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Capital Market
SUBMITTED TO
Prof. K.L.Chawla
By
INMANTEC
Ghaziabad
Capital Market
Capital market is a sub-part of financial system; it comprises the sources of
long-term finance for Industry and government. It is the market that attract
saving from various sources and make them available to the sectors of
economy requiring funds for productive uses. The savings and funds are
converted into investment through both the primary market for new issues
and the secondary market for existing securities are part of the capital
market.
The market in which corporate equity and longer-term debt securities are
issued and traded.
It is the market for long-term funds where securities such as common stock,
preferred stock, and bonds are traded.
In other word we can say that the capital market in which large amounts of
money (capital) are raised by companies, governments and other
organizations for long term use.
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Capital market v/s Money market
The Capital market is different from Money market because Money market
is created by a financial relationship between suppliers and demanders of
short-term funds, which have maturities of one year or less. It exists because
investors have temporarily idle funds that they wish to place in some type of
liquid assets or short-term interest-earnings instruments. At the same time,
other entities/organizations find themselves in need of seasonal/temporary
financing.
The Capital market comprises two components namely: New issues market
where company issues securities directly to the public and the stock market
or Secondary market where the existing securities are bought and sold.
1 - Primary market.
2 - Secondary market.
Primary market: -
The market in which investors have the first opportunity to buy a newly
issued security.
This is part of the financial market where enterprises issue their new shares
and bonds. It is characterized by being the only moment when the enterprise
receives money in exchange for selling its financial assets.
This is part of the financial market where enterprises issue their new shares
and bonds. The market in which investors have the first opportunity to buy a
newly issued security. Investors who buy stocks and bonds in the primary
market usually are not required to pay brokerage commissions because fees
for selling the issue are built into its price and are absorbed by the issuer.
The primary is that part of the capital markets that deals with the issuance
of new securities. Companies, governments or public sector institutions can
obtain funding through the sale of a new stock or bond issue. This is
typically done through a syndicate of securities dealers. The process of
selling new issues to investors is called underwriting. In the case of a new
stock issue, this sale is an Initial public offering (IPO). Dealers earn a
commission that is built into the price of the security offering, though it can
be found in the prospectus.
IPO is new shares offered to the public in the Primary Market .The first
time the company is traded on the stock exchange.
Public issues are open for a few days only. As per law, any public issue
should be kept open for a minimum of 3days and a maximum of 21 days.
In such a primary issue the minimum number of shares that can be applied
for is usually 50, and applications for higher quantities must be for multiple
of hundred.
In the case of the issue of new shares, which have a high demand, it is
possible that the amount of money the company is seeking from the issue
would be found or subscribed fully, before the closing date. Therefore, it is
usually advisable to apply for shares in a primary issue within the stipulated
times of the prospectus.
You will in time earn a dividend, when the company declares dividends
depending on its profitability. Or else you may be allotted bonus shares or
entitled to buy more shares on a rights issue. However, if you wish to covert
your shares into cash you can sell in the Stock Exchanges.
Secondary Market: -
The market where securities are traded after they are initially offered in the
primary market. Most trading is done in the secondary market.
The secondary market is the financial market for trading of securities that
have already been issued in an initial private or public offering.
Alternatively, secondary market can refer to the market for any kind of used
goods. The market that exists in a new security just after the new issue, is
often referred to as the aftermarket. Once a newly issued stock is listed on a
stock exchange, investors and speculators can easily trade on the exchange,
as market makers provide bids and offers in the new stock.
Function:-
In the secondary market, securities are sold by and transferred from one
investor or speculator to another. It is therefore important that the secondary
market be highly liquid (originally, the only way to create this liquidity was
for investors and speculators to meet at a fixed place regularly).
Zero Coupon Bond: Bond issued at a discount and repaid at a face value.
No periodic interest is paid. The difference between the issue price and
redemption price represents the return to the holder. The buyer of these
bonds receives only one payment, at the maturity of the bond.
Convertible Bond: A bond giving the investor the option to convert the
bond into equity at a fixed conversion price.
In the primary market, securities are offered to public for subscription for the
purpose of raising capital or fund. Secondary market is an equity-trading
avenue in which already existing/pre- issued securities are traded amongst
investors. Secondary market could be either auction or dealer market. While
stock exchange is the part of an auction market, Over-the-Counter (OTC) is
a part of the dealer market.
1. The Secondary Market provides liquidity for the issued securities, which
are traded in the Secondary Market.
Initiatives: SEBI has taken a number of steps in the last few years to reform
the India capital market. It has covered the entire gamut of capital market
activities through nearly 30 legislations. The important initiatives are
mentioned below.
Screen based Trading: Due to the competition posed by the National Stock
Exchange and the insistence or prodding done by SEBI, all the exchanges
have switched to screen based trading.
Rolling Settlement: The trading cycle, which was previously one week, has
been reduced to one day and the system of rolling has been introduced.
The issue of debt securities having maturity period of more than 365 days by
listed companies (i.e. which have any of their securities, either equity or
debt, offered through an offer document, and listed on a recognized stock
exchange and also includes Public Sector Undertakings whose securities are
listed on a recognized stock exchange) on private placement basis must
comply with the conditions prescribed by SEBI from time to time for getting
them listed on the stock exchanges. Further, unlisted companies/statutory
corporations/other entities, if they so desire, may get their privately placed
debt securities listed on the stock exchanges, by complying with the relevant
conditions. Briefly, these conditions are:
Such disclosures may be made through the web site of the stock exchanges
where the debt securities are sought to be listed if the privately placed debt
securities are issued in the standard denomination of Rs. 10 lakhs.
The debt securities shall carry a credit rating from a Credit Rating
Agency registered with SEBI.
The company shall appoint a debenture trustee registered with SEBI
in respect of the issue of the debt securities.
All trades with the exception of spot transactions, in a listed debt security,
shall be executed only on the trading platform of a stock exchange.
Who is a broker?
A broker is a member of a recognized stock exchange, who is permitted to
do trades on the screen-based trading system of different stock exchanges.
He is enrolled as a member with the concerned exchange and is registered
with SEBI.
Contract note provides for the recourse to the system of arbitrators for
settlement of disputes arising out of transactions. Only the broker can
issue the contract notes
Employment
Consumer spending
FDI
Capital Market Regulation:
In keeping with the broad thrust of the ongoing programmes of economic
reform, the mechanism of administrative controls over capital issues has
been dismantled and pricing of capital issues is now essentially market
determined. Regulation of the capital markets and protection of investor's
interest is now primarily the responsibility of the Securities and Exchange
Board of India (SEBI), which is located in Bombay.
90-day limit for carry forward and squaring off allowed only till the
75th day (or the end of the fifth settlement).
The time limit of six months, in which stock exchanges could amend
their byelaws, has been reduced to two months.
Conclusion
The capital market is the market for securities, where companies and
governments can raise longterm funds. The capital market includes the stock
market and the bond market. Financial regulators, such as the U.S. Securities
and Exchange Commission, oversee the capital markets in their designated
countries to ensure that investors are protected against fraud. The capital
markets consist of the primary market, where new issues are distributed to
investors, and the secondary market, where existing securities are traded.
Regulation of the capital markets and protection of investor's interest is now
primarily the responsibility of the Securities and Exchange Board of India
(SEBI), which is located in Bombay.