The document outlines the structure and functioning of capital markets, including primary and secondary markets, and the roles of various intermediaries such as brokers, depositories, and regulatory bodies like SEBI. It explains different types of public offerings, such as initial public offerings (IPOs) and rights issues, along with their procedures, benefits, and drawbacks for investors. Additionally, it covers market regulations, circuit breakers, and the process for trading in stocks.

1. Dr.K.Sivaperumal, M.Com.,M.Phil., Ph.D,
Assistant Professor
Department of Commerce,
College of Science and Humanities
SRM Institute of Science and Technology
SRM Nagar, Kattankulathur, Chennai
Sivaperk@srmist.edu.in

2. CAPITAL MARKETS
SEEMA CHAKRABARTI

3. STRUCTURE OF CAPITAL MARKETS
COMPANIES
INVESTORS TAKES SHARES
FROM COMPANY
INVESTORS TAKE
SHARES FROM OTHER
INVESTORS
ISSUES SHARES
This is k/as
Primary Market
This is k/as
Secondary Market

4. STRUCTURE OF CAPITAL MARKETS
UNLISTED COMPANIES
INITIAL PUBLIC OFFERING
FOLLOW ON PUBLIC
OFFERING
ISSUES SHARES FOR
FIRST TIME
GETS LISTED ON
STOCK EXCHANGE
ISSUES SHARES FOR
SECOND TIME

5. STRUCTURE OF CAPITAL MARKETS
COMPANIES
STOCK EXCHANGE
BROKERS
PROVIDES
PLATFORM FOR
SHARE TRADING
INVESTORS
ACT AS MEDIATORS
BETWEEN
INVESTORS & STOCK
EXCHANGE

6. COMPANIES
BUYER’S
BROKER
BUYER
DP
DEPOSITORIES
BUYER’S BANK
STOCK
EXCHANGE
SELLER
SELLER’S BANK
SELLER’S
BROKERS
D P
PUTS A BUY
ORDER IN
STOCK
EXCHANGE
PUTS A SELL
ORDER IN
STOCK
EXCHANGE
CONFIRMS TRADE TO BROKERS
CONFIRMS
TRADE TO
SELLER
CONFIRMS
TRADE TO
BUYER
INSTRUCTS TO
TRANSFER
SHARES TO
BROKER
INSTRUCTS TO
TRANSFER FUNDS
TO BROKER
DEPOSITS CHEQUE
IN BANK
TRANSFERS
SHARES TO
BUYER
1B
2B
3B&S
5B
4B
TRANSFERS
FUNDS TO
BROKER
6B
ASK’S
BROKER
TO BUY
SHARES
TRANSFER’S
FUNDS TO
STOCK
EXCHANGE
7B
TRANSFER’S
FUNDS TO
SELLER’S
BROKER
ACCOUNT
ASK’S
BROKER
TO SELL
SHARES
TRANSFER’S SHARES
TO STOCK EXCHANGE
TRANSFER’S SHARES
TO BUYER’S BROKER
GIVES CHEQUE
TO SELLER
8B
9B
10B

7. COMPANIES
BUYER’S
BROKER
BUYER
DP
DEPOSITORIES
BUYER’S BANK
STOCK
EXCHANGE
SELLER
SELLER’S BANK
SELLER’S
BROKER
D P
PUTS A BUY
ORDER IN
STOCK
EXCHANGE
PUTS A SELL
ORDER IN
STOCK
EXCHANGE
CONFIRMS TRADE TO BROKERS
CONFIRMS
TRADE TO
SELLER
CONFIRMS
TRADE TO
BUYER
INSTRUCTS TO
TRANSFER
SHARES TO
BROKER
INSTRUCTS TO
TRANSFER FUNDS
TO BROKER
DEPOSITS CHEQUE
IN BANK
TRANSFERS
SHARES TO
BUYER’S
A/C WITH
DP
1S
2S
3 B&S
5S
4S
TRANSFERS
FUNDS TO
BROKER
6S
ASK’S
BROKER
TO BUY
SHARES
TRANSFER’S
FUNDS TO
STOCK
EXCHANGE
7S TRANSFER’S
FUNDS TO
SELLER’S
BROKER
ACCOUNT
ASK’S
BROKER
TO SELL
SHARES
TRANSFER’S SHARES
TO STOCK EXCHANGE
TRANSFER’S SHARES
TO BUYER’S BROKER
GIVES CHEQUE
TO SELLER
8S

8. COMPANIES
DEPOSITORIES
INVESTORS
SHARES ARE
REGISTERED IN
ELECTRONIC FORM
DEPOSITORY
PARTICIPANTS
AGENTS OF
DEPOSITORIES
WHERE INVESTORS
OPEN DEMAT A/C
FOR SHARES
INVESTORS CANNOT
DIRECTLY ACCESS
DEPOSITORIES
THESE ARE THE
REGISTERED
OWNERS OF
SHARES
THESE ARE THE
BENEFICIARY
OWNERS OF
SHARES
THESE ARE
INTERMEDIARIES
BETWEEN
DEPOSITORIES &
INVESTORS
WORKING OF DEPOSITORY SYSTEM

9. HOW TO TRADE
• Open a Trading Account with
a broker for trading in
shares.
• Open a Demat account with
a DP for keeping shares in
dematerialized form.
• Open a saving account with a
bank for fund transfer.

10. BASICS OF PRIMARY MARKET
Primary market Issues can be classified into four
types.
 Initial Public Offer - When an unlisted company makes either
a fresh issue of securities or an offer for sale of its existing
securities or both, for the first time to the public, the issue is
called as an Initial Public Offer.
 Follow on Offer - When an already listed company makes
either a fresh issue of securities to the public or an offer for sale
of existing shares to the public, through an offer document, it is
referred to as Follow on Offer (FPO).

11. BASICS OF PRIMARY MARKET
 Rights Issue -When a listed company proposes to issue fresh
securities to its existing shareholders, as on a record date, it is
called as a rights issue. The rights are normally offered in a
particular ratio to the number of securities held prior to the issue.
This route is best suited for companies who would like to raise
capital without diluting stake of its existing shareholders.
 Preferential Issue - A Preferential Issue is an issue of shares
or of convertible securities by listed companies to a select group
of persons under Section 81 of the Companies Act, 1956, that is
neither a rights issue nor a public issue. This is a faster way for
a company to raise equity capital. The issuer company has to
comply with the Companies Act and the requirements of SEBI
guidelines, which include pricing, disclosures in notice etc.

12. INITIAL PUBLIC OFFER
Various intermediaries in a public issue:
 Lead managers / Book Running Lead Managers
(BRLMs)
 Registrar to the issue
 Underwriters to the issue
 Bankers to the Issue

13. LEAD MANAGERS / BOOK RUNNING LEAD
MANAGERS (BRLMS)
 Lead managers also called merchant bankers and are
in charge of the issue process.
 They have to ensure the company is following the rules
laid down for an IPO, that it has made available all the
information a potential investor needs to know and that
the facts in the prospectus are correct.
 They act as intermediaries between the company and
the investors. They are also responsible for drawing up
the prospectus and marketing the issue.

14. LEAD MANAGERS / BOOK RUNNING LEAD
MANAGERS (BRLMS)
 If it is a book building process, the lead manager also helps
determine the price band; in such cases, they are also called
Book Running Lead Managers.
 Post issue activities, like intimation of allotments and
refunds, are their responsibility as well.

15. REGISTRAR TO THE ISSUE
 This is a financial institution appointed to keep a record of
the issue and ownership of company shares.
 Drawing up the list of allottees,crediting the shares to their
demat accounts and ensuring refunds (if one is not allotted
the shares, his/her money is returned within a month) is
done by the Registrar to the Issue.

16. UNDERWRITERS TO THE ISSUE
 These could be a banker, broker, merchant banker or a
financial institution.
 They give a commitment to underwrite the issue.
 Underwriting means they will subscribe to the balance
shares if all the shares offered at the IPO are not picked up.

17. INITIAL PUBLIC OFFER
SOME IMPORTANT CONCEPTS:
 Face Value - The nominal or stated amount (in Rs.)
assigned to a security by the issuer.
 Issue at premium - When a security is sold above its face
value, it is said to be issued at a Premium.
 Issue at Discount - When a security is sold at less than its
face value, then it is said to be issued at Discount.

18. INITIAL PUBLIC OFFER
 Book Building Process :- When the company and the
BRLM fix a floor (Minimum )and cap price (maximum) for
the issue. This range is called the price band. Investors
are free to bid at any price in this range. The final price is
determined by market forces according to the demand for
the issuing company’s shares.
 As far as the IPO is concerned, there are three
categories of investors:-
 Qualified Institutional Bidders.
 Non-Institutional Investors.
 Retail Investors.

19. INITIAL PUBLIC OFFER
 Qualified Institutional Bidders :- Under this head, financial
institutions such as Banks, Mutual funds, Insurance companies,
Foreign Institutional investors etc. are permitted to bid for the
shares. A maximum of 50% of the issue can be kept reserved
for investors falling under the QIB category. Out of the 50%
shares, 5% are reserved for Mutual Funds.
 Non-Institutional Investors:- Under this category, Resident
Indian individuals, HUFs, Companies, corporate bodies, NRIs,
societies and trusts whose application size in terms of value is
more than Rs 1 lakh are allowed to bid. At least 15% of the total
issue has to be reserved for Non-Institutional Bidders.

20. INITIAL PUBLIC OFFER
 Retail Investors :- Only Individuals, both Resident and NRIs
along with HUFs are allowed to bid. At least 35% of the issue
has to be reserved for such investors. The size in terms of value
should not exceed Rs 1 lakh if one wants to apply under this
category.
 De-listing of securities:- means permanent removal of securities
of a listed company from a stock exchange. As a consequence of
de-listing, the securities of that company would no longer be
traded at that stock exchange.
 Prospectus of a company:- Gives information about the issue
and the company.
 Abridged Prospectus:- is a shorter version of the

21. INITIAL PUBLIC OFFER
 Role of SEBI in an IPO:-
 Any company making a public issue or a listed company
making a rights issue of value of more than Rs 50 lakh
is required to file a draft offer document with SEBI for
its observations.
 SEBI does not recommend any issue nor does take any
responsibility either for the financial soundness of any
scheme or the project for which the issue is proposed to
be made or for the correctness of the statements made
or opinions expressed in the offer document.
 SEBI mainly scrutinizes the issue for seeing that
adequate disclosures are made by the issuing company
in the prospectus or offer document.

22. INITIAL PUBLIC OFFER
 Prospectus of a company:- Gives information about the issue
and the company.
 Abridged Prospectus:- is a shorter version of the Prospectus
and contains all the salient features of a Prospectus. It
accompanies the application form of public issues.
 Offer document:- means Prospectus in case of a public issue or
offer for sale and Letter of Offer in case of a rights issue which is
filed with the Registrar of Companies (ROC) and Stock
Exchanges (SEs).

23. INITIAL PUBLIC OFFER
 Draft Offer document:- means the offer document in draft
stage. It is filed with SEBI, at least 21 days prior to the filing of
the offer Document with ROC/SEs.
 Lock-in:- indicates a freeze on the sale of shares for a certain
period of time.SEBI guidelines have stipulated lock-in
requirements on shares of promoters mainly to ensure that the
promoters or main persons, who are controlling the company,
shall continue to hold some minimum percentage in the
company after the public issue.

24. INITIAL PUBLIC OFFER
As per SEBI guidelines:
 The issue should remain open for a minimum of 3
days.
 The Basis of Allotment should be completed within 15
days from the issue close date.
 Within 2 working days after completion of the basis of
allotment,the details of credit to demat account
/allotment advice and dispatch of refund order needs
to be completed.
 Listing of shares would take around 3 weeks after the
closure of the issue.

25. INITIAL PUBLIC OFFER
As per SEBI guidelines:
 The spread between the floor and the cap of the price band shall
not be more than 20%.
 In case the price band is revised, the bidding period shall be
extended for a further period of 3 days, subject to the total bidding
period not exceeding 10 days.

26. INITIAL PUBLIC OFFER
Some of the key benefits of investing in an IPO are:
 Safer to invest as the scope for manipulation of price is
smaller.
 The investor does not have to pay any kind of brokerage or
transaction fees or any tax such as service tax, stamp duty
and STT.
 No need to time the market as all investors will get the
shares at the same price.

27. INITIAL PUBLIC OFFER
Some of the key drawbacks of investing in an IPO are:
 In case of over subscription, the shares are allotted in
proportionate basis. Thus, small investors hardly get
any allotment in such a case.
 Money is locked for a long time and the shares are
allotted after a few days where as in case of
purchase from the secondary market the shares are
credited within three working days.

28. BASICS OF SECONDARY MARKET
 The secondary market is where we purchase securities from the
seller as opposed to the issuer of securities.
 The secondary market comprises of broad segments such as
Equity,Debt and Derivatives.
 The secondary market consists of buyers, sellers and
Intermediaries such as stockbrokers, depositories, depository
participants and banks.
 SEBI applies two types circuit breakers.One on stock market in
general and the other on individual stocks.

29. Should a 10 percent rise/ fall in
the Nifty/ Sensex occur
Trading gets suspended
for
Before 1 pm 1 hour
Between 1 pm to 2.30 pm 30 minutes
2.30 pm onwards Trading continues
Should a 15 percent rise/ fall in
the Nifty/ Sensex occur
Trading gets suspended
for
Before 1 pm 2 hours
Between 1 pm to 2 pm 1 hour
2 pm onwards Trading is stopped
MARKET CIRCUIT BREAKERS
 In case of a 20 percent movement of the index (at whatever time),
trading is halted for the rest of the day.

30. STOCK CIRCUIT BREAKERS
 When applied to individual stocks, circuit filters /
breakers are known as price bands or price filters.
 There are no circuits on the 30 stocks included in the
Sensex or the 50 included in the Nifty.
 Different circuit breakers of 2%,5%,10% or 20% as
applicable to different stocks are specified by the stock
exchanges.