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Contents

Various types of financial markets

What is a Capital Market?
Nature of Capital Market
Capital Market Efficiency
Types of Capital Markets
Primary Market
Methods of Raising Capital in Primary Market
Features of Primary Market
Secondary Market
Features of Secondary Market
Participants in the Secondary Market
Products dealt in Secondary Market
Difference between primary and secondary market
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What are the various types

of financial markets?
The Financial Markets can
broadly be divided into:

MONEY MARKET
CAPITAL MARKET

Capital Market

The market where investment

instruments like bonds, equities and
mortgages are traded is known as the
Capital Market.

The primal role of this market is to make

investment from investors who have
surplus funds to the ones who are
running a deficit.
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Significance of Capital
Market

Link between savers and investors

Stability in security prices
Speed up economic growth and development
Helps in capital formation
Helps in creating liquidity

Capital Market Efficiency

The degree to which the present asset
price accurately reflects current
information in the market place.
Forms:
Weak
Semi strong
Strong
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Types of Capital Markets :

PRIMARY MARKET :

A market where the issuers access the

prospective investors directly for
funds required by them either for
expansion or for meeting the
working capital needs. This process
is called disintermediation where the
funds flow directly from investors to
issuers.
The primary market is also called new
issue market.

Features of Primary
This is the market for new long term capital. The primary
Market:
market is the market where the securities are sold for the

first time. Therefore it is also called New Issue Market

(NIM).
In a primary issue, the securities are issued by the
company directly to investors.
The company receives the money and issue new security
certificates to the investors.
Primary issues are used by companies for the purpose of
setting up new business or for expanding or modernizing
the existing business.
The primary market performs the crucial function of
facilitating capital formation in the economy.
The new issue market does not include certain other
sources of new long term external finance, such as loans
from financial institutions. Borrowers in the new issue
market may be raising capital for converting private
capital into public capital; this is known as going public.
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Methods of raising capital in

the Primary Market:

Public issue
Private placement
Euro issues
Government securities
Offer for sale
Right issue
Electronic initial public offering
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SECONDARY MARKET :
A market where securities are
traded after being initially offered
to the public in the primary
market and/or listed in the stock
exchange. Majority of the trading
is done in the secondary market.
This market comprises of Equity
market and Debt Market.
Secondary market provides liquidity
to the securities on the
exchange(s) and this activity
commences subsequent to the
original issue.
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Features of Secondary
Markets

Help in determining fair prices based on

demand and supply forces and all
available information
Provides easy marketability and liquidity
for investors
Facilitation in capital allocations in
primary market through price signalling
Enabling investors to adjust portfolios of
securities
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Participants in the
Secondary Market

Stock Exchange
Clearing Corporation
Depositories/ DP
Trading Member (Stock Broker)/
Clearing Member
Registrar to an Issue and Share
Transfer Agent

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What are the products dealt

in Secondary Markets ?

Equity shares

Debentures

Government securities

Bonds
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Difference between Primary

and Secondary Market
In the primary market, securities are
offered to public for subscription for the
purpose of raising capital or fund.
Secondary market is an equity trading
avenue in which already existing/preissued securities are traded among
investors.
Secondary market could be either auction
or dealer market. While stock exchange
is a part of an auction market.
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