Financial

Markets

By:
Manish Malik (14086)
Neelesh Diwakar (14095)
Neelesh Kumar (14096)
Pranjal Sinha (14115)

BBS 2C

Financial System
Financial system (FS) is a framework for describing set
of markets, organisations, and individuals that
engage in the transaction of financial instruments
(securities), as well as regulatory institutions.
The basic role of FS is essentially channelling of funds
within the different units of the economy from surplus
units to deficit units for productive purposes.
This role is performed by financial markets.

Financial Markets
Financial markets perform the essential function of
channeling funds from economic players that have
saved surplus funds to those that have a shortage of
funds
At any point in time in an economy, there are individuals
or organizations with excess amounts of funds, and
others with a lack of funds they need for example to
consume or to invest.
Exchange between these two groups of agents is
settled in financial markets

The first group is commonly referred to as lenders, the

second group is commonly referred to as the borrowers
of funds.

Types of Financial Markets

The financial market can be divided into:
Capital markets which to consist of:
Stock markets, which provide financing through
the issuance of shares or common stock, and
enable the subsequent trading thereof.
Bond markets, which provide financing through
the issuance of bonds, and enable the
subsequent trading thereof.
Commodity markets, which facilitate the trading of
commodities.
Money markets, which provide short term debt
financing and investment.
Derivatives markets, which provide instruments for
the management of financial risk.
Futures markets, which provide standardized forward
contracts for trading products at some future date;
see also forward market.
Insurance markets, which facilitate the redistribution
of various risks.

 Foreign exchange markets, which facilitate the

trading of foreign exchange.

Please Note: As discussed, Our team has focused its

attention on the Capital Market component of the
Financial Market.

Capital Market
Capital markets are financial markets for the buying
and selling of long-term debt or equity-backed securities.
These markets channel the wealth of savers to those who
can put it to long-term productive use, such as companies
or governments making long-term investments. Capital
markets are defined as markets in which money is
provided for periods longer than a year.
Financial regulators, such as the U.S. Securities and
Exchange Commission (SEC) or SEBI (Securities and
Exchange Board of India), oversee the capital markets in
their jurisdictions to protect investors against fraud,
among other duties.
The Capital Market can be divided into two parts:
Primary Market

 Secondary Market

Primary Market
It is that market in which shares, debentures and other
securities are sold for the first time for collecting longterm capital.
This market is concerned with new issues. Therefore, the
primary market is also called NEW ISSUE MARKET.
In this market, the flow of funds is from savers to
borrowers (industries), hence, it helps directly in the
capital formation of the country.
The money collected from this market is generally used
by the companies to modernize the plant, machinery and
buildings, for extending business, and for setting up new
business unit.
FEATURES OF PRIMARY MARKET
This is the market for new long term equity capital.
The primary market is the market where the securities
are sold for the first time.
In a primary issue, the securities are issued by the
company directly to investors.
The company receives the money and issues new
security certificates to the investors.
Primary issues are used by companies for the purpose of
setting up new business or for expanding or modernizing

the existing business.

The new issue market does not include certain other
sources of new long term external finance
Borrowers in the new issue market may be raising capital
for converting private capital into public capital; this is
known as "going public."

The term capital Market refers to facilities and institutions

arrangements through which long-term funds; both debt
and equity are raised and invested. The Capital Market
consists of development banks, commercial Banks and
stock exchanges. The Capital market can be divided into
two parts (a) Primary Market (b) Secondary Market
Methods of Floating New Issues in the Primary Market
Public issue: When a company raises funds by selling
(issuing) its shares (or debenture / bonds) to the public
through issue of offer document (prospectus), it is called
a public issue. Initial Public Offer (IPO): When a (unlisted)
company makes a public issue for the first time and gets
its shares listed on stock exchange, the public issue is
called as initial public offer (IPO).Follow-on public offer
(FPO): When a listed company makes another public issue
to raise capital, it is called follow-on offer (FPO).
Offer for sale: Institutional investors like venture funds,
private equity funds etc., invest in unlisted company
when it is very small or at an early stage. Subsequently,
when the company becomes large, these investors sell
their shares to the public, through issue of offer

document and the companys shares are listed in stock

exchange. This is called as offer for sale. The proceeds of
this issue go the existing investors and not to the
company.
Private Placement: The sale of securities to a relatively
small number of select investors for raising capital.
Investors involved in private placements are usually large
banks, mutual funds, insurance companies and pension
funds. Private
placement is the opposite of a public issue, in which
securities are made available for sale on the open
market.
Issue of Indian Depository Receipts (IDR): A foreign
company which is listed in stock exchange abroad can
raise money from Indian investors by selling (issuing)
shares. These shares are held in trust by a foreign
custodian bank against which a domestic custodian bank
issues an instrument called Indian depository receipts
(IDR).IDR can be traded in stock exchange like any other
shares and the holder is entitled to rights of ownership
including receiving dividend.
Rights issue (RI): When a company raises funds from its
existing shareholders by selling (issuing) them new
shares / debentures, it is called as rights issue. The offer
document for a rights issue is called as the Letter of Offer
and the issue is kept open for 30-60 days. Existing
shareholders are entitled to apply for new shares in
proportion to the number of shares already held.

Bonus Issue, the company issues new shares to its

existing shareholders. As the new shares are issued out of
the companys reserves (accumulated profits),
shareholders need not pay any money to the company for
receiving the new shares.

PROCEDURE OF ISSUE OF SHARES

Procedure of issue of shares
When company has been registered, the following
procedure is adopted by the company to collect money
from the public by issuing of shares:
Step-1
Issue of prospectus: When a Public company intends to
raise capital by issuing its shares to the public, it invites
the public to make an offer to buy its shares through a
document called Prospectus. According to Section 60
(1), a copy of prospectus is required to be delivered to the
Registrar for registration on or before the date of
publication thereof. It contains the brief information about
the company, its past record and of the project for which
company is issuing share. It also includes the opening
date and the closing date of the issue, amount payable
with application, at the time of allotment and on calls,
name of the bank in which the application money will be
deposited, minimum number of shares for which
application will be accepted, etc.
Step-2
To receive application: After reading the prospectus if the
public is satisfied then they can apply to the company for

purchase of its shares on a printed prescribed form. Each

application form along with application money must be
deposited by the public in a schedule bank and get a
receipt for the same. The company cannot withdraw this
money from the bank till the procedure of allotment has
been completed (in case of first allotment, this amount
cannot be withdrawn until the certificate to commence
business is obtained and the amount of minimum
subscription has been received). The amount payable on
application for share shall not be less than 5% of the
nominal amount of share.
Step-3
Allotments of shares: Allotments of shares means
acceptance by the company of the offer made by the
applicants to take up the shares applied for. The
information of allotment is given to the shareholders by a
letter known as Allotment Letter, informing the amount
to be called at the time of allotment and the date fixed
for payment of such money. It is on allotment that share
come into existence. Thus, the application money on the
share after allotment becomes a part of share capital.
Decision to allot the share is taken by the Board of
Directors in consultation with the stock exchange. After
the closure of the subscription list, the bank sends all
applications to the company. On receipt of applications,
each application is carefully scrutinised to ascertain that
the application form is properly filled up and signed and
the money is deposited with the bank.
Step-4

To make calls on shares: The remaining amount left after

application and allotment money due from shareholders
may be demanded in one or more parts which are termed
as First Call and Second Call and so on. A word Final
word is added to the last call. The amount of call must not
exceed 25% of the nominal value of the shares and at
least 1 month have elapsed since the date which was
fixed for the payment of the last preceding call, for which
at least 14 days notice specifying the time and place
must be given.
Modes of issue of shares
A company can issue shares in two ways:
1. For cash.
2. For consideration other than cash.
Issue of shares for cash: When the shares are issued by
the company in consideration for cash such issue of
shares is known as issue of share for cash. In such a case
shares can be issued at par or at a premium or at a
discount. Such issue price may be payable either in lump
sum along with application or in instalments at different
stages (e.g. partly on application, partly on allotment,
partly on call).
Issue of shares at par: Shares are said to be issued at par
when they are issued at a price equal to the face value.
For example, if a share of Rs. 10 is issued at Rs. 10, it is
said that the share has been issued at par. Issue of shares
at premium: When shares are issued at an amount more
than the face value of share, they are said to be issued at
premium. For example, if a share of Rs. 10 is issued at Rs.

15; such a condition of issue is known as issue of shares

at premium. The difference between the issue price and
the face value [i.e. Rs. 5 (Rs.15 Rs.10)] of the shares is
called premium. It is a capital profit for the company and
will show credit balance; hence it will be shown in the
liability side of the Balance Sheet under the heading
Reserves and Surplus in a separate account called
Security Premium Account. Shares of those companies
can be issued at premium which offer attractive rate of
dividend on their existing shares, having a good profit
track for last few years and whose shares are in demand.
The amount of premium depends upon the profitability
and demand of shares of such company.
Note: The Company may collect the amount of security
premium in lump sum or in instalments. Premium on
shares may be collected by the company either with
application money or with the allotment money or even
with one of the calls. In absence of any information, the
amount of the premium is to be recorded with allotment.
Issue of shares at discount: Shares are said to be issued
at a discount when they are issued at a price lower than
the face value.
For example if a share of Rs. 10 is issued at Rs. 9, it is
said that the share has been issued at discount. The
excess of the face value over the issue price [i.e. Re.1
(Rs. 10 Rs. 9)] is called as the amount of discount.
Share discount account showing a debit balance denotes
a loss to the company which is in the nature of capital
loss. Therefore, it is desirable, but not compulsory, to
write it off against any Capital Profit available or Profit

and Loss Account as soon as possible, and the unwritten

off part of it is shown in the asset side of the Balance
Sheet under the heading of Miscellaneous Expenditure
in a separate account called Discount on issue of Shares
Account.
Conditions for issue of shares at discount: For issue of
shares a discount the company has to satisfy the
following conditions given in section 79 of the Companies
Act 1956:
(i) At least one year must have elapsed since the
company became entitled to commence business. It
means that a new company cannot issue shares at a
discount at the very beginning.
(ii) The company has already issued such types of shares.
(iii) An ordinary resolution to issue the shares at a
discount has been passed by the company in the General
Meeting of shareholders and sanction of the Company
Law Tribunal has been obtained.
(iv) The resolution must specify the maximum rate of
discount at which the shares are to be issued but the rate
of discount must not exceed 10% of the face value of the
shares. For more than this limit, sanction of the Company
Law Tribunal is necessary.
(v) The issue must be made within two months from the
date of receiving the sanction of the Company Law
Tribunal or within such extended time as the Company
Law Tribunal may allow.
Forfeiture of shares:
When any company allots share to the applicants, it is

done on the basis of a legal contract between the

company and the applicant, which makes it binding upon
the shareholders to pay the amount of allotment and calls
whenever they are due. Now if any shareholder fails to
pay the allotment and or call money due to him, the
shareholder violates the contract and the company is
entitled to take its share back, which is known as
forfeiture of shares. The company can forfeit such shares
if authorised by the Articles of Association. Forfeiture of
share can be done according to the rules laid sown in the
Articles and if no rules are given in Articles, the provisions
of Table A, regarding forfeiture will apply. Forfeiture of
shares means cancellation of allotment to defaulting
shareholders and to treat the amount already received on
such shares is not returnable to him it is forfeited.
Procedure for forfeited shares:
The usual procedure is that the defaulting shareholder
must be given a minimum 14 days notice requiring him to
pay the amount due on his shares along with interest on
it stating that if he fails to pay the amount and the
interest on it, the shares will be forfeited. Inspite of this
notice, the shareholder does not pay the unpaid amount.
The directors after passing a resolution will forfeit the
shares and information will be given to the defaulting
shareholder about the forfeiture his shares.
Effect of forfeiture of shares:
1. Termination of membership: The membership of the
defaulting will be terminated and they lose all the rights
and interest on those shares i.e. ceases to be the

member / shareholder / owner of the company and his

name will be removed from the Register of Members
2. Seizure of money paid: The amount already paid on the
forfeited shares by the defaulting shareholders will be
seized by the company and in no case will be refunded
back to the shareholder.
3. Non payment of dividend: When shares are forfeited
the shareholder remains no longer the member of the
company therefore he looses the right to receive future
dividend.
4. Reduction of share capital: Forfeiture of shares result in
the reduction of share capital to the extent of amount
called up on such shares.
Surrender of shares:
When a shareholder feels that he cannot pay further
calls; he may himself surrender the shares to the
company. These shares are then cancelled. Surrender of
shares is a voluntary return of shares for the purposes of
cancellation. The directors can accept the surrender of
shares only when the Articles of Association authorise
them to do so. Surrender is lawful only in two cases viz.
(a) where it is done as a short cut to forfeiture to avoid
the formalities for a valid forfeiture and
(b) where shares are surrendered in exchange for new
shares of the same nominal value. A surrender will be
void if it amounts to purchase of the shares by the
company or if it is accepted for the purpose of relieving a
member from his liabilities. Entries are passed just like
forfeiture of shares.

Thus, surrender of shares is at the instance of

shareholder whereas forfeiture of shares at the instance
of company.
Re-issue of Forfeited of shares:
Shares forfeited becomes the property of the company
and the directors of a company have an authority to reissue the shares once forfeited by them in accordance
with the provisions contained in Articles of Association.
Table A provides that A forfeited shares may be sold or
otherwise disposed off on such terms and in such manner
as the Board thinks fit. They can re-issue the forfeited
shares at par, at premium or at discount. However, if the
shares are re-issued at discount, the amount of the
discount does not exceed the amount paid on such
shares by the original shareholder but in case of shares
originally issued at a discount, the maximum permissible
discount will be amount paid on such shares by the
original shareholder plus the amount of original discount.
Over subscription of issue:
When the application received from the public are more
than the shares issued by the company, this situation is
called as over subscription of issue. The Board of
Directors cannot allot shares more than that offered to
the public, in such a condition the Directors of the
company make the allotment of shares on the basis of
reasonable criteria. Any allotment to be made by the
company in case of over subscription should be according
to the scheme, which is finalized with the consultation of
Security and Exchange Board of India (S.E.B.I.) The
journal entry for application money will be passed for all

the shares applied for, but while transferring the

application money to share capital account, only the
application money on shares issued will be considered.
Under subscription of issue:
Shares are said to be under-subscribed when the number
of shares applied for is less than the number of shares
offered, but at least minimum subscription (According to
the guidelines issued by S.E.B.I. minimum subscription
means If the company does not receive a minimum
subscription of 90% of the issued amount within 60
days from the date of closure of the issue, the company
shall forthwith refund the entire subscription amount) is
received. For example, in case has offered 5,000 shares
to public but the public applied for 4,500 shares only, it is
called a case of under-subscription. Journal entries are
passed on the basis of shares applied for.
Private placement of shares:
According to Section 81 (1A) of the Companies Act, 1956
private placement of shares implies issue and allotment
of shares to a selected group of persons such U.T.I., L.I.C.
etc. in other words; an issue which is not a public issue
but offered to a select group of persons is called Private
Placement of shares.
Preferential allotment:
A preferential allotment is one that is made at a predetermined price to the preidentified people who wish to
take a strategic stake in the company such as promoters,
venture capitalists, financial institutions, buyers of
companies products ore its suppliers. In other such a

case, the allottees will not sell their securities in the open
market for a minimum period of three years from the date
of allotment. This period is known as the lock-in-period.
The preferential allotment can take place only if threefourths of the shareholders agree to the issue on
preferential basis. S.E.B.I. has prescribed that the
minimum price of such an issue has to be an average of
highs and lows of the 26 week preceding the date on
which the board resolves to make the preferential
allotment.
Employee stock option plan:
In order to retain high caliber employees or to give them
a sense of belonging, companies may offer their equity
shares to be purchased at their will. Such scheme is
called Employee stock option plan (ESOP). Following are
the characteristics of this scheme:
1) ESOP implies the right, but not an obligation.
2) The employee has a right to exercise the option of
purchase of shares within the vesting period, i.e., the
time period during which the scheme remains in
operation.
3) Any share issued under the scheme of ESOP shall be
locked-in for a minimum period of one year from the date
of allotment.
Buy-back of shares:
The term buy-back of share implies the act of purchasing
its own shares by a company either from free reserves,
securities premium or proceeds of any shares or
securities. According to Section 77A of the Companies Act
1956, a company can buy its own shares either from the:
a) Existing equity shareholders on a proportionate basis.
b) Open market

c) Odd lot shareholders

d) Employees of the company pursuant to a scheme of
stock option or sweat equity.
Right shares:
Under Section 81 of the Companies Act, the existing
shareholders have a right to subscribe, in their existing
proportion, to the fresh issue of capital or to reject the
offer, or sell their rights. The existing shareholders can
authorize the company by passing a special resolution to
offer such shares to the public.

NEED FOR PRIMARY MARKET

To raise funds for certain purpose.
To create market for new issues of securities.
To establish the magnitude of the market.
To mobilize Resource the economy.
For overall development of companies.

Secondary Market
The secondary market, also called
the aftermarket, is the financial market in which
previously issued financial instruments such as

stock, bonds, options, and futures are bought and

sold.
A secondary market is a market where investors
purchase securities or assets from other investors,
rather than from issuing companies themselves. The
national exchanges - such as the New York Stock
Exchange and the NASDAQ are secondary markets.
Secondary markets exist for other securities as well,
such as when funds, investment banks, or
entities purchase mortgages from issuing lenders. In
any secondary market trade, the cash proceeds go to
an investor rather than to the underlying
company/entity directly.

Difference between Primary and Secondary Market

The difference between the primary capital market and
the secondary capital market is that in the primary
market, investors buy securities directly from the
company issuing them, while in the secondary market,
investors trade securities among themselves, and the
company with the security being traded does not
participate in the transaction.
When a company publicly sells new stocks and bonds for
the first time, it does so on the primary capital market. In
many cases, this takes the form of an initial public
offering, or IPO. When investors purchase securities on
the primary capital market, the company offering the
securities has already hired an underwriting firm to

review the offering and created a prospectus outlining the

price and other details of the securities to be issued.
Companies issuing securities via the primary capital
market hire investment bankers to obtain commitments
from large institutional investors to purchase the
securities when first offered. Small investors are not often
able to purchase securities at this point, because the
company and its investment bankers seek to sell all of
the available securities in a short period of time to meet
the required volume and must focus on marketing the
sale to large investors who can buy more securities at
once. Marketing the sale to investors can often include a
"road show" or "dog and pony show," in which investment
bankers and the company's leadership travel to meet
with potential investors and convince them of the value
of the security being issued.
The secondary market is where securities are traded after
the company has sold all the stocks and bonds offered on
the primary market. Markets such as the New York Stock
Exchange (NYSE), London Stock Exchange or Nasdaq are
secondary markets. On the secondary market, small
investors have a better chance of buying or selling
securities, because they are no longer excluded from IPOs
due to the small amount of money they represent.
Anyone can purchase securities on the secondary market
as long as they are willing to pay the price for which the
security is being traded.
On the secondary market, an investor requires a broker to
purchase the securities on his or her behalf. The price of
the security fluctuates with the market, and the cost to
the investor includes the commission paid to the broker.
The volume of securities sold also varies from day to day,

as demand for the security fluctuates. The price paid by

the investor is no longer directly related to the initial price
of the security as determined by the first issuance, and
the company that issued the security is not a party to any
sale between two investors. However, the company can
engage in a stock buyback on the secondary market.

BREAKING DOWN 'Secondary Market'

A newly issued IPO will be considered a primary
market trade when the shares are first purchased by
investors directly from the underwriting investment bank;
after that any shares traded will be on the secondary
market, between investors themselves. In the
primary market prices are often set beforehand, whereas
in the secondary market only basic forces like supply and
demand determine the price of the security.
Equity shares, bonds, preference shares, treasury
bills, debentures, etc. are some of the key
products available in a secondary market. SEBI is
the regulator of the same.

Stock Exchange

A stock exchange does not own shares. Instead, it acts as

a market where stock buyers connect with stock sellers.
Stocks can be traded on one or more of several possible
exchanges such as the SENSEX.
The primary function of an exchange is to help provide
liquidity; in other words, to give sellers a place to
"liquidate" their share holdings.
Stocks first become available on an exchange after a
company conducts its initial public offering (IPO). In an
IPO, a company sells shares to an initial set of public
shareholders (the primary market). After the IPO "floats"
shares into the hands of public shareholders, these
shares can be sold and purchased on an exchange
(the secondary market).
The exchange tracks the flow of orders for each stock,
and this flow of supply and demand sets the stock price.

Stock Trading

Most stocks are traded on exchanges, which are places

where buyers and sellers meet and decide on a price.
Some exchanges are physical locations where
transactions are carried out on a trading floor.
The other type of exchange is virtual, composed of a
network of computers where trades are made
electronically.

Screen Based Trading System (SBTS)

NSE introduced for the first time in India, fully automated
screen based trading. It uses a modern, fully
computerised trading system designed to offer investors
across the length and breadth of the country a safe and
easy way to invest.
NSEs automated screen based trading, modern, fully
computerised trading system designed to offer investors
across the length and breadth of the country a safe and
easy way to invest. The NSE trading system called
'National Exchange for Automated Trading' (NEAT) is a
fully automated screen based trading system, which
adopts the principle of an order driven market

STOCK MARKET INDICES

Stock market indices are useful in understanding the level

of prices and the trend of price movements of the market.
A stock market index is created by selecting a group of
stocks that are capable of representing the whole market
or a specified sector or segment of the market.
The change in the prices of this basket of securities is
measured with reference to a base period.
There is usually a provision for giving proper weights to
different stocks on the basis of their importance in the
economy.
A stock market index act as the indicator of the
performance of the economy or a sector of the economy.

Their usefulness:
Indices help to recognize broad trends in the market.
The investor can use the indices to allocate the funds
rationally
among the stocks.
Technical analysts use these indices to predict the
future market.
Indices function as a status report on the general
economy.

Index Calculation

CRITERIA FOR SELECTING STOCKS TO CALCULATE

INDEX:
Listing history: The company should have listing
history on BSE for at least one year
Track record: The company should have listing
history
Market capitalization: Company should have one
among 100 market capitalizations of BSE,
And each company should have more than0.5% of
total market capitalization of BSE INDEX
Frequency of trading: Company stocks
should be traded on each and every trading day for
the last one year
Industrial representation: Company Should be a
leader in the industry it represents

Formula for Sensex

SENSEX = (sum of free float market cap of 30
major companies of BSE) * Index value in 197879 / Market cap value in 1978-79.

Formula for NIFTY

NIFTY = (Sum of free flow market cap of 50
major stocks of NSE) * Index value in
1995 / market cap value in 1995.

Securities and Exchange Board of India

The Securities and Exchange Board of India (SEBI) is the regulator for
the securities market in India. It was established in the year 1988 and given statutory
powers on 12 April 1992 through the SEBI Act, 1992.

History
It was established by The Government of India on 12 April 1988 and given statutory powers in 1992
with SEBI Act 1992 being passed by the Indian Parliament. SEBI has its headquarters at the
business district of Bandra Kurla Complex in Mumbai, and has Northern, Eastern, Southern and
Western Regional Offices in New Delhi, Kolkata, Chennai and Ahmedabad respectively. It has
opened local offices at Jaipur and Bangalore and is planning to open offices at Guwahati,
Bhubaneshwar, Patna, Kochi and Chandigarh in Financial Year 2013 - 2014.
Controller of Capital Issues was the regulatory authority before SEBI came into existence; it derived
authority from the Capital Issues (Control) Act, 1947.
Initially SEBI was a non statutory body without any statutory power. However, in 1995, the SEBI was
given additional statutory power by the Government of India through an amendment to the Securities
and Exchange Board of India Act, 1992 In April 1988 the SEBI was constituted as the regulator of
capital markets in India under a resolution of the Government of India.

Powers
SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and
quasi-executive.
It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its
executive function and it passes rulings and orders in its judicial capacity.

How SEBI Regulate Secondary Market

1 Registration of Stock Brokers
2 Registration of Sub-brokers
3 Recognition of Stock Exchanges
4 Corporate Restructuring: Substantial Acquisition of Shares and Takeovers
5 Registration of Foreign Institutional Investors
6 Prohibiting fraudulent and unfair trade practices relating to securities
markets.
7 The duty of the Board to protect the interests of investors in securities and
to regulate the securities market.

The following departments of SEBI take care of the activities in the

secondary market.

Sr.No. Name of the Department

1.
Market
Intermediaries
Registration
and
Supervision department
(MIRSD)
2.

Major Activities
Registration, supervision, compliance monitoring and
inspections of all market intermediaries in respect of all
segments of the markets viz. equity, equity derivatives,
debt and debt related derivatives.

Market
Regulation Formulating new policies and supervising the functioning
Department (MRD)
and operations (except relating to derivatives) of securities
exchanges, their subsidiaries, and market institutions such
as Clearing and settlement organizations and
Depositories (Collectively referred to as Market SROs.)

3.

Derivatives and New Supervising trading at derivatives segments of stock

Products Departments exchanges, introducing new products to be traded, and
(DNPD)
consequent policy changes

Role Of SEBI In IPO

The rules, regulations and procedures relating to public issues in
India are governed by SEBI. Any company going public in India
should get approval from SEBI before opening its IPO.

Issuer companys lead managers submit the public issue

prospectus to SEBI, provide clarification, make changes to
the prospectus suggested by SEBI and get it approve.

SEBI validate the IPO and make sure that document has enough
information to help investors to take decision before applying
shares
Major Achievements
SEBI has enjoyed success as a regulator by pushing systematic
reforms aggressively and successively. SEBI is credited for quick
movement towards making the markets electronic and paperless
by introducing T+5 rolling cycle from July 2001 and T+3 in April
2002 and further to T+2 in April 2003.
The rolling cycle of T+2 means, Settlement is done in 2 days
after Trade date. SEBI has been active in setting up the
regulations as required under law.
SEBI did away with physical certificates that were prone to postal
delays, theft and forgery, apart from making the settlement
process slow and cumbersome by passing Depositories Act, 1996.
SEBI has also been instrumental in taking quick and effective
steps in light of the global meltdown and the Satyam fiasco.
In October 2011, it increased the extent and quantity of
disclosures to be made by Indian corporate promoters. In light of

the global meltdown, it liberalised the takeover code to facilitate

investments by removing regulatory structures.
Precautions of investing in the Stock Markets
Make sure your broker is registered with SEBI and the
Exchanges
Ensure that you receive contract notes for all your
transactions
Invest in a manner that matches their risk tolerance
Do not be misled by market rumors, luring advertisement or
hot tips
Take informed decisions by studying the fundamentals of the
company