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FMM Ch-1 Class-XII

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0% found this document useful (0 votes)
601 views5 pages

FMM Ch-1 Class-XII

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techknowcomedy
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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UNIT: IA FMM (805) Class - XII

AN OVERVIEWOF THE INDIAN SECURITIES MARKET


Market Segments
Securities markets provide a channel for allocation of savings to those who have a productive
need for them. The securities market has two interdependent and inseparable segments:
() Primary market and (ii) Secondary market.
Primary Market
Primary market provides an oppotunity to the issuers of securities,both
Government and corporations, to raise resources to meet their requirements of investment.
Securities, in the form of equity or debt., can be issued in domestic /international markets at face
value. discount or premium.
The primary market issuance is done either through public issues or private placement. Under
Companies Act. 1956, an issue is referred as public if it results in allotment of securities to 50
investors or more. However, when the issuer makes an issue of securities to a select group of
persons not exceeding 49 and which is neither a rights issue nor a public issue it is called a
private placement.
Secondary Market
Secondary market refers to a market where securities are traded after being offered to the public
in the primary market or listed on the Stock Exchange. Secondary market comprises of equity.
derivatives and the debt markets. The secondary market is operated through two mediums.
namely. the Over-the-Counter (OTC) market and the Exchange-Traded market. OTC markets are
informal markets where trades are negotiated.
Key Indicators of Securities Market
Indes
An Index is used to give information about the price movements of products in the
financial, commodities or any other markets. Stock market indices are meant to capture the
overall belhaviour of the equity markets. The stock market index is created by selecting a group
of stocks that are representative of the whole market or a specified sector or segment of the
market. The blue chip index of NSE is S&P CNX Nifty.
Market Capitalisation
Market capitalisation is defined as value of alllisted shares on the country's exchanges. It is
computed on adaily basis. Market capitalisation of aparticular company on a particular day can
be computed as product of the number of shares outstanding and the closing price of the share.
Here the number of outstanding shares reters to the issue size of the stock,
Market Capitalisation Closing price of share *Numnber of outstanding shares
Similarly. to compute the market capitalization ofall companies listed on an Exchange we
aggregate the market capitalization of all the companies traded on the Exchange.
Market Capitalisation Ratio
The market capitalization ratio is defined as market capitalization of stocks divided by
GDP. I is used as a measure of stock market size.
Turnover

1|
Turnover for a share is computed by multiplying the traded quantity with the price at
which the trade takes place. Similarly, to compute the turnover of the companies listed at the
Exchange we aggregate the traded value of all the companies traded on the Exchange.
Turnover Ratio
The turnover ratio is defined as the total value of shares traded on a country's stock
Exchange for a particular period divided by market capitalization at the end of the period.
It is used as a measure of trading activity or liquidity in the stock markets.
Turnover Ratio= Turnover at Exchange /Market Capitalisation at Exchange
Produets and Participants
Produets
Financial markets facilitate reallocation of savings from savers to
are linked to investments by avariety of
entrepreneurs. Savings
intermediaries through a range of complex
financial products called "seeurities". Under the Securities
Contracts (Regulation) Act
(SC(R)A]. 1956. "securities" include
() shares, bonds, seripts, stocks or other marketable securities of like
nature in or of any
incorporate company or body corporate.
(ii) government securities.
(iii) derivatives of securities.
(iv) units of collective investment scheme,
(V) interest and rights in securities, and security receipt or any
by the central government. other instruments so declared
Broadly Securities can be of three types -
i. Equities,
ii. Debt securities and
iii. Derivatives.
Participants of the Seeurities Market
The securities market has essentially
three categories of participants
(i) The investors,
(i) The issuers,
(iii) The intermediaries
These participants are regulated by the
(Regulator of the Seeurities Market )
Securities and ENchange Board of India (SEBI),
ii. Reserve Bank of India (RBI),
iii. Ministry of Corporate Affairs (MCA) and
iv. The Department of Eeonomic Affairs (DEA) of the Ministry of Finance.
Market Segments and their Products
The Exchange (NSE) provides trading in four ditferent segments- Wholesale Debt Market,
Capital Market. Futures and Options and Currency Derivatives Segment
(i)Wholesale Debt Market (WDM) Segment: This segment at NSE commenced its operations
ne 199,4 It providesthe trading platform for wide range of debt securities which includes
Slate andCentral Govenent securities, T-Bills. PSU Bonds, Corporate
debentures.
Comimercial Papers. Cetificate of Deposits ete
2|
(ü) Capital Market (CM) Segment: This segment at NSE commenced its operations in
November 1994. It offers a fully automated screen based trading system, known as the National
Exchange for Automated Trading (NEA T) system. Various types of securities e.g. equity shares,
warrants, debentures etc. are traded on this system.
(ii) Futures &Options (F&O) Segment: This segment provides trading in derivatives
instruments like index futures, index options, stock options. and stock futures, and commenced
its operations at NSE in June 2000.
(iv) Currency Derivatives Segment (CDS) Segment: This segment at NSE commenced its
operations on August 29, 2008. with the launch of currency futures trading in US Dollar-Indian
Rupee (USD-INR), Trading in other curreney pairs like Euro-INR, Pound Sterling-INR and
Japanese Yen-INR was further made available for tradíng in February 2010. -Interest rate
futures was another product made available
for tradingon this segment with effect from August 31, 2009.
Reforms in Indian Securities Markets
Over a period. the lndian securities market has undergone remarkable changes and grown
exponentially. particularly in terms of resource mobilization. intermediaries, the number of listed
stocks, market capitalisation, turnover and investor population. The following paragraphs list
the principal reform measures undertaken since 1992.
Creation of Market Regulator Securities and Exchange Board of India (SEBI), the
securities nmarket regulator in India, was established under SEBI Act 1992, with the main
objective and responsibility for
(i)Protecting the interests of investors in securities,
(ii)Promoting the development of the securities market, and
(iii) Regulating the seeurities market.
Sereen Based Trading: Prior to seting up of NSE. the trading on stock exchanges in India was
based on an open outery system. The system was inefficient and time consuming because of its
inability to provide immediate matching or recording of trades. In order to provide efficiency,
liquidity and transparency, NSE introduced a nation-wide on-line fully automated screen
based trading system (SBTS) on the CM segment on November 3, 1994.
Reduction of Trading Cyele: Earlier. the trading cycle for stocks. based on type of securities.
used to vary betwcen 14 days to 30 days and the settlement involved another fortnight. The
Exchanges. however. continued to have different weekly trading eycles, which enabled shifting
of positions from one Exchange to another. It was made mnandatory for all Exrchanges to follow
auniform weekly truding cycle in respect of seripts not under rolling settlement. ln December
2001, allscripts were moved torolling settlement andthe setlement period was reduced
progressively from T+5 to T+3 duys. From April 2003 onwards, T+2 days setlement cycle is
heing followed.
Equity Derivatives Trading: In orderto assist market participants in managing risks better
through hedging. speculation and arbitrage. SC(R) A was amended in 1995 to lift the ban on
options in securities Trading in derivatives. however, took off in 2000 with index futures after
suitable legal and regulatory framework was put in place. The market presently offers index
futures, index options, single stock futures and single stock options.
managedbythe
owned, controlled and t was set
up
exchanges were NSE., however,
Demutualisation: Historically. stock stock exchange suffered, and
the
brokers, ln case ofdisputes, integrity of structure, having ownership, management have a
with a pure demutualised governance in India
Currently, all the stock exchanges
trading with three different sets of people.
demutualised set up.
discussed before, the old settlement system was inefficient due to (1) ue
Dematerialisation: As of paper-based securities. To
obviate
and (ii) the physical movement
time lag for settlement establishment of
problems, the Depositories Act, 1996 was passed to provide for the
these ensuring free transferability of securities
depositories in securities with the objective of
with speed and accuracy.
CDSL. They have been set up to
There are two depositories in India, viz. NSDL and
instantaneous electronic transfer of securities. Demat (Dematerialised) settlement
provide
problems. To prevent physical certificates
has eliminated the bad deliveries and associated mandatory for all newly issued securities
from sneaking into circulation, it has been made
Now. the public listed companies making
to be compulsorily traded in dematerialised form.make the IP0 only in dematerialised form.
have to
IPO of any security for Rs. 10 crore or more
Corporation: The anonymous electronic order book ushered in by the NSE did not
Clearing thus necessitated some innovation
and
permit members to assess credit risk of the counter-party
clearing corporation, viz.
in this area. To address this concern, NSE had set up the first commenced its operations
National Securities Clearing Corporation Ltd. (NSCCL), which
in April 1996.
and promote awareness, the
Investor Protection: In order to protect the interest of the investors
Investor Education
CentralGovernment (Ministry of Corporate Affairs 1l) established the
objectives, the Exchanges and
and Protection Fund (EP) in October 2001. With the similar
investor claims, SEBI and the stock
SEBI also maintain investor protection funds to take care of
grievance.
exchanges have also set up investor grievance / service cells for redress of investor
and awareness
education
All these agencies and investor associations also organise investor
progranmes
overseas through issue
Globalisation: Indian companies have been permitted to raise resources
to invest in all types of
of ADRs. GDRs. FCCBs and ECBs. Further, FlIs have been permitted
by Fls
securities. including government securities and tap the domestic market. The investments
portfolio
enjoy full capital account convertibility. They can invest in acompany under
be increased up to
investment route up to 24o of the paid up capital of the company. This can
the sectoral cap/statutory ceiling. as applicable to the Indian companies concerned, by passing a
by its general
resolution of its Board of Directors tollowed by a special resolution to that effect
abroad. The
body. The Indian stock exchanges have been permitted to set up trading terminals from
Internet
trading platform of Indian exchanges is now accessible through the
anywhere in the world. RBI permitted two-Way fungibility for ADRs / GDRS, which means
ADRs/GDRs can cancel
that the investors (foreign institutional or domestie) who hold
it was known
them with the depository and sell the underlying shares in the market. Earlier
as Department of Company Allairs
Launch of India VIX: Volatility index is aneasure of market' sexpectation of volatility over the near
expected to iluctuate in the near term.
ternt It measures the amont by whtch an underly ng Indes Is
based on the order book of the underlying index
on the Nitty 50 Index Option options. India's first volatility index. India VIX (based
prices) was launched by NSE in April 2008.
Direct Market Access: In April 2008. SEBI
allowed the direct market access (DMA) facility to the
institutional investors. DMA allows brokers to offer
trading svstem through the broker's their respective clients, direct access to
the
infrastructure without manual intervention by the broker. Exchange
Launch of Securities Lending & Borrowing Scheme: In
Borrowing mechanism was allowed. It allows market April 2008, the Securities Lending &
ettectively with less cost. participants to take short positions
Launch of Curreney Futures: On August 29, 2008, NSE
contracts in the USD-INR pair for the first time in India. launched trading in currency future
Trading in other currency pairs
INR. Pound Sterling - INR and
Japanese Yen was further made available for trading in like Euro
ASBA: Application Supported by Blocked Amount (ASBA) is a major primary March 2010.
It enables investors to apply for IPOs / FPOs and rights issues without market reform.
Instead. the amount is blocked in investors own making a payment.
the shares allotted goes out when allotment is
account and only an amount proportionate to
finalized.
Launch of Interest Rate Futures: On August 31.2009. futures on
the National Stock Exchange. interest rate was launched on
Issue of Capital and Disclosure Requirements (ICDR)
the SEB1 issued lssue of Capital and Disclosure Regulations 2009: In August 2009.
Requirements (ICDR)
replacing the Disclosure and Investor Protection (DIP) Guidelines 2000.Regulations 2009.
ICDR Regulations 2009
would gOvern alldisclosure norms regarding issue of securities.
VIX" is atrademark of Chicago Board Options Exchange. Incorporated ("CBOE") and
Standard & Poor's has granted a license to NSE, with permmission trom CBOE, to use such mark
in the name of the India VIX and for purposes relating to the India VIX.

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