Secondary Mkt


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Secondary Mkt

  2. 2. <ul><li>SECONDARY MARKET: STOCK EXCHANGES </li></ul><ul><li>The capital market apart from the primary market also includes the secondary market where the existing issues are traded. </li></ul><ul><li>These are also known as Stock Market . </li></ul><ul><li>They enable shareholders to sell their holdings readily , thereby ensuring liquidity. </li></ul><ul><li>The investors can also continuously re-arrange their assets. </li></ul><ul><li>The stock exchanges provide a market where such mutually satisfactory prices may be determined. </li></ul><ul><li>An active secondary market in fact promotes the growth of the primary market and helps in capital formation. </li></ul>
  3. 3. <ul><li>GROWTH OF STOCK EXCHANGES </li></ul><ul><li>Bombay SE : 1875 </li></ul><ul><li>Calcutta & Chennai : 1908 </li></ul><ul><li>Delhi SE : 1947 </li></ul><ul><li>In Total 23 Stock Exchanges : </li></ul><ul><li>15 are public ltd companies ; </li></ul><ul><li>5 are limited by guarantee ; </li></ul><ul><li>3 are voluntary non –profit organizations . </li></ul>
  4. 4. <ul><li>The stock exchanges are managed by a governing body </li></ul><ul><li>which consists of : </li></ul><ul><li>A President, </li></ul><ul><li>A Vice President, </li></ul><ul><li>An Executive Director, </li></ul><ul><li>Elected Directors, </li></ul><ul><li>Public representatives and </li></ul><ul><li>Nominees of the Govt. </li></ul><ul><li>The governing body is responsible for : </li></ul><ul><li>policy making and </li></ul><ul><li>the smooth functioning of the exchange . </li></ul><ul><li>The executive functions are discharged by the Executive </li></ul><ul><li>Directors or the Secretary. </li></ul>
  5. 5. <ul><li>FUNCTIONS OF STOCK EXCHANGES </li></ul><ul><li>The stock exchanges (SE) provide an organized market place for the investors to buy and sell securities freely. </li></ul><ul><li>the market for these securities is an almost perfectly competitive one because a large number of seller and buyers participate. </li></ul><ul><li>the SE provides an auction market in which members of the SE participate to ensure continuity of price and liquidity to investors. </li></ul><ul><li>An active and healthy secondary market in existing securities, lead to better psychology of expectations , </li></ul><ul><li>Considerable broadening of investment enquiries render the task of raising resources by entrepreneurs easier. </li></ul>
  6. 6. <ul><li>Creation of a continuous market for the securities </li></ul><ul><li>Measure the liquidity in the market </li></ul><ul><li>Help in fair price determination </li></ul><ul><li>Educate investors </li></ul><ul><li>Eliminate dishonest practices </li></ul>
  7. 7. <ul><li>TRADING IN STOCK EXCHANGES </li></ul><ul><li>Auction System on a trading floor , which is Order Driven or Customer Driven . Orders from all over the country are entered into an electronic system and matched directly and continuously without the involvement of a market maker. </li></ul><ul><li>Broker dealer market , which is Quote Driven or Dealer Driven . there are market makers who continuously offer two way quotes – buy and sell quotes - and are willing to buy and sell any quantity. </li></ul><ul><li>A Hybrid system </li></ul>
  8. 8. <ul><li>In India generally we have order driven auction market </li></ul><ul><li>NSE: order driven </li></ul><ul><li>BSE : hybrid market , auction system but quote driven . </li></ul><ul><li>TRADING ARRANGEMENTS </li></ul><ul><li>Trading NSE introduced for the first time in India, fully automated screen based trading. It uses a modern, fully computerized trading system designed to offer investors across the length and breadth of the country a safe and easy way to invest. </li></ul><ul><li>The NSE trading system called 'National Exchange for Automated Trading' (NEAT) is a fully automated screen based trading system </li></ul><ul><li>NSE and OTCEI : screen based trading </li></ul><ul><li>8,000 terminals spread across the country. </li></ul>
  9. 9. <ul><li>Benefits of Electronic Trading System : </li></ul><ul><li>Helps to view full market during real time </li></ul><ul><li>Smooth flow of information </li></ul><ul><li>Better price discovery </li></ul><ul><li>Results in operational efficiency – less time ; less cost ; less fraud </li></ul><ul><li>Improves the depth and liquidity of the market </li></ul><ul><li>Enables large number of participants all over the country to trade simultaneously in full anonymity </li></ul><ul><li>Provides a single trading platform </li></ul><ul><li>Sebi has permitted setting up of terminals abroad </li></ul>
  10. 10. <ul><li>The National Securities Clearing Corporation Ltd . </li></ul><ul><li>(NSCCL), a wholly owned subsidiary of NSE, was </li></ul><ul><li>incorporated in August 1995 . </li></ul><ul><li>It was set up to : </li></ul><ul><li>bring and sustain confidence in clearing and settlement of securities; </li></ul><ul><li>to promote and maintain, short and consistent settlement cycles; </li></ul><ul><li>to provide counter-party risk guarantee, and </li></ul><ul><li>to operate a tight risk containment system. </li></ul><ul><li>NSCCL commenced clearing operations in April 1996. </li></ul>
  11. 11. <ul><li>Dealer </li></ul><ul><li>Broker </li></ul><ul><li>Sub broker </li></ul><ul><li>Intra day Trading Limits </li></ul>
  12. 12. <ul><li>Listing </li></ul><ul><li>It means admission of securities of an issuer to trading privileges on a stock exchange through a formal agreement. </li></ul><ul><li>The prime objective of admission to dealings on the Exchange is to provide liquidity and marketability to securities, as also to provide a mechanism for effective management of trading . </li></ul><ul><li>Benefits of Listing </li></ul><ul><li>Listing provides an opportunity to the corporates / entrepreneurs to raise capital to fund new projects/undertake expansions/diversifications and for acquisitions. </li></ul><ul><li>Listing also provides an exit route to private equity investors as well as liquidity to the ESOP-holding employees. </li></ul><ul><li>Listing also helps generate an independent valuation of the company by the market . </li></ul>
  13. 13. <ul><li>Listing raises a company's public profile with customers, suppliers, investors, financial institutions and the media . A listed company is typically covered in analyst reports and may also be included in one or more of indices of the stock exchanges. </li></ul><ul><li>An initial listing increases a company's ability to raise further capital through various routes like preferential issue, rights issue, Qualified Institutional Placements and ADRs / GDRs / FCCBs , and in the process attract a wide and varied body of institutional and professional investors. </li></ul><ul><li>Listing leads to better and timely disclosures and thus also protects the interest of the investors. </li></ul>
  14. 14. <ul><li>Insider Trading </li></ul><ul><li>It is the sale or purchase of securities by persons who possess price sensitive information about the company , on account of their fiduciary capacity involving confidence or trust. </li></ul><ul><li>Badla System </li></ul><ul><li>It is the postponement of delivery of or payment for the purchase of securities from one settlement period to another. </li></ul><ul><li>Circuit Breakers: </li></ul><ul><li>To contain excessive volatility in prices , the Sebi introduced , in 1995 , scrip wise daily circuit breakers / price-bands. </li></ul><ul><li>The circuit breakers bring about a halt / suspension in trading automatically for a specified period if the market prices vary unusually on either side i.e. move out of a pre-specified band . </li></ul>
  15. 15. <ul><li>Margins </li></ul><ul><li>SEs impose different types of margins on brokers for individuals stocks depending on the exposures taken by these brokers in these stocks , both on proprietary basis and on behalf of clients , vis-à-vis the overall market in the scrips. </li></ul><ul><li>Several of these margins are paid upfront by brokers. </li></ul><ul><li>These margins are collected to prevent operators from taking market positions in excess of their buying capacities and are used to settle dues to the exchanges / clearing corporations / traders in the event of any fund shortage faced by the brokers. </li></ul><ul><li>The margins vary from operators to operator depending on the size of the position taken in the market. </li></ul>
  16. 16. <ul><li>Stock Index captures the behavior of the overall equity market. Movements of the index should represent the returns obtained by &quot;typical&quot; portfolios in the country. </li></ul><ul><li>BSE Indices : Sensex , BSE-100 , BSE-200 , BSE-500 ,BSE Midcap , BSE Smallcap </li></ul><ul><li>NSE Indices : S&P CNX Nifty , CNX Nifty Junior-100 second rung of growth stocks , CNX MidCap , CNX IT Sector Index , CNX PSE Index -20 PSE stocks , CNX MNC Index -15 listed companies </li></ul>
  17. 17. <ul><li>SENSEX is calculated using the &quot;Free-float Market Capitalization&quot; methodology </li></ul><ul><li>takes into consideration only those shares issued by the company that are readily available for trading in the market, wherein, the </li></ul><ul><li>level of index at any point of time reflects the free-float market value of 30 component stocks relative to a base period. </li></ul><ul><li>the base period of SENSEX is 1978-79 and the base value is 100 index points. </li></ul><ul><li>during market hours, prices of the index scrips , at which latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds. </li></ul>
  18. 18. <ul><li>Ups and Downs of an Index </li></ul><ul><li>They reflect the changing expectations of the stock market about future dividends of India's corporate sector. </li></ul><ul><li>When the index goes up , it is because the stock market thinks that the prospective dividends in the future will be better than previously thought. </li></ul><ul><li>When prospects of dividends in the future become pessimistic , the index drops . The ideal index gives us instant-to-instant readings about how the stock market perceives the future of India's corporate sector. </li></ul>
  19. 19. <ul><li>Guidelines for selection of constituents in SENSEX are as follows: </li></ul><ul><li>Listed History </li></ul><ul><li>Trading Frequency </li></ul><ul><li>Final Rank </li></ul><ul><li>Market Capitalization Weightage </li></ul><ul><li>Industry / Sector Representation </li></ul><ul><li>Track Record </li></ul>
  20. 20. <ul><li>Large Cap Stocks - Companies with large capitalization . Traditionally, the safest stocks, but also the least rewarding in return. </li></ul><ul><li>Infosys Technologies , Bharti-Tele-Ventures Ltd. , ICICI Bank Ltd , HDFC Ltd , ONGC Ltd , Maruti Udyog Ltd , </li></ul><ul><li>Mid Cap Stocks - Bigger than small caps, smaller than large caps, they are also in the middle of the road in terms of risk and reward. </li></ul><ul><li>India-bulls Securities Ltd. ; Thomas Cook ( India ) Ltd. ; Century Plyboards ( India ) Ltd. ; Jet Airways( India ) Ltd. ; Parshavnath Developers Ltd. ; Nicholas Piramal India Ltd. </li></ul><ul><li>Small Cap Stocks - Smaller companies that usually grow faster, giving a better return, but are riskier because they have less protection against going out of business due to their small size. </li></ul><ul><li>Kajaria Ceramics Ltd. ; Kohinoor Foods Ltd. ; Bata India Ltd. ; Arvind Mills Ltd. ; J.K. Cement Ltd. </li></ul>
  21. 21. <ul><li>DEMATERIALISATION </li></ul><ul><li>Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited into the investor's account with his / her DP. </li></ul><ul><li>Constituents of Depository System   </li></ul><ul><li>Depository </li></ul><ul><li>Depository Participants (DPs) </li></ul><ul><li>Share Registrar / Issuers </li></ul><ul><li>Investor </li></ul><ul><li>Clearing Corporation / Member </li></ul>
  22. 22. <ul><li>Benefits of Dematerialization </li></ul><ul><li>A safe and convenient way to hold securities; </li></ul><ul><li>Immediate transfer of securities; </li></ul><ul><li>No stamp duty on transfer of securities; </li></ul><ul><li>Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc.; </li></ul><ul><li>Reduction in paperwork involved in transfer of securities; </li></ul><ul><li>Reduction in transaction cost; </li></ul><ul><li>No odd lot problem, even one share can be sold; </li></ul>
  23. 23. <ul><li>Nomination facility; </li></ul><ul><li>Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately; </li></ul><ul><li>Transmission of securities is done by DP eliminating correspondence with companies; </li></ul><ul><li>Automatic credit into demat account of shares, arising out of bonus / split / consolidation / merger etc. </li></ul><ul><li>Holding investments in equity and debt instruments in a single account. </li></ul>