Capital Market

It is a market which deals with financial assets which have a long or indefinite maturity. It is divided as : Industrial Securities Market 1. Primary market 2. Secondary market Govt. Securities Long Term Loans Term loans, Mortgage, Financial Guarantee

Importance
Link between savers and those who need money Provides suitable return as it provides profitable investment avenues Increases the National income by increasing production in the economy It leads to capital formation as it pools the small savings to meet investment demands

Primary Market
It deals with new issues. It is also called New Issue Market. There are 3 ways to raise capital: Public issue Right issue Private placement Different Instruments in capital market Equity shares,Preference shares, Debentures,Bonds

Functions
1.origination 2.underwriting 3. distribution Origination: It refers to pre-issue analysis,investigation etc A careful study of techenical,economic,and financial viability. These functions are done by merchant bankers and commercial banks. It looks into: The time of issue Type of issue Price

 UNDERWRITING It is an agreement whereby the underwriter promises to buy a specific no. Of shares in the event of under purchase DISTRIBUTION It deals with selling of IPOs and SEOs through brokers and agents.

Benefits of underwriting
The co. is assured of IPOs or SEOs. The minimum subscription is assured Automatic publicity Public confidence is boosted if underwriter is a reputed one Professional management of the issue.

Methods Of Floating New Issues

Public Issues Offer for sell Private Placement Rights Issue Different Instruments in capital market Equity shares,Preference shares, Debentures,Bonds

 Primary market Deals with new instruments IPOs,SEOs are main operations Less volatile Less risky More organized No role of stock exchange

Secondary market Deals with existing instruments Regular trading in different instruments More volatile More risky Less organized Greater role of stock exchange

Secondary market
Market where securities are bought and sold It may be organized or unorganized When share are sold outside the stock exchange it is unorganized SECONDARY MARKET Is Controlled through the following process Recognition of stock exchange Application must be accompanied by copy of bye-laws ,rules relating to its constitution

Grant of recognition
Rules and bye laws must ensure fair dealing and protect the interest of investors It should be in the interest or trade and public interest Renewal application is to be filed 3 months before expiry Recognition may be withdrawn by central govt. if it is not in the interest of trade or public

Functions of Stock Exchange

Marketability and liquidity to securities Safety of funds

Ensures long term supply of fund Flow of capital to profitable ventures To motivate the company to improve the performance Promotion of investments Reflection of business cycle Marketing of new issues Miscellaneous services

Listing of Securities
It means official permission for a security to be traded in a stock exchange It is compulsory for those companies which intend to issue a prospectus SEBI and financial Institution insist listing on anew issue ADVANTAGES Facilitates buying and selling of securities Ensures liquidity Offers wide publicity Borrowing from commercial banks is made easy

Disadvantages Leads to speculation Degrades companys reputation Discloses vital information to competitors LISTING PROCEDURE A company should submit the following documents Certified MOA and AOA ,prospectus or statement in lieu of prospectus Specimen copies of shares debentures

Audited final accounts for last 5years or projected 5 years Copy of advertisement for offering in last 5years Copies of agreement with managerial personnel Details of dividend, bonus shares, rights shares offered in last 10 years Statements of arrears, interest and dividend A brief history of company since its incorporation Particulars regarding its capital structure Listing agreement with details

Criteria for listing

The following conditions must be satisfied;Minimum issued capital should be 3crores The offer should appear in newspaper for at least 2 days The company should have good goodwill so as to interest public The company must pay interest oh the excess application money if allotment is delayed by 10 weeks Promoter shares should not be transferred within a period of 3years

Listing obligation
Companies whose shares are listed have certain obligations towards stock exchange like; Date of board meeting, change in managerial personnel ,change in capital structure ,reissue of any forfeited shares etc. Any other information which is necessary for shareholders to appraise the companys position

Listing Agreement
The stock exchange after scrutinizing the application enters into a contract with the company. This is listing agreement and it lays down certain conditions in order to protect the interest of the investors

BROKERS
A broker is a middle man to transact on behalf of non-members for a commission To deal with a stock exchange a broker must register with SEBI Qualifications to register as broker Indian citizen with 21 years of age Neither bankrupt nor convicted of offence or fraud, Have completed 12 standard

 He should not be engaged in any other business He should not be a default of stock exchange Registration of broker Application should be submitted to SEBI via stock exchange Stock exchange should forward the application with 30 days The registered broker have to pay fee

 A broker can appoint a sub broker who is not a member Sub brokers have to follow all the norms which a broker has to do . KINDS OF BROKER Jobber,Taraniwalas,Commission Agents, Authorized Clerks

Merchant Bankers
An institution engaged in the business of issue management by making arrangements to buying and selling of securities It deals only with funds to be raised in money or capital market They are management oriented and can take risk Their activities are:-project counseling, capital restructuring, amalgamation, mergers, takeovers, underwriting

Registrars to Issue
They are appointed by co. in consultation to merchant bankers. Help in identifying collection centers and opening accounts with banks Receive on regular basis the amount collected Inform stock exchange regarding closure of issue Sort out the applications, groups them and finalise allotment as approved by stock exchange

 Refund amount within 70 days from closure date Makes arrangement for brokerage and underwriting commission For appointment as registrar their registration with SEBI is must They should have adequate capital, storage space, computers and should maintain proper books of accounts

RECENT DEVELOPMENTS
Many steps have taken to reform stock market. some developments are; Regulation of Intermediaries Change in the management structure Prohibition of Inside Trading Transparency of accounting practices Setting up of credit rating agencies Introduction of electronic trading Setting up of national market system