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Secondary Market
The document provides an overview of the secondary market, detailing its function as a platform for trading previously issued securities and its role in creating liquidity. It discusses regulatory aspects, the role of stock exchanges, the listing process, advantages and disadvantages of listing, and trading systems. Additionally, it covers the types of orders used in trading and the processes involved in settlement.
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Secondary Market
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- 2. SECONDARY MARKET • Marketin which securities already issued by companies are subsequently traded among investors. • Continuous trading. • The secondary market is that market in which the buying and selling of the previously issued securities is done. • The transactions of the secondary market are generally done through the medium of stock exchange. • The chief purpose of the secondary market is to create liquidity in securities. www.kanishgeorge.blogspot.in
- 3. • Under SecuritiesContract Regulation Act 1956, securities trading is regulated by Central Government; • Takes place only in stock exchanges recognized. • SEBI, Company Law Board and stock exchanges regulate secondary market. www.kanishgeorge.blogspot.in
- 4. Primary Vs SecondaryMarket • Organisation • Period • Capital Contribution • Ownership • Liquidity • Seller www.kanishgeorge.blogspot.in
- 5. STOCK EXCHANGE • Marketwhere securities of joint stock companies and govt, or semi-govt bodies are dealt in. • Securities Contracts (Regulation) Act 1956 • Any body of individuals, whether incorporated or not constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities. www.kanishgeorge.blogspot.in
- 6. STOCK EXCHANGE • Firststock exchange in India- The Native Stock and Share Brokers Association (Bombay 1875) • Ahmedabad 1894. • SCRA 1956. • G.S Patel Committee 1985 • L C Gupta Committee 1991 • Pherwani Committee 1991 • G S Patel committee 1995 • Varma Committee 1997 • Self regulatory role of Stock exchanges www.kanishgeorge.blogspot.in
- 7. THE ROLE OFSTOCK EXCHANGES • Raising capital for business. • Mobilizing savings for investment. • Facilitating companies growth. • Profit sharing. • Creating investment opportunities for small investors. • Government capital- raising for development projects. • Barometer of the economy.www.kanishgeorge.blogspot.in
- 8. Functions • Liquidity andMarketability • Helps in capital Formation • Fixation of Prices • Safety of Funds • Supply of Long Term Funds • Motivation for improved performance • Motivation for investment • Reflects the general state of economy www.kanishgeorge.blogspot.in
- 9. Listing of Securities •Enrolment of name in the official trading list maintained in the stock exchange. • SCRA rules, SEBI guidelines and rules and regulations of exchange prescribe the statutory requirements to be fulfilled by company for getting its shares listed. • Sec 73(1) of Companies Act: should make an application to one or more recognised stock exchange for listing its securities within the prescribed time. • After scrutiny of listing application, a listing agreement would be executed. www.kanishgeorge.blogspot.in
- 10. Objectives of Listing •Provide ready marketability • Provide liquidity and transferability • Ensure proper supervision and control of dealings • Protect the interest of shares. www.kanishgeorge.blogspot.in
- 11. Listing Obligations • AnnualListing Fee – Prescribed initial listing fee and annual listing fee on or before April 30 each year. • Regulations of Stock Exchange – Agrees to comply with rules, byelaws and regulations now and hereafter. • Notice of Board Meetings – Prior intimation at least seven days in advance. • Book closure notice – 42 days advance notice, specifying the purpose. www.kanishgeorge.blogspot.in
- 12. • Submission ofreports – Annual reports, B/S, P&L, and all periodical and special reports – All notices, resolutions, and circulars relating to new issue – Notices and call letters of all meetings. – Proceedings of annual/general body meeting. – Copies of all notices, circulars etc issued or advertised in the press. • Publication of periodical interim statements – In a form approved by exchange. • Issue of shares – Offer shares, securities, rights, benefits to subscribe pro rat a basis to equity share holders, unless approved in General meeting, 4 weeks time. www.kanishgeorge.blogspot.in
- 13. • Effecting changesin securities – 21 days prior notice necessary to make changes and make application to stock exchange • Circulation of Annual results – Supply a copy of B/S, P&L and directors report to each share holder and up on application to any member of the exchange • Information of events – Inform about strikes, lockouts both at occurrence and cessation www.kanishgeorge.blogspot.in
- 14. • Take overconditions – Take over regulations of SEBI should be fulfilled. • Unaudited financial results – Will be published within one month from the end of a quarter to the stock exchange • Corporate governance – Include separate section on corporate governance in annual reports www.kanishgeorge.blogspot.in
- 15. Advantages of Listing •Provides liquidity to the securities of the company. • Help investors to evaluate the company through periodic reports. • Ensures free transferability of shares. • Exceptions and concessions available to a widely held companies are available to listed companies. • Transactions appear in news papers, provide information regarding market value of investments. www.kanishgeorge.blogspot.in
- 16. • Prices determinedby demand and supply, ensures fair prices. • By compulsory disclosure, the investing public get valuable information. • Improves public image and reputation. • Facilitates to mobilize more funds from public. • Listed securities are treated as collateral securities for loans and advances. www.kanishgeorge.blogspot.in
- 17. Disadvantages of Listing •Regulatory measures of the stock exchanges and SEBI. • Sending notices of annual meeting, annual reports to a large number of shareholders will raise cost to the company. • Submitted periodical reports and vital information might be used by competitors. • Public offer itself is expensive. • Listing does not guarantee price quotations. www.kanishgeorge.blogspot.in
- 18. Minimum Requirements/ Qualificationsfor Listing • Minimum Issued capital – Ministry of finance & Department of economic affairs: Minimum issued capital 3 crores and minimum public issue 75 Lakhs. BSE 10 crore • Payment of excess application money – Allotment should be done within 30 days of closure of public issue. 15% p.a interest rate applicable for further period. • Listing on multiple exchanges – Paid up capital of the company above R 5 crores. www.kanishgeorge.blogspot.in
- 19. • The numberof shareholders – For every 1 lakh of fresh capital- at least 10 shareholders – For sale of existing capital; 20 shareholders. • Appointment of a market maker – Paid up capital between ₹ 3 cr and ₹5 cr, to provide two way quotations for a minimum period of 18 months. • Articles of Association – If veto power to director to overrule majority decision, not qualified. www.kanishgeorge.blogspot.in
- 20. • Advertisement – Issueover subscribed/ Thanks to the investing public for their overwhelming response • Minimum Subscription – Rs 5000 (500xRs.10) SEBI; reduced to Rs.2000. Should be given in Prospectus. • Applying Mode – Single name or joint name of not more than three. Can be made by Limited companies, corporations, or institutions not by trust or partnership. www.kanishgeorge.blogspot.in
- 21. • Cost ofPublic Issue – Ceiling in the expenditure prescribed by SEBI • Public Offer Size – Size and value should be stated in prospectus. Whether at premium, preferential allotment etc should also be stated. www.kanishgeorge.blogspot.in
- 22. Listing Procedure • Preliminarydiscussion • Articles of association Approval • Draft prospectus Approval www.kanishgeorge.blogspot.in
- 23. Delisting • Voluntary delisting –Listing fee is prohibitive. – Business sick/ Suspended/ closed. – Capital base is small. – Mergers, amalgamations and takeovers. • Conditions to be fulfilled: – Company must have incurred losses in the preceding three years, with net worth less than the paid up capital. – Securities have been infrequently traded. – Securities remain listed at least on the regional stock exchange. www.kanishgeorge.blogspot.in
- 24. • Compulsory Delisting –Failed to comply with requirements of listing agreement. – Fails to redress the grievances of investors. – Unfair trade practices of promoters or managers and malpractices such as issuing of fake shares by management. – Thin / negligible shareholding base. – Trading in securities of the company has been suspended for more than six months. www.kanishgeorge.blogspot.in
- 25. Trading System • FloorTrading – Trading took place through an open outcry system on the trading floor or ring of the exchange during official trading hours. – Buyers and sellers transact business with broker. – Brokers transact on behalf of investors. www.kanishgeorge.blogspot.in
- 26. • Screen basedTrading – Fully automated computer mode of trading. – Distant participants can trade with each other. – Greater transparency – Quick trading – Proper matching of orders to buy and sell – Easy and paperless trading through demat accounts www.kanishgeorge.blogspot.in
- 27. Quote driven system •Market maker inputs two way quotes into the system – Bid price – Offer price • Participants place orders based on bid-offer quotes. • These are automatically matched by the system according to certain rules. www.kanishgeorge.blogspot.in
- 28. Order driven system •Clients place their buy and sell orders with the brokers. • Orders feed in to the system. • The buy and sell orders are automatically matched by the system according to predetermined rules. www.kanishgeorge.blogspot.in
- 29. Types of Orders •Market Orders – Broker is instructed by investor to buy or sell a stated number of shares immediately at the best prevailing price in the market. – Buy order- lowest price obtainable – Sell order- highest price obtainable – Investor will be certain about execution; uncertain about price. www.kanishgeorge.blogspot.in
- 30. • Limit Orders –Investor specifies the limit price. – Limit buy order- maximum price that he will pay for the share; order executed at limit price or lower price. – Limit sell order- minimum price he will accept for shares; order executed at limited price or higher price. – Limit prices are away from the market price www.kanishgeorge.blogspot.in
- 31. • Stop orders(Stop loss order) – To protect a profit or limit a loss. – In sell order, stop price will be below the market price. – Buy order, stop price will be above the market price. – It is a conditional market order, it becomes a market order when the market price reaches or passes the stop price. www.kanishgeorge.blogspot.in
- 32. • Stop limitorders (Conditional limit order) – The investor specifies two prices, a stop price and a limit price. – When the market price reaches the stop price, the order becomes the limit order to be executed within the limit price. www.kanishgeorge.blogspot.in
- 33. • Day order •Week order • Month order • Open orders ( GTC) • Fill or Kill Orders (FoK) www.kanishgeorge.blogspot.in
- 34. Settlement • Execution oforders – Buy orders are matched with sell orders. • Settlement of trade – Delivery of security and payment of cash. – Functioned by clearing house. • Clearing house acts as counter party. • “Account Period Settlement” • “Compulsory Rolling Settlement” www.kanishgeorge.blogspot.in
- 35. • Trades executedon a particular day are settled after a specified number of business days. • T + 5, T + 3, now T + 2. • On the first business day (T+1) exchange generates delivery and receive orders for transactions done by member brokers along with a money statement. • Can be downloaded by member brokers. www.kanishgeorge.blogspot.in
Editor's Notes
- #9 Transparent, rules and byelaws.
- #12 Fulfil following obligations Basis of capital of the company on march 31st. On or bfor 30 april. Prior notice on board meeting declaration of dividend, byback of shares etc. 7 days in advance.
- #20 Prevent undue concentration of large holdings BSE 10 and 5.
- #27 Two types: Quote driven system Order driven system
- #31 Buy: limit price below the market price Sell: above market price Floor price and ceiling price
- #34 All orders are day orders unless stated. Good till cancelled
- #36 Settlement of transaction done on Trade day has to be done on the second business day after the trade. Bank accounts authorised by clearing houses on day 2.