FINANCIAL

MARKETS AND
SERVICES
 FINANCIAL MARKETS(FM)
Financial market is a place where all the financial
securities are traded. ( Or)

Financial markets refer to any marketplace where

the trading of securities occurs.
Stock Market,
Bond Market,
Forex Market,
 Derivatives Market,
Commodities Markets

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OBJECTIVES OF FINANCIAL MARKETS
To facilitate creation and allocation of credit and
liquidity
To serve as intermediaries for mobilisation of savings
To assist process of balanced economic growth
To provide financial convenience
CHARACTERISTICS FEATURES OF FINANCIAL
MARKETS
FUNCTIONS OF FINANCIAL MARKETS
ROLE OF FINANCIAL MARKETS
Transfer of Resources
Growth income
Productive usage of funds
Capital formation
Price Discovery
Sale Mechanism
Information Availability
CLASSIFICATION OF FINANCIAL MARKETS

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CAPITAL MARKET
Capital market is the place where the medium-term
and long term financial needs of business and other
undertakings are met by financial institutions which supply
medium and long term resources to borrowers.
 Features of Financial
markets
It Deals with long and
medium term funds
It Consists of primary
market, secondary market
and special financial
institutions.
It covers both individuals
and institutional investors.
It makes funds available to
industries and commercial
undertakings
Functions of Capital markets
1.Link between savers and investors
2.Encouragement to savings
3.Encouragement to investments
4.Promotes economic Growth
5.Stability in security prices
6.Benefits to investors

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Primary markets
Primary markets is a part of the capital
market deals with the issuance of new securities
of any companies, Govt. or public sector
institutions to obtain findings through the sale
of new stocks or bonds.
Main features of the primary market  are as follow:
 It is related with New Issues:
 Securities are Issued directly to investors (public)
It has No Particular Place:
Offer for Sale:
Private Placement:
Right Issue:
Electronic Initial Public Issue (e-IPOs):
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Functions of Primary Market
Organization
Underwriting
Distribution
Household savings
Global Investors
Sale of Govt. Securities.
How share price will be determined:
Book building is a process of price discovery. It is a
mechanism where, during the period for which the
IPO is open, bids are collected from investors at
various prices, which are above or equal to the floor
price. The offer price is determined after
the bid closing date
Types of issues in primary market
Public Issues:
When a company or government organization issues/ offer the securities to new investors
to become a shareholder of the company is called a Public Issue.

The public issue can be further classified into:

Initial public offer (IPO):
When a company which is not listed in the stock exchange offer fresh or existing
securities or both for first time sale to the general public, it is known as an Initial
Public Offer (IPO). This is the process of listing and trading the securities of any
company in the stock exchange.
Further public offer (FPO):
When a company which is already listed in the stock exchange issues/sells its
fresh securities to the investors will be known as FPO.
2) Right Issues:
When a company issues the securities only for its existing shareholders who hold
a specific number of shares on a specific date (Record Date) declared by the
issuer, such types of issues are known as Right Issue.
3)Bonus Issues:
Sometimes the companies announce bonus shares
instead of dividend to their shareholders for the
particular financial year. Such issues of bonus shares are
called Bonus Issues. In other words, when a company
issues the securities to its existing shareholders
provided as on a record date without any other
conditions, it is known as bonus issues.
The bonus shares are issued as per a particular ratio (1:1,
1:2 or 1:3 etc) as on record date. It is a free reward of the
company to its shareholders. 

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4) Private Placement Issues:
When any company or government entity makes an issue of
their securities to a specified group of investors, it is called a
private placement. Moreover, the issue should be neither right
issue nor public issue and the investors could be the individual
investors or institutional investors. A private placement is much
easier than the initial public offerings due to lesser regulatory
formalities. 
Private placement of shares or convertible securities by an
issuer can be of two types:
Preferential Allotment:
When a listed issuer issues equity shares or the securities which
are convertible to equity shares, to a specified group of
individuals, it is called a preferential allotment.
Players of primary market
 Instruments in of primary market
1) A promissory note:  is a financial instrument that contains a written
promise by one party (the note's issuer or maker) to pay another party
(the note's payee) a definite sum of money, either on demand or at a
specified future date.
2) The Certificate of Deposit : (CD) is an agreement between the depositor
and the bank where a predetermined amount of money is fixed for a
specific time period
3) Bonds : refer to high-security debt instruments that enable an entity to
raise funds and fulfil capital requirements. It is a category of debt that
borrowers avail from individual investors for a specified tenure.
4) Common shares(Equity): Equity shares are long-term financing sources
for any company. These shares are issued to the general public and are
non-redeemable in nature. Investors in such shares hold the right to vote,
share profits and claim assets of a company
Procedure for issuing equity shares

Step-1 Issue of prospectus

Step-2 receive Applications
Step-3 Allotment of shares
Step-4 To make calls on shares
Step-5 Forfeiture of shares
Step-6 Re Issue of shares
SEBI guidelines for issue of equity shares ****
Procedure for Listing of Securities As per the Securities
Contracts (Regulation) Rules,
a public company desirous of getting its securities listed on a recognised stock
exchange has to apply for the purpose to the stock exchange and forward with its
application the following documents and particulars: —

(a)Memorandum and articles of association and in the case of a debenture

issue, a copy of the trust-deed ;
(b) Copies of all prospectuses or statements in lieu of prospectuses issued by the
company at any time ;
(c) Copies of offers for sale and circulars or advertisement offering any securities
for subscription or sale during the last 5 years ;
(d) Copies of balance-sheets and audited accounts for the last 5 years, or in the
case of new companies, for such shorter period, for which accounts have been
made up,
(e) A statement showing:—
(i)Dividends and cash bonuses, if any paid during the last
10 years (or such shorter period as the company has been
in existence, whether as a private or public company),
(ii) Dividends or interest in arrears, if any ;
f) Certified copies of agreements or other documents
relating to arrangements with or between: —
(i)Vendors and/or promoter,
(ii) Underwriters and sub-underwriter,
(iii)Brokers and sub-brokers ;
g) Particulars of shares forfeited
SEBI guidelines for issue of Debentures
SEBI guidelines for issue of shares ****
SEBI GUIDELINES FOR ISSUE OF DEBENTURES
Merits and demerits of primary market

Companies get to raise capital at low costs.

Securities issued in the primary market can be
sold immediately in the secondary market.
It's an excellent method of diversification to
reduce risk.
Price manipulation is low compared to
secondary markets.
Disadvantages of primary market
In case of oversubscription, small investors don't get an
allocation.
Possibility that the company is just exaggerated some
information to attract the investments
Money gets locked in for a long time
Delay in the allotment of shares
Some investors are interested in Preferential issue.
Secondary market
functions or objectives of Secondary market
Structure of secondary market
cash markets
A cash market is a marketplace in which
the commodities or securities purchased are
paid for and received at the point of sale.

For example, a stock exchange is a cash

market because investors receive shares
immediately in exchange for cash.
Derivatives
A derivative is a contract between two or more
parties whose value is based on an agreed
underlying financial asset (like a security) or set of
assets (like an index). Common underlying
instruments include bonds, commodities,
currencies, interest rates, market indexes, and
stocks.
Derivatives market:
 Its financial instruments like futures contracts
or options, which are derived from other
forms of assets are traded in derivatives
market.,
Regulators:
A regulator is a person or organization
appointed by a government to regulate an area of
activity such as banking or industry or Stock
markets.

Exchanges:
An exchange is a marketplace where
securities, commodities, derivatives
and other financial instruments are
traded. 
Trading and settlement system of stock
exchange transactions
In this process, brokerages act as the intermediary
between the investor and the stock exchange.
Once two orders match and a trade is executed,
the clearing process takes place.
As a result, the clearing house identifies all
the transactions and the net amount or
net securities owed to the trader are calculated.
There are three phases in a secondary market
transaction:
Trading
Clearing
Settlement
 
Trading 
In the stock market a large number of
trades occur simultaneously. The stock
exchanges use an electronic order matching
system to match ‘buy’ and ‘sell’ orders from
different traders. This way, each trade is
executed.
Clearing
Once two orders match and a trade is executed,
the clearing process takes place. Clearing is the
identification of what security is owed to the buyer
and how much money is owed to the seller. The
entire process is managed by ‘clearing houses’.
These are independent entities.

Settlement
The next step is to fulfil the financial
obligations identified in the clearing step.
This involves the transaction settlement for
the buyers and sellers.
Participants Involved in the Clearing Process
 
Clearing Corporation
Clearing corporation is one of the major participants
involved in clearing and settlement process in stock market.
The responsibility for clearing and settlement of trade
executed at the stock exchange lies on the National
Securities Clearing Corporation Limited (NSCCL). It is also
in charge of risk management and is obligated for meeting
all settlement regardless of the member defaults.
Clearing Members/Custodians
They are another participant in the clearing and settlement
process in Indian stock market. When trading members
place deals in the stock exchange, the same is moved to
NSCCL, which transfers them to the clearing members. The
clearing member is in charge of determining the position of
Clearing banks
Clearing banks are responsible for the settlement of funds.
There are 13 clearing banks, and each clearing member
needs to open a clearing account with either one of them. In
case of a pay-out, clearing members receive funds in the
clearing account and in case of pay-in they need to make
funds available.
Depositories
There are two depositories in India – National Securities
Depository Limited (NSDL) and Central Depository Services
Limited (CDSL). These two depositories hold your Demat
account, and clearing members also need to maintain a
clearing pool account with them.
Clearing members need to transfer the securities to the
clearing pool account they hold with the depositories on the
date of settlement.
Professional Clearing Members
These are special category members appointed
by the NSCCL. However, note that they are not
allowed to trade, and they can only clear and
settle trades executed for their clients.
Professional clearing members generally
constitute banks, custodians, etc.
What Do T+1, T+2, and T+3 Mean?
Whenever you buy or sell a stock, bond, exchange
traded fund, or mutual fund, there are two important
dates to understand: the transaction date and the
settlement date. 'T' is the transaction date. The
abbreviations T+1, T+2, and T+3 refer to the
settlement dates of security transactions that occur
on a transaction date plus one day, plus two days,
and plus three days, respectively.
As its name implies, the transaction date represents
the date on which the actual trade occurs. For
instance, if you buy 100 shares of a stock today,
then today is the transaction date. This date doesn't
change whatsoever, as it will always be the date on
which you made the transaction.
Historically, a stock trade could take as many as
five business days (T+5) to settle a trade.

Today, with the advances in technology and

electronic trading, most stock trades settle in just
two business days (T+2).
 Players in stock market
Market participants include
individual retail investors,
institutional investors (e.g., pension
funds, insurance companies, mutual
funds, exchange-traded funds, hedge
funds, investor groups, banks and
various other financial institutions),
and also publicly traded corporations
trading in their own shares.
Players in stock market
Merits of stock market

Demerits of stock market

Reforms in stock market
Money market
Money market:

The money market refers to trading

in very short-term debt investments. At
the wholesale level, it involves large-
volume trades between institutions and
traders. At the retail level, it includes
money market mutual funds bought by
individual investors and money market
accounts opened by bank customers.
Features of money market
* The money market involves the purchase and
sale of large volumes of very short-term debt
products, such as overnight reserves or
commercial paper.
* An individual may invest in the money market by
purchasing a money market mutual fund, buying a
Treasury bill, or opening a money market account
at a bank.
* Money market investments are characterized by
safety and liquidity