financial markets
a market for creation and exchange of financial assets
functions of financial market
- allocative function
- reduce the cost of transportation
- providing liquidity to financial assets
- mobilisation of savings and channelising them into more productive uses
- facilitating price discovery
financial market are divided to
- money market
- capital market
money market
a market for short term funds which deals in monetary assets whose period of maturity is upto one year
major participants
- non banking financial companies
- RBI
- large companies houses
- mutual funds
- commerical banks
- state goverment
money market instruments
- treasury bill
- commerical paper
- call money
- certificate of deposit
- commerical bank
capital market
facilites and institutional arrangements through which long-term funds , both debt and equity are raised and invested
capital market is further divided to
- primary
- secondary
primary market is also known as
new issuse market
primary market
market which deal with new secrities being issued for the first time
methods of floation in primary market
- offer through prospectus
- offer for scale
- private placement
- rights issuse
- e-IPOS
secondary market
market for purchase and sale of existing securities
stock exchange
any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying and selling or deals in securities.
functions of stock market
- providing liquidity and marketability to existing securities
- pricing of securites
- safety of transcations
- contributes to economic growth
- spreading of equity cult
- providing scope for speculation
benefis of online trading services
- ensure transparency
- improving the liquidity in the market
- increases efiiency of information being passed on
- increases the efiicency of operations
steps in trading and settlement process
- If an investor wishes to buy or sell any security he has to first approach a registered broker or sub-broker and enter into an agreement with him. The investor has to sign a broker-client agreement and a client registration form before placing an order to buy or sell securities. He has also to provide certain other details and information.
The broker then opens a trading account in the name of the investor. - The investor has to open a ‘demat’ account or ‘beneficial owner’ (BO) account with a depository participant (DP) for holding and transferring securities in the demat form. He will also have to open a bank account for cash transactions in the securities market.
- The investor then places an order with the broker to buy or sell shares. Clear instructions have to be given about the number of shares and the price at which the shares should be bought or sold. The broker will then go ahead with the deal at the above mentioned price or the best price available. An order confirmation slip is issued to the investor by the broker.
- The broker then will go on-line and connect to the main stock exchange and match the share and best price available.
- When the shares can be bought or sold at the price mentioned, it will be communicated to the broker’s terminal and the order will be executed electronically. The broker will issue a trade confirmation slip to the investor.
- After the trade has been executed, within 24 hours the broker issues a Contract Note. This note contains details of the number of shares bought or sold, the price, the date and time of deal, and the brokerage charges. This is an important document as it is legally Enforceable and helps to settle disputes/claims between the investor and the broker. A Unique Order Code number is assigned to each transaction by the stock exchange and is printed on the contract note.
- Now, the investor has to deliver the shares sold or pay cash for the shares bought. This should be done immediately after receiving the contract note or before the day when the broker shall make payment or delivery of shares to the exchange. This is called the pay-in day.
- Cash is paid or securities are delivered on pay-in day, which is before the T+2 day as the deal has to be settled and finalised on the T+2 day. The settlement cycle is on T+2 day on a rolling settlement basis, w.e.f. 1 April 2003. Now it is T+1 day rolling settlement basis, w.e.f. January, 2023.
- On the T+2 day, the exchange will deliver the share or make payment to the other broker. This is called the pay-out day. The broker then has to make payment to the investor within 24 hours of the pay-out day since he has already received payment from the exchange.
- The broker can make delivery of shares in demat form directly to the investor’s demat account. The investor has to give details of his demat account and instruct his depository participant to take delivery of securities directly
important details that the broker has to provide
- PAN number (This is mandatory)
- Date of birth and address.
- Educational qualification and occupation.
- Residential status (Indian/ NRI).
- Bank account details.
- Depository account details.
- Name of any other broker with whom registered.
- Client code number in the client registration form.
dematerialisation
a process where securities held by the investor in the physical form are cancelled and the invenstor is given an electronic entery or number s that she/he can hold it as an electronic balance in an account
benefits of dematerialsation
- can be held in one single account
- convenitent
- reduces paper work
- no danger of loss
objectives of national stock exchange
- establishing a nationwide trading facility for all types of securities
- ensuring equal access to investors all over the country through an appropirate communication network
- providing a fair,effeicient and transparent securities market using electronic trading services
- enabling shorter settlement cycles and book entry system
objectives of bombay stock exchange
- to provide an efficient and transparent market
- to providing a trading platform for equities of small and medium enterprises
- to ensure active trading and equities of small and medium enterprises
- to conform to international standards
purpose of securities and exchange of India
create an enviroment to facilitate efficient mobilisation and allocation of recorses through the securities market
aim of securities and exchange board of India
sitmulate competition and encourage innovation
objectives of securities and exchange board of india
- to regulate stock exchange and the securities industry to promote their orderly functions
- to protect the rights and intrests of investors, prticularly individdual investors and to guide and educate them
- to prevent trading malpractices and achieve a balance between self regulation by the secrurities industry and its satutory regulation
- to regulate and develop a code of conduct and fair practices by intermediars
