide fairness, efficiency and transparency to the securities trading 4. To enable shorter settlement cycles 5. To meet International Securities Market Standard

Major Features: NSE Employs a fully automated screen based trading system, investors can trade from 400 cities. The automated trade matching system secures the best price available in the market to the investor

Bombay Stock Exchange (BSE)


BSE is the oldest Stock Exchange in Asia It was established as early as 1875 itself Historically it was an open outcry floor trading exchange which was switched to an electronic trading system in 1995. It took the exchange only fifty days to make this transition. This automated, screen-based trading platform called BSE On-line trading (BOLT) had a capacity of 8 million orders per day.

Over The Counter Exchange of India


Presently Stock Market Consists of 22 Regional Stock exchanges And Two National Stock Exchanges known as 1. NSE 2. OTCEI

The OTCEI was incorporated in 1990 as a company under the companies act 1952. It became fully operational in the year September 1992
The OTCEI is recognized by the Govt. of India as a recognized Stock Exchange under Section 4 of the Securities Control Regulation Act, 1956.

Features of OTCEI:
1. Trading on the OTCEI takes place through a net work of computers of OTC dealers located at different places within the same city and even across the cities 2. These computers allow dealers to quote , query and transact through a central OTC computer, using the telecommunication links. 3. Small and Medium sized companies may be enlisted on the OTCEI

4. A company which is listed on any other recognized stock exchange in India is not permitted simultaneously for listing on OTCEI
5. The OTCEI has been promoted by all India financial institutions, namely UTI,ICICI,IDBI, LIC,SBI etc. ________________________________________

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