Secondary

Market

Secondary market is the segment of the

capital market where securities (shares
and debentures) that have been
issued/listed in stock exchanges are
bought & sold for either investment or
speculation.

Basis of Difference

Primary Market

Secondary Market

Deals with

Deals with the sale of

only new securities

Deals with the sale and

purchase of already
existing securities.

Objectives

Creating long term

securities for
mobilizing capital
equity/debt

Providing liquidity to these

instruments/markets by
facilitating transactions

Determination of
price of securities

The price of securities

is decided by the
management of the
company (under the
SEBI rules)

The price of securities is

determined by the forces
of demand and supply for
securities.

Basis of Difference

Primary Market

Secondary Market

Location

There is no fixed
geographical location

The stock market is the

platform through which
transactions happen

Administration

It has no tangible form It has a definite

of administrative
administrative structure
structure
that facilitates trading in
securities

Role of concerned
company

The securities are sold The company does not play

directly by the
a role as the securities are
company to the
exchanged among the
investors.
investors themselves.

Providing a market place for securities transaction

Imparting liquidity marketability for equity and
debt instruments
Ensuring safe and fair dealing in securities so as to
protect investors interests
Facilitating price discovery
Linking savings and investment, and thereby
facilitating capital formation
Facilitating foreign investment, in particular FIIs
Enforcing market discipline on corporate entities
Facilitating the functioning of Primary market

Stock Exchange
Clearing Corporation
Depositories/ DP
Brokers
Registrar to an Issue and Share Transfer Agent
Buyers and sellers

The Securities Contracts (Regulation) Act,

1956 defines a stock exchange as
"an association, organization or body of
individuals, whether incorporate or not,
established for the purpose of assisting,
regulating and controlling the business in
buying, selling and dealing in securities".

A Stock exchange or securities market is an

organised market where listed securities are
purchased & sold for investment or
speculation.

A stock exchange is an entity that provides

"trading" facilities for stock brokers and
traders to trade stocks, bonds, and other
securities.
Stock exchanges also provide facilities for
issue and redemption of securities and
other financial instruments, and corporate
events including the payment of income
and dividends.

Securities traded on a stock exchange include

shares issued by companies, bonds, unit trusts
(Mutual Funds), pooled investment products and
derivatives.

It is an organized market
It is a market for financial securities
It is an important constituent of capital market i.e., market
for long-term finance
It is a voluntary association of persons, with restricted
membership
In a stock exchange, only the members can deal engage in
transaction i.e., buy & sell securities
The members of a stock exchange can buy and sell
securities either as brokers for & on behalf of their clients
The dealings in a stock exchange are under certain accepted
code of conduct i.e., rules and regulations

1.
2.
3.

4.
5.
6.
7.
8.
9.

Ready and Continuous Market

Liquidity for securities
Promotes Savings & Capital Formation
Investor Protection
Government Funding
Evaluation of Securities
Industrial Development
Price stability
Facilitates Flow of Foreign Capital

A)
1.
2.
3.
4.
5.
6.
7.
8.

Advantages to the Investors

Liquidity of investment
Evaluation of securities
Corporate news
Grievance redressal
Higher returns
Investor education
Corporate governance
Stable prices

B)
1.
2.
3.
4.
5.
6.

Benefits to companies
Publicity and image development
Easy raising of large volume of funds
Market discipline & corporate governance
Sourcing of international funds
Facilitates expansion
Facilitates mergers and acquisitions

C)
1.
2.
3.
4.
5.
6.
7.

Benefits to the economy

Business development
Savings mobilisation
Government funding
Capital formation
Availability of foreign capital
Promotion of industrial democracy
Regulation of corporate entities

Listing of
Securities

M Manjunath Shettigar

 Listing

of securities refers to admission of securities

to buying and selling rights (dealings) on a stock
exchange by way of a formal agreement.

The

main aim of admission to dealings on the

exchange is to give liquidity and also marketability to
securities, as also to give a mechanism for efficient
control and supervision of trading.

The securities may be of any public limited company,

Central or State Government, quasi governmental and
other financial institutions/corporations,
municipalities, etc.

A company can seek listing if at least 10 per cent of

the securities, subject to a minimum of 20 lakh
securities, have been offered to public for
subscription.

 Three

Main Objective of listing

Provide liquidity to shares

Mobilize savings for economic development

protect interest of investors by ensuring full

disclosures by regulating dealings in securities.

1. A premier market place :i) provides marketability

II) It ensures consistency and transparency.
2. Visibility and reputation:-

3.Unprecedent reach:i)
Stock exchange provides trading platform.
ii)
Number of investors can avail of trading
facilities.
4. Value addition:i) A listing can also be anticipated to attach
importance to companys employee share
ownership scheme.

5. Increasing capital:i)
It makes available acsess to collction of institutional
and retail investors and to the capital market.
6.Price detection:i)
A listing facilitates companies to ascertain a price
for their shares.
7. Low cost capital:i) The primary gain of raising capital from the market.
ii) It avoids a number of intermediation expenses
apparent in the other forms of capital raising.

Once the share are listed the company subject

themselves to various regulatory measures of
stock exchange SEBI.
They have to disclose vital information to the
stock exchange ( competitors may get to know
that)
Leads to speculation.
The company has to send notice for annual
general meeting to a large number of
shareholders, resulting in expenditure

Minimum post issued paid

up capital should be 3
crores
Minimum issue size shall be
10 crores
Minimum market
capitalization shall be 25
crores

FOR LARGE CAP

COMPANIES

Minimum post issued paid

up capital should be 3 crores
Minimum issue size shall be
5 crores
Minimum market
capitalization shall be 5
crores
Minimum no : of public
shareholders after the issue
shall be 1000.

FOR SMALL CAP

COMPANIES

Approval of Articles of Association.

Approval of draft prospectus.
- SEBI acknowledge letter
Submission of Application

Payment of listing fees and deposits of securities

money.

Supporting documents required as follows:

Clauses of Articles of Association.

Application Letter for Listing.
Listing Application providing pre-issue details of securities.
Listing Application providing post-issue details of securities.
Checklist for supporting documents ( as applicable to the issuer)
Schedule of Distribution

Compliance of Listing Agreement and Laws

Means removal of a particular securities for dealing in a stock

exchange. Hence the delisted securities can no longer be
traded in that stock exchange.

2 ways of delisting
- compulsory delisting
- voluntary delisting

It is initiated by the stock exchange only for the default by the

co. with terms of listing agreement.
Norms are laid down by the SEBI guidelines , its noncompliance causes compulsory delisting
Eg : Abhishek cements ltd , Asian tractors
Reasons
- unfair trade practices
- non payment of listing fees
- violation of listing agreement
- non redressal of grievances.

The co. or promoters can opt to remove its securities from the
stock exchange
SEBI has given the manner, procedure and guidelines for the
same.
Eg : India gypsum ltd , BST ltd , BPL engineering ltd
Reasons
- unable to pay listing fees
- capital base is small
- business is sick, suspended or closed
- mergers, demergers, amalgamation

Under Listing agreement company undertakes following actions

To provide facilities for prompt transfer, registration, subdivision and consolidation of securities
To give proper notice of closure of transfer books and record
dates
To furnish financial results on a quarterly basis
Listing Department of the Exchange can take penal action
against the defaulting companies

A market order is an order to buy or sell a

stock as soon as possible at the best price
available. In a fast market situation, a
market order can be very risky.
A limit order is the safest way to trade in a
fast market because it's an order to buy or
sell a stock only at the specified price (the
limit price) or better.

A stop order is an order to buy or sell a stock when

the price reaches or passes a specified point (the
stop price). When that happens, a stop order
automatically becomes a market order and is
executed at the best price available. In fast
markets, however, after a stop order hits the stop
price and becomes a market order, it can keep
climbing or drop sharply - and ultimately be
executed much higher or lower than originally
specified.

Brokers:

3.

Buys/sells on behalf of outsider

Charges Brokerage
Not specialize in particular security

Jobbers:

1.
2.

1.
2.
3.
4.

(Mumbai stock exchange-Tarawaniwala)

Buys/sells on his own behalf

Profit from price difference
Specializes in one security
Not prohibited from selling/buying securities on behalf of
others
More rational traders More Will be rational trading

Churning: Excessive trading of a client's

discretionary account to increase the
broker's commissions.
Use deception or manipulation to trade
securities, or failing to state material facts
Recommending low-priced, speculative
securities without determining whether they
are suitable for the customer
Make unauthorized transactions

Guarantee that loss will not occur

Try to talk clients into buying mutual funds
inappropriate for their means and goals
Use fictitious accounts to disguise trades
State that the SEC has approved or judged
positively either the security or the broker
Not promptly transmitting the client's
money or securities

Bull Markets
bull markets are movements in the stock
market in which prices are rising and the
consensus is that prices will continue moving
upward. During this time, economic
production is high, jobs are plentiful and
inflation is low.

Bear Markets
Bear markets are the opposite--stock
prices are falling, and the view is that they
will continue falling. The economy will slow
down, coupled with a rise in unemployment
and inflation. In either scenario, people
invest as though the trend will continue.
Investors who think and act as though the
market will continue to rise are bullish,
while those who think it will keep falling are
bearish.

Open outcry system

1. Trading post
2. Jobber
Screen-based system
1. Informational efficiency
2. Full view of market

More rational traders More Will be rational trading

Procedure for buying shares:

1.

Locating a Broker

(Client registration form & member-constituent form)

2.

Placement of order

(Limit order or market order:

-Day order
-week order
-month order
Open order)

3. Execution of order

(contract note)

Procedure for selling shares:

1.

Placement of order
(Sale order ;limit order & market order)

2.

Execution of order

(contract note)
3.

Internet Trading

(ICICI Web trade)

SEBI stands for Securities and Exchange Board of

India. It was set up in April, 1988, as a strong need
was felt to protect the interest of the investors and
to have a systematic and organized working of the
securities market.
It started actually functioning when the SEBI Act
was passed in 1992. The Act empowered SEBI with
necessary powers to regulate the activities
connected with marketing of securities and
investment of Stock Exchanges, Portfolio
Management, Stock Brokers, and Merchant Banking
etc.

There are three basic objectives of SEBI.

They are as follows:(1) Towards Investors.
(2) Towards Capital Issuers.
(3) Towards Intermediaries.

1.
2.
3.
4.
5.
6.
7.
8.
9.

To protect investors Interest

Regulating Working of Mutual Funds
Regulates Merchant Banking
Take over and Mergers
Restriction on Insider Trading
Regulates Stock Brokers Activities
Research and Publicity
Guidelines on Capital Issues
Portfolio Management

10. Other functions: There are some other

functions also which are as follows:(i) It prevents unfair trade practices relating
to the securities market.
(ii) It gives training to intermediaries in the
securities market.
(iii) It promotes investor's education.
(iv) It conducts audits of the stock
exchanges.
(v) It also conducts inquiries, and
inspections.

A stock market crash is a sudden dramatic

decline of stock prices across a significant
cross-section of a stock market, resulting in
a significant loss of paper wealth. Crashes
are driven by panic as much as by
underlying economic factors. They often
follow speculative stock market bubbles.

Sometimes, stock markets crash because of a

specific economic or political situation. For
example, in 2002, the famous Enron scandal shook
investor confidence and caused a downturn in the
market. More often, however, crashes are caused
by nothing more than panic.
What we say that a market crashes, what we mean
is that the value of stocks drops dramatically
across the board. Rather than just one corporation
being affected, the stocks of many or all
corporations fall dramatically. This, in turn, causes
investor panic and many people rush to sell their
stocks. The more people try to sell their stocks
lower stock value falls, making the problem worse.

Many people are involved in a stock market

downturn. At the base level, it is
shareholders or those who own stocks who
are most involved. In many cases, it is
investors themselves can contribute to a
crash. Investors may borrow money to buy
stocks or may invest in stocks without
thoroughly understanding the stock market.
Investors who are not disciplined and who
do not understand the market may be
among the first panic and try to sell their
stock, pushing a temporary downturn into
an actual crash.

In short, everyone is affected by a crash. When the

stock market takes a downturn, job loss, slow GDP
growth, slow economic growth, and devastated
consumer confidence are often the results.
Investors and companies are making less money,
companies are closing, and therefore people are
buying less. This affects virtually every aspect of
the economy and causes overall economic
depression. Since the crash often follows a bull
market, many people are panicked by the sudden
economic downturn and may become even more
cautious with their money, which can further hinder
financial growth.

The value of stocks in the United States fell

by about a trillion dollars between August
1987 and the end of October 1987.
If the multiplier is 1.4, the $1 trillion
decrease in wealth in 1987 implies a $40
billion lower level of spending in 1988, or
about 1.4 percent of GDP.

However, as the life-cycle theory of

consumption predicts, households smooth
their consumption over time, which means
that the decrease in wealth would not have
reduced consumption in the current year by
the full amount of the decrease in wealth,
but by cutting consumption a little each
year.

The stock market crash of 1987 did not

result in a recession in 1988 because
households and business firms did not
lower their expectations drastically.
Since the initial decrease in wealth turned
out to be temporary, the negative wealth
effect was not as large as anticipated.

The boom in the economy between 1995 and

2000 was fueled by the stock market boom.
Estimates show that had there been no stock
market boom the economy would not have
looked historically unusual in the last half of
the 1990s.

The value of stocks increased by about $2.5

trillion per year during the boom.

Assuming that a $1 increase in stock prices leads to

a $0.04 increase in consumption and investment,
and a multiplier of 1.4, then:
0.04 x $2.5 trillion x 1.4 = $140 billion increase in
GDP, or 1.5% of GDP.

The growth rate of GDP would have been

around 2.8% instead of 4.5%

An increase in stock prices causes an increase

in wealth, and consequently an increase in
consumer spending.
Investment is also affected by higher stock
prices. With a higher stock price, a firm can
raise more money per share to finance
investment projects.

1. Stop Listening To Analysts

2. Stop Staring At Your Portfolio Every Thirty
Minutes.
3. Be Patient
4. Speak To Actual Investors With Experience
5. Stop Following Crazy Tips
6. Understand Market Cycles
7. Follow The Guru

It provides necessary mobility to capital &

directs the flow of capital into profitable &
successful enterprise. It is the barometer of
general economic progress in the country &
exerts a powerful & significant influence as
depressant or stimulant of business activity.