The document provides an overview of the structure and participants in securities markets. It discusses the primary equity market where capital is raised through public issues, rights issues, and private placements. It then covers the secondary equity market, how shares are traded on stock exchanges in India like the National Stock Exchange and Bombay Stock Exchange. It also discusses trading and settlement procedures, as well as debates around regulating trading activities.

1. SECURITIES MARKET

2. OUTLINE
• Structure of the Securities Market
• Participants in the Securities Market
• Primary Equity Market
• Public Issue
• Secondary Equity Market (Stock Market)
• Trading and Settlement
• Buying and Selling Shares
• Stock Market Abroad
• Should Trading be Regulated

3. STRUCTURE OF THE SECURITIES MARKET
Securities
Market
Equity Debt Derivatives
Market Market Market
Government Corporate
Securities Debt Money Options Futures
Market Market Market Market Market

4. PARTICIPANTS IN THE SECURITIES MARKET
 Regulators
CLB, RBI, SEBI,
DEA, DCA
SEC, FRB
 Stock Exchanges
 Listed Securities
 Depositories
 Brokers
 FIIs
 Merchant Bankers or Investment Bankers
 Mutual Funds
 Custodians
 Registrars
 Underwriters
 Bankers to an issue
 Debenture trustees
 Venture capital funds.
 Credit rating agencies

5. How Equity Capital is Raised in
Primary Market
• Public Issue: Selling the Securities for the
First Time
• Right Issue: Issuing Rights to the Existing
Shareholders
• Private Placement: Sale of Securities to
Selected Financial Institutions, Mutual Funds
etc.
• Preferential Allotment: It is for the selective
investors and from listed companies. Value is
generally higher than IPOs.

6. How Private Placement is Different
From Preferential Allotment?
• Private placements refer to sale of equity or
equity related instruments of an unlisted
company or sale of debentures of a listed or
unlisted company.
• Preferential allotments refer to sale of equity
or equity related instruments of an listed
company.

7. PUBLIC ISSUES IN THE U.S
In the U.S., public offerings of both stocks and bonds are
typically marketed by investment bankers who perform
the role of underwriters. Generally, the lead investment
banker forms an underwriting syndicate with other
investment bankers to share the responsibility of the issue.

8. BOOK BUILDING
Book building is a method of offering shares to investors in
which the issue price is not fixed in advance (as is done in a
fixed price offer) but is determined through a bidding
process.

9. STOCK MARKET IN INDIA
 As of January 2005 there were 23 stock exchanges
recognised by the central government.
 The most important development in the Indian stock
market was the establishment of the National Stock
Exchange (NSE) in 1994.
 Within a short period it emerged as the largest stock
exchange surging ahead of the Bombay Stock
Exchange (BSE)

10. NATIONAL STOCK EXCHANGE (NSE)
 The NSE is a ringless, national, computerised exchange.
 The NSE has two segments: The Capital Market
Segment and the Wholesale Debt Market Segment.
 Trading members in the Capital Market Segment are
through VSATs. The trading members in the Wholesale
Debt Market are linked through leased lines.
 The NSE has opted for an order-driven system.
 All trades on NSE are guaranteed by the National
Securities Clearing Corporation.

11. BOMBAY STOCK EXCHANGE (BSE)
 The BSE switched from the open outcry system to the
screen-based system in 1995.
 Jobbers play an important role on the BSE. A jobber is
a broker who offers a two-way quote or a bid-ask quote.
 Since both jobbers and brokers feed their orders, the
BSE has adopted a ‘quote-driven’ system and an ‘order-
driven’ system.

12. Screen-based System
• Started in November 4,1994 in India
• The Features are:
– Buyers and sellers place their orders on the
computer. They can be limit order or best
market price order
– The computer constantly tries to match
mutually compatible orders on price and time
priority
– The limit order book or the list of unmatched
limit orders is displayed on the screen

13. Screen-based System
Cont…
• Increases efficiency
• Increases confidence in the market
• Transparent

14. Settling
• Traditional Way: Physical Delivery: Seller-
Seller’s Broker --- Buyer’s Broker ----
Buyer
• Modern: Electronic Delivery: It is
facilitated by Depositories which is an
institution which dematerializes physical
certificates and effects transfer of ownership
by electronic book entries
• Example: National Securities Depository
Limited (NSDL), Central Securities
Depositories Limited (CSDL)

15. Settlement Procedure
• Weekly Settlement
• Carry forward system (badla and
undha badla)
• Rolling Settlement (T+1)

16. Badla and Undha badla
• When a bull buys in the anticipation of an
immediate rise in price, but finds at the
end of the accounting period that the price
has not risen, he may either pay for the
shares and take delivery, or he may carry
over his transaction to the next accounting
period by paying carry over charges or
Seedha badla to the seller.

17. Badla and Undha badla
• When a bear sells in anticipation of a fall in
prices in the immediate future (so that he
can pick up shares later for delivery and
make a profit), but the fall does not
happen within the accounting period, he
has the option to borrow or buy the shares
for delivery, or have his sales carried over
to the next accounting period on payment
of Undha badla or backwardation charges
to the buyer.

18. Types of Transactions
• Spot Delivery
– Delivery and Payment are made on the same
day of contract or on next day
• Hand Delivery
– Delivery and payment are made when
stipulated
• Special Delivery
– Beyond 14 days with the permission of stock
exchange

19. Margin Trading
• This is the part of a transaction value
that a customer has equity in the
transaction
• Use of Margin
– To buy more
– To borrow money

20. Concepts associated with
margin
• Initial margin: Amount Investor Puts up / value
of transaction or It is the part of transaction’s value
the customer must pay to initiate the transaction with
other part being borrowed from the broker.
• Maintenance Margin: The percentage of a
security’s value that must be on hand as equity.
• Margin Call: Demand from the broker for
additional cash or securities as a result of the actual
margin declining below the maintenance margin

21. Short Selling
• In a normal transaction a security is
bought and owned because the investor
believes the price is likely to rise.
Eventually the security is sold and the
position is closed out. First you buy then
you sell.
• A short-sell involves selling a security
because of belief that the price will decline
and buying back the security later to close
the position. First you sell and then buy.

22. Actual Selling and Buying
Procedure
• Procedure for Buying - Locating the broker--
---Placement of order (De-mat account in a
depository) ------execution of order (Contract
note for tax and other legal purposes). Order
may be Limit Order (upper limit of the price
has been given by the investor) or Market
Order (to prevail the best market price).
• Procedure for selling- Placement of order---
----sale order-------execution of order (same
as buying)

23. SCREEN BASED SYSTEM
The kind of screen based system adopted in India is referred to as
the open electronic order (ELOB) market system.
ELOB
• Buyers and sellers place their orders on the computer
Limit order … Market order
• Computer instantly tries to match mutually compatible orders
on a price time priority
-
• The limit order book, the list of unmatched limit orders is
displayed on the screen

24. LIMIT ORDER BOOK
Shares
Buyside Sellside
500 501 502 503 504 505 506 507 508 509 510 511 512
Limit Price

25. TRANSACTION COSTS
Thanks to the introduction of screen b - ased trading and electronic
delivery transaction costs have fallen sharply in India.
MID - 1993 TODAY
TRADING 3.75% 0.40%
BROKERAGE COST 3.00% 0.25%
MARKET IMPACT
COST 0.75% 0.15%
CLEARING
COUNTERPARTY RISK PRESENT ABSENT
SETTLEMENT 1.25% 0.10%
PAPERWORK COST 0.75% 0.10%
BADPAPER RISK 0.50% 0.00%
TOTAL 5.00% (+RISK) 0.50%

26. BUYING AND SELLING OF SHARES
• Locating a Broker
• Placement of Order
• Execution of Order
• Internet Trading

27. TYPES OF ORDER
• Limit Order
Those who place limit order
supply liquidity
• Market Order
Those who place market order
demand liquidity

28. INDIVIDUAL STOCK QUOTATIONS
Co., (Prev.Cl.), Open, High, Low,Close
[Vol., Trades] P/E M Cap. 52-Wk H/L
Tata Steel (797.60), 801, 804.90, 770, 776.50
[808224, 17609] 4.7 (56730) 970/470
(797.50), 800, 800, 770.50, 776.35
[1899247, 35667] 4.7 (56719) 957/467

29. THRUST OF SEBI’s
REGULATION OF EQUITY
PRIMARY MARKET
ACCESS : RESTRICTED
INSTRUMENTS : MULTIPLIED
PRICING : RELAXED
DISCLOSURE NORMS : TIGHTENED
RESPONSIBILITY OF MERCHANT
BANKERS : ENHANCED
FOCUS INVESTORS : SHIFTED … INST’NAL
METHOD : BOOK BUILDING

30. THRUST OF SEBI’s
REGULATION OF EQUITY MARKET
SECONDARY MARKET
TRADING : COMPUTERISED
TRADING COSTS : LOWERED
TRANSPARENCY : ENHANCED
MARKETS : INTEGRATED
GLOBALISATION : ENCOURAGED
MANAGEMENT : STRENGTHENED
SPECULATION : HEIGHTENED
SETTLEMENT : SHIFTED TO
ELECTRONIC MODE

31. NEW YORK STOCK EXCHANGE
 Trading through a system of brokers and specialists
 Brokers … link … investors … market
 Specialists … dual role
a. Match buy and sell orders when the prevailing prices
permit them to do so
b. Buy and sell on their own account when they cannot
match customer orders.

32. NASDAQ
 Unlike the NYSE, Nasdaq does not have a specific location.
 It is a fully computerized market consisting of many market
makers competing on an electronic network of terminals rather
than on the floor of the exchange
 Each Nasdaq company has a number of competing market
makers, or dealers, who make a market in the stock.
 Dealers post their bid and ask prices on the Nasdaq system.
Brokers choose among market makers to handle their trades

33. SHOULD TRADING BE
REGULATED?
KEYNES - TOBIN - BUFFETT
KEYNES … ‘INDUSTRY’… ‘FINANCE’
TOBIN … TAX ON FINANCIAL TRANSACTIONS
BUFFETT . . A CARD
NOT PRACTICAL
1. RESTR’N OF FREEDOM
2. ADMINISTRATIVELY IMPRACTICAL
3. IMPAIRS .. PRICE DISCOVERY
4. SPECUL’N … LIQUIDITY
SPECUL’N LIQUID’Y LOWER HIGHER GROWTH
COC INVES’T

34. Important Abbreviations used in
Stock Exchange Quotations
• Con-Convertible
• Xd- ex (excluding) dividend
• Cd- cum (with) dividend
• Xr- ex(excluding) right
• Xb- ex (excluding) bonus
• Cb- cum (with) bonus