Capital Market Instrument

There are a number of capital market instruments that are the medium of trade in the market. These are used by the investors to make good profit from this market. These capital market instruments include stocks, bonds, debentures, T-bills, foreign exchange, fixed deposits and many more. All these are termed as instrument of capital market because these are responsible for generating funds for the companies, corporations and sometimes for the national government also. Trade on debt and equity securities are done in this market. This market is also known as securities market as long term funds are raised from this market. These activities are done by different companies and the government. This market is divided into primary capital market and secondary capital market. The primary market is designed for the new issues and the secondary market is meant for the trade of existing issues. Stock and bond are the two basic capital market instruments and are used in two different markets. There are three different types of the market where stocks are used as the capital market instrument. These are called physical, virtual, and auction market. On the other hand, the bonds are traded in the separate bond market. This market is also known as debt, credit or fixed income market. Trade in debt securities are done in this market. There are also the t-bills and debentures which are used as capital market instruments by the investors. These instruments are more secured than the others but provides less return than the other capital market instruments. All these capital market instruments provide some high returns but the risk factor is different and the selection of the instrument depends on the choice of the investor. The risk tolerance factor and the expected returns from the investment plays a decisive role in the selection of the capital market instruments. The capital market instruments should be selected after doing proper research because these can increase the returns heavily and can reduce the risk factors also.

Indian Capital Markets

Since 2003, Indian capital markets have been receiving global attention, especially from sound investors, due to the improving macroeconomic fundamentals. The presence of a great pool of skilled labour and the rapid integration with the world economy increased Indias global

competitiveness. No wonder, the global ratings agencies Moodys and Fitch have awarded India with investment grade ratings, indicating comparatively lower sovereign risks. The Securities and Exchange Board of India (SEBI), the regulatory authority for Indian securities market, was established in 1992 to protect investors and improve the microstructure of capital markets. In the same year, Controller of Capital Issues (CCI) was abolished, removing its administrative controls over the pricing of new equity issues. In less than a decade later, the Indian financial markets acknowledged the use of technology (National Stock Exchange started online trading in 2000), increasing the trading volumes by many folds and leading to the emergence of new financial instruments. With this, market activity experienced a sharp surge and rapid progress was made in further strengthening and streamlining risk management, market regulation, and supervision. The securities market is divided into two interdependent segments:

The primary market provides the channel for creation of funds through issuance of new securities by companies, governments, or public institutions. In the case of new stock issue, the sale is known as Initial Public Offering (IPO). The secondary market is the financial market where previously issued securities and financial instruments such as stocks, bonds, options, and futures are traded.

In the recent past, the Indian securities market has seen multi-faceted growth in terms of:

The products traded in the market, viz. equities and bonds issued by the government and companies, futures on benchmark indices as well as stocks, options on benchmark indices as well as stocks, and futures on interest rate products such as Notional 91-Day T-Bills, 10-Year Notional Zero Coupon Bond, and 6% Notional 10-Year Bond. The amount raised from the market, number of stock exchanges and other intermediaries, the number of listed stocks, market capitalization, trading volumes and turnover on stock exchanges, and investor population. The profiles of the investors, issuers, and intermediaries.

Broad Constituents in the Indian Capital Markets Fund Raisers are companies that raise funds from domestic and foreign sources, both public and private. The following sources help companies raise funds: Fund Providers are the entities that invest in the capital markets. These can be categorized as domestic and foreign investors, institutional and retail investors. The list includes subscribers to primary market issues, investors who buy in the secondary market, traders, speculators, FIIs/ sub accounts, mutual funds, venture capital funds, NRIs, ADR/GDR investors, etc. Intermediaries are service providers in the market, including stock brokers, sub-brokers, financiers, merchant bankers, underwriters, depository participants, registrar and transfer agents, FIIs/ sub accounts, mutual Funds, venture capital funds, portfolio managers, custodians, etc.

Organizations include various entities such as BSE, NSE, other regional stock exchanges, and the two depositories National Securities Depository Limited (NSDL) and Central Securities Depository Limited (CSDL). Market Regulators include the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and the Department of Company Affairs (DCA).

Appellate Authority: The Securities Appellate Tribunal (SAT) Participants in the Securities Market SAT, regulators (SEBI, RBI, DCA, DEA), depositories, stock exchanges (with equity trading, debt market segment, derivative trading), brokers, corporate brokers, sub-brokers, FIIs, portfolio managers, custodians, share transfer agents, primary dealers, merchant bankers, bankers to an issue, debenture trustees, underwriters, venture capital funds, foreign venture capital investors, mutual funds, collective investment schemes. EQUITY MARKET History of the Market With the onset of globalization and the subsequent policy reforms, significant improvements have been made in the area of securities market in India. Dematerialization of shares was one of the revolutionary steps that the government implemented. This led to faster and cheaper transactions, and increased the volumes traded by many folds. The adoption of the marketoriented economic policies and online trading facility transformed Indian equity markets from a broker-regulated market to a mass market. This boosted the sentiment of investors in and outside India and elevated the Indian equity markets to the standards of the major global equity markets.

The 1990s witnessed the emergence of the securities market as a major source of finance for trade and industry. Equity markets provided the required platform for companies and start-up businesses to raise money through IPOs, VC, PE, and finance from HNIs. As a result, stock markets became a peoples market, flooded with primary issues. In the first 11 months of 2007, the new capital raised in the global public equity markets through IPOs accounted for $107 billion in 382 deals out of the total of $255 billion raised by the four BRIC countries. This was a sizeable growth from $90 billion raised in 302 deals in 2006. Today, the corporate sector prefers external sources for meeting its funding requirements rather than acquiring loans from financial institutions or banks. Derivative Markets The emergence of the market for derivative products such as futures and forwards can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of price fluctuations in various asset classes. By their very nature, the financial markets are marked by a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking in asset prices. However, by locking in asset prices, derivative products minimize the impact of fluctuations in asset prices on the profitability and cash flow situation of risk-averse investors. This instrument is used by all sections of businesses, such as corporates, SMEs, banks, financial institutions, retail investors, etc. According to the International Swaps and Derivatives Association, more than 90 percent of the global 500 corporations use derivatives for hedging risks in interest rates, foreign exchange, and equities. In the over-the-counter (OTC) markets, interest rates (78.5%), foreign exchange (11.4%), and credit form the major derivatives, whereas in the exchange-traded segment, interest rates, government debt, equity index, and stock futures form the major chunk of the derivatives. What are futures contracts? Futures contracts are standardized derivative instruments. The instrument has an underlying product (tangible or intangible) and is impacted by the developments witnessed in the underlying product. The quality and quantity of the underlying asset are standardized. Futures contracts are transferable in nature. Three broad categories of participantshedgers, speculators, and arbitragerstrade in the derivatives market.

Hedgers face risk associated with the price of an asset. They belong to the business community dealing with the underlying asset to a future instrument on a regular basis. They use futures or options markets to reduce or eliminate this risk. Speculators have a particular mindset with regard to an asset and bet on future movements in the assets price. Futures and options contracts can give them an extra leverage due to margining system. Arbitragers are in business to take advantage of a discrepancy between prices in two different markets. For example, when they see the futures price of an asset getting out of line with the cash price, they will take offsetting positions in the two markets to lock in a profit.

Important Distinctions Exchange-Traded Vs. OTC Contracts: A significant bifurcation in the instrument is whether the derivative is traded on the exchange or over the counter. Exchange-traded contracts are standardized (futures). It is easy to buy and sell contracts (to reverse positions) and no

negotiation is required. The OTC market is largely a direct market between two parties who know and trust each other. Most common example for OTC is the forward contract. Forward contracts are directly negotiated, tailor-made for the needs of the parties, and are often not easily reversed. Distinction between Forward and Futures Contracts:
Futures Contracts Forward Contracts

A forward contract is a contractual Meaning: A futures contract is a agreement between two parties to buy contractual agreement between two or sell an asset at a future date for a parties to buy or sell a standardized predetermined mutually agreed price quantity and quality of asset on a specific while entering into the contract. A forward contract is not traded on an future date on a futures exchange. exchange. Trading place: A futures contract is traded on the centralized trading platform of an exchange. Transparency in contract price: The contract price of a futures contract is transparent as it is available on the centralized trading screen of the exchange. A forward contract is traded in an OTC market.

The contract price of a forward contract is not transparent, as it is not publicly disclosed.

Valuations of open position and margin In a forward contract, valuation of open requirement: In a futures contract, position is not calculated on a daily basis valuation of open position is calculated as and there is no requirement of MTM on per the official closing price on a daily daily basis since the settlement of basis and mark-to-market (MTM) margin contract is only on the maturity date of requirement exists. the contract. Liquidity: Liquidity is the measure of frequency of trades that occur in a A forward contract is less liquid due to its particular futures contract. A futures customized nature. contract is more liquid as it is traded on the exchange. Counterparty default risk: In futures contracts, the exchange clearinghouse provides trade guarantee. Therefore, counterparty risk is almost eliminated. In forward contracts, counterparty risk is high due to the customized nature of the transaction.

Regulations: A regulatory authority and A forward contract is not regulated by the exchange regulate a futures contract. any exchange.

Benefits of Derivatives
a. Price Risk Management: The derivative instrument is the best way to hedge risk that arises from its underlying. Suppose, A has bought 100 shares of a real estate company with a bullish view but, unfortunately, the stock starts showing bearish trends after the subprime crisis. To avoid loss, A can sell the same quantity of futures of the script for the time period he plans to stay invested in the script. This activity is called hedging. It helps in risk minimization, profit maximization, and reaching a satisfactory risk-return trade-off, with the use of a portfolio. The major beneficiaries of the futures instrument have been mutual funds and other institutional investors. b. Price Discovery: The new information disseminated in the marketplace is interpreted by the market participants and immediately reflected in spot and futures prices by triggering the trading activity in one or both the markets. This process of price adjustment is often termed as price discovery and is one of the major benefits of trading in futures. Apart from this, futures help in improving efficiency of the markets. c. Asset Class: Derivatives, especially futures, offer an exclusive asset class for not only large investors like corporates and financial institutions but also for retail investors like high networth individuals. Equity futures offer the advantage of portfolio risk diversification for all business entities. This is due to the fact that historically it has been witnessed that there lies an inverse correlation of daily returns in equities as compared to commodities. d. High Financial Leverage: Futures offer a great opportunity to invest even with a small sum of money. It is an instrument that requires only the margin on a contract to be paid in order to commence trading. This is also called leverage buying/selling. e. Transparency: Futures instruments are highly transparent because the underlying product (equity scripts/index) are generally traded across the country or even traded globally. This reduces the chances of manipulation of prices of those scripts. Secondly, the regulatory authorities act as watchdogs regarding the day-to-day activities taking place in the securities markets, taking care of the illegal transactions. f. Predictable Pricing: Futures trading is useful for the genuine investor class because they get an idea of the price at which a stock or index would be available at a future point of time.

EXCHANGE PLATFORM Domestic Exchanges Indian equities are traded on two major exchanges: Bombay Stock Exchange Limited (BSE) and National Stock Exchange of India Limited (NSE). Bombay Stock Exchange (BSE) BSE is the oldest stock exchange in Asia. The extensiveness of the indigenous equity broking industry in India led to the formation of the Native Share Brokers Association in 1875, which later became Bombay Stock Exchange Limited (BSE). BSE is widely recognized due to its pivotal and pre-eminent role in the development of the Indian capital market.

In 1995, the trading system transformed from open outcry system to an online screen-based order-driven trading system. The exchange opened up for foreign ownership (foreign institutional investment). Allowed Indian companies to raise capital from abroad through ADRs and GDRs. Expanded the product range (equities/derivatives/debt). Introduced the book building process and brought in transparency in IPO issuance. T+2 settlement cycle (payments and settlements). Depositories for share custody (dematerialization of shares). Internet trading (e-broking). Governance of the stock exchanges (demutualization and corporatization of stock exchanges) and internet trading (e-broking).

BSE has a nation-wide reach with a presence in more than 450 cities and towns of India. BSE has always been at par with the international standards. It is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is also the first exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE Online Trading System (BOLT). Benchmark Indices futures: BSE 30 SENSEX, BSE 100, BSE TECK, BSE Oil and Gas, BSE Metal, BSE FMCG http://www.bseindia.com/ National Stock Exchange (NSE) NSE was recognised as a stock exchange in April 1993 under the Securities Contracts (Regulation) Act. It commenced its operations in Wholesale Debt Market in June 1994. The capital market segment commenced its operations in November 1994, whereas the derivative segment started in 2000. NSE introduced a fully automated trading system called NEAT (National Exchange for Automated Trading) that operated on a strict price/time priority. This system enabled efficient trade and the ease with which trade was done. NEAT had lent considerable depth in the market by enabling large number of members all over the country to trade simultaneously, narrowing the spreads significantly. The derivatives trading on NSE commenced with S&P CNX Nifty Index futures on June 12, 2000. The futures contract on NSE is based on S&P CNX Nifty Index. The Futures and Options trading system of NSE, called NEAT-F&O trading system, provides a fully automated screen based trading for S&P CNX Nifty futures on a nationwide basis and an online monitoring and surveillance mechanism. It supports an order-driven market and provides complete transparency of trading operations. Benchmark Indices futures: Nifty Midcap 50 futures, S&P CNX Nifty futures, CNX Nifty Junior, CNX IT futures, CNX 100 futures, Bank Nifty futures http://nseindia.com/ International Exchanges Due to increasing globalization, the development at macro and micro levels in international markets is compulsorily incorporated in the performance of domestic indices and individual

stock performance, directly or indirectly. Therefore, it is important to keep track of international financial markets for better perspective and intelligent investment.
1. NASDAQ (National Association of Securities Dealers Automated Quotations)

NASDAQ is an American stock exchange. It is an electronic screen-based equity securities trading market in the US. It was founded in 1971 by the National Association of Securities Dealers (NASD). However, it is owned and operated by NASDAQ OMX group, the stock of which was listed on its own stock exchange in 2002. The exchange is monitored by the Securities and Exchange Commission (SEC), the regulatory authority for the securities markets in the United States. NASDAQ is the world leader in the arena of securities trading, with 3,900 companies (NASDAQ site) being listed. There are four major indices of NASDAQ that are followed closely by the investor class, internationally.
i. NASDAQ Composite: It is an index of common stocks and similar stocks like ADRs, tracking stocks and limited partnership interests listed on the NASDAQ stock market. It is estimated that the total components count of the Index is over 3,000 stocks and it includes stocks of US and non-US companies, which makes it an international index. It is highly followed in the US and is an indicator of performance of technology and growth companies. When launched in 1971, the index was set at a base value of 100 points. Over the years, it saw new highs; for instance, in July 1995, it closed above 1,000-mark and in March 2000, it touched 5048.62. The decline from this peak signalled the end of the dotcom stock market bubble. The Index never reached the 2000 level afterwards. It was trading at 1316.12 on November 20, 2008. NASDAQ 100: It is an Index of 100 of the largest domestic and international nonfinancial companies listed on NASDAQ. The component companies weight in the index is based on their market capitalization, with certain rules controlling the influence of the largest components. The index doesnt contain financial companies. However, it includes the companies that are incorporated outside the US. Both these aspects of NASDAQ 100 differentiate it from S&P 500 and Dow Jones Industrial Average (DJIA). The index includes companies from the industrial, technology, biotechnology, healthcare, transportation, media, and service sectors. Dow Jones Industrial Average (DJIA): DJIA was formed for the first time by Charles Henry Dow. He formed a financial company with Edward Jones in 1882, called Dow Jones & Co. In 1884, they formed the first index including 11 stocks (two manufacturing companies and nine railroad companies). Today, the index contains 30 blue-chip industrial companies operating in America. The Dow Jones Industrial Average is calculated through the simple average, i.e., the sum of the prices of all stocks divided by the number of stocks (30). S&P 500: The S&P 500 Index was introduced by McGraw Hill's Standard and Poor's unit in 1957 to further improve tracking of American stock market performance. In 1968, the US Department of Commerce added S&P 500 to its index of leading economic indicators. S&P 500 is intended to be consisting of the 500 largest publically-traded companies in the US by market capitalization (in contrast to the FORTUNE 500, which is

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the largest 500 companies in terms of sales revenue). The S&P 500 Index comprises about three-fourths of total American capitalization.

http://www.nasdaq.com/
2. LSE (London Stock Exchange)

The London Stock Exchange was founded in 1801 with British as well as overseas companies listed on the exchange. The LSE has four core areas:
i. Equity markets: The LSE enables companies from around the world to raise capital. There are four primary markets; Main Market, Alternative Investment Market (AIM), Professional Securities Market (PSM), and Specialist Fund Market (SFM). Trading services: Highly active market for trading in a range of securities, including UK and international equities, debt, covered warrants, exchange-traded funds (ETFs), exchange-traded commodities (ETCs), REITs, fixed interest, contracts for difference (CFDs), and depositary receipts. Market data information: The LSE provides real-time prices, news, and other financial information to the global financial community. Derivatives: A major contributor to derivatives business is EDX London, created in 2003 to bring the cash, equity, and derivatives markets closer together. It combines the strength and liquidity of LSE and equity derivatives technology of NASDAQ OMX group.

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The exchange offers a range of products in derivatives segment with underlying from Russian, Nordic, and Baltic markets. Internationally, it offers products with underlying from Kazakhstan, India, Egypt, and Korea. http://www.londonstockexchange.com/en-gb/
3. Frankfurt Stock Exchange

It is situated in Frankfurt, Germany. It is owned and operated by Deutsche Brse. The Frankfurt Stock Exchange has over 90 percent of turnover in the German market and a big share in the European market. The exchange has a few well-known trading indices of the exchange, such as DAX, DAXplus, CDAX, DivDAX, LDAX, MDAX, SDAX, TecDAX, VDAX, and EuroStoxx 50. DAX is a blue-chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. Prices are taken from the electronic Xetra trading system of the Frankfurt Stock Exchange. http://deutsche-boerse.com/ REGULATORY AUTHORITY There are four main legislations governing the securities market:
a. The SEBI Act, 1992 establishes SEBI to protect investors and develop and regulate the securities market.

b. The Companies Act, 1956 sets out the code of conduct for the corporate sector in relation to issue, allotment, and transfer of securities, and disclosures to be made in public issues. c. The Securities Contracts (Regulation) Act, 1956 provides for regulation of transactions in securities through control over stock exchanges. d. The Depositories Act, 1996 provides for electronic maintenance and transfer of ownership of demat securities.

In India, the responsibility of regulating the securities market is shared by DCA (the Department of Company Affairs), DEA (the Department of Economic Affairs), RBI (the Reserve bank of India), and SEBI (the Securities and Exchange Board of India). The DCA is now called the ministry of company affairs, which is under the ministry of finance. The ministry is primarily concerned with the administration of the Companies Act, 1956, and other allied Acts and rules & regulations framed there-under mainly for regulating the functioning of the corporate sector in accordance with the law. The ministry exercises supervision over the three professional bodies, namely Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI), and the Institute of Cost and Works Accountants of India (ICWAI), which are constituted under three separate Acts of Parliament for the proper and orderly growth of professions of chartered accountants, company secretaries, and cost accountants in the country. http://www.mca.gov.in/ SEBI protects the interests of investors in securities and promotes the development of the securities market. The board helps in regulating the business of stock exchanges and any other securities market. SEBI is also responsible for registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers, and such other intermediaries who may be associated with securities markets in any manner. The board registers the venture capitalists and collective investments like mutual funds. SEBI helps in promoting and regulating self regulatory organizations. http://www.sebi.gov.in RBI is also known as the bankers bank. The central bank has some very important objectives and functions such as: Objectives

Maintain price stability and ensure adequate flow of credit to productive sectors. Maintain public confidence in the system, protect depositors' interest, and provide costeffective banking services to the public. Facilitate external trade and payment and promote orderly development and maintenance of the foreign exchange market in India. Give the public adequate quantity of supplies of currency notes and coins in good quality.

Functions

Formulate implements and monitor the monetary policy. Prescribe broad parameters of banking operations within which the country's banking and financial system functions. Manage the Foreign Exchange Management Act, 1999. Issue new currency and coins and exchange/destroy currency and coins not fit for circulation. Perform a wide range of promotional functions to support national objectives.

http://www.rbi.org.in/home.aspx The DEA is the nodal agency of the Union government to formulate and monitor the country's economic policies and programmes that have a bearing on domestic and international aspects of economic management. Apart from forming the Union Budget every year, it has other important functions like:
i. Formulation and monitoring of macro-economic policies, including issues relating to fiscal policy and public finance, inflation, public debt management, and the functioning of capital market, including stock exchanges. In this context, it looks at ways and means to raise internal resources through taxation, market borrowings, and mobilization of small savings. Monitoring and raising of external resources through multilateral and bilateral development assistance, sovereign borrowings abroad, foreign investments, and monitoring foreign exchange resources, including balance of payments. Production of bank notes and coins of various denominations, postal stationery, postal stamps, cadre management, career planning, and training of the Indian Economic Service (IES).

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http://finmin.nic.in/the_ministry/dept_eco_affairs/index.html

CAPITAL MARKET INSTRUMENT (EDU-59-JB-05.08.10)

Following are the terminology of capital market: 1. Pure Instrument: Equity shares, Preference shares and debenture or bonds which are issued with the basic charterstics without mixing the instruments are called Pure Instrument. 2. Hybrid Instrument : Those instrument which are created by combining the features of equity with bond, preference or equity shares is called as Hybrid Instrument. This is created in order to fulfill the needs of investors. For example:

Convertible Preference Shares, Partial convertible debentures etc. 3. Derivative: are those instrument whose value is determined from the reference of other financial instruments. For example: future and option 4. Equity Shares: are those shares which refer to a part of ownership as a shareholder . These type of shareholder undertakes the maximum entrepreneurial risk associate with the business. 5. Preference shares: Sec. 85(1) of the Companies Act defines preference shares as those shares which carry preferential rights as the payment of dividend at a fixed rate and as to repayment of capital in case of winding up of the company. Thus, both the preferential rights include (a) preference in payment of dividend and (b) preference in repayment of capital in case of winding up of the company, must attach to preference shares. 6. Cumulative Preference Shares : are those preference shares which gets dividend in first claim as and when dividends are declared .if the company is not earned profit, then the dividend get accumulated and whenever company earns profit the shareholder will get all the accumulated dividend. 7. Non Cumulative Preference Shares: are those preference shares which does not accumulate the profit if the company has not earned the profit. As and when the company declare dividend then only it goes to non- cumulative preference shares. 8. Convertible Preference Shares: If the Preference Share holders have termed in issue of shares that they can convert the preference shares into equity shares. These type of convertible shares are called as Covertible Preference Shares. Preference shares are convertible because to get various rights like voting rights, bonus issue and higher dividend. So for these issues, companies issues these shares with premium. 9. Redeemable Preference Shares : When the preference shares are issued with the stipulation that these shares are to be redeemed after a certain period of time, then such preference shares are known as redeemable preference shares. If a company collects the money through redeemable preference shares, this money must

be returned on its maturity whether company is liquidated or not. These shares are issued only to raise the capital for temporary period. 10. Irredeemable Preference Shares: are those shares which are issued with the terms that shares will be not redeemed for indefinite period except certain instances like winding up. 11. Participating Preference Shares : If a company earns profit then it gets distributed to preference shareholders, equity shareholders etc. But after that also profit is left, then such profit can again distribute as dividend to participating preference shareholder as well as company can also issue bonus shares. 12. Debentures : includes stocks, bonds etc which are issued by the company as a certificate of indebtness. For the issue of debentures, date of the repayment of principle and interest is decided . It is created on the charge of undertaking of assets of the company. If the company is not able to make the payment on the time, so the investors can redeem the debentures by undertaking the assets or from the sale of assets. 13. Unsecured debentures: are those debentures which are not secured from the asset for the repayment of principle and interest. 14. Secured debentures: are those debentures which are secured by registered asset of the company. 15. Redeemable debentures: are those debentures which are redeemable after a certain period or on their expiry date. 16. Perpetual debentures: are those debentures which are issued for the redemption on any specific event like winding up which may happen for any indefinite period. 17. Bearer debentures: are the debentures payable to bearer and also transferrable and the name of the holder will not be registered in the books of the company. SO whoever is the holder can bear the principle and interest as on due.

18. Equity shares with detachable warrants: are those warrants whose holder apply for a specific numbers of shares on appointed date at a pre- determined price. These warrants are separately registered with stock exchange and also traded separately. In Indian Market, Reliance applies on such warrants. 19. Sweat Equity Shares: are shares allotted to employees o companies, as rewards, free of cost or at a price which is considerable below the ruling market price. It is given as a reward for performance to further encourage them to put in their best in the organization. Under the Companies act, 1956, sweat equity shares means equity shares issued by a company to its employees or directors at a discounts or for consideration other than cash for providing know how or making available rights in the nature of intellectual property rights. Such issue may be made only if it is authorized by a special resolution passed by the company in the general meeting specifying the number of shares to be issued, class of the employees or directors to whom such shares are to be issued , the consideration and the current market price of the equity shares. Sweat equity shares can be issued if more than one year has elapsed from the commencement of the business. All limitations, restriction and provisions relating to equity shares shall be applicable to such sweat equity shares. 20. Tracking Stocks: is a type of stock issued as per the performance of a particular department on the financial position. This is issued, so that each department can be tracked by investors. These stock earns only from the position of that particular invested department. It does not matter as a whole of the company.