Secondary markets

Presented by:
Komal(021) Anuradha(025) Richa(035) Himani(0

Introduction
Capital market: A market in which individuals and institutions trade financial securities. It is composed of both the primary and secondary markets.

Definition
The secondary market is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold.

REASONS FOR TRANSITING IN SECONDARYMARKET

INFORMATION MOTIVATED REASONS

LIQUIDITY MOTIVATED REASONS

Role and Functions

To facilitate liquidity and marketability To contribute to economic growth To provide instant valuation of securities To ensure a measure of safety and fair dealing

Difference b/w primary & secondary market

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 venue in which already existing/pre-issued securities are traded among 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.

Instruments traded in secondary market

Equity Shares Bonds

Rights Issue/ Rights Shares

Bonus Shares Preferred Stock/ Preference shares Cumulative Preference Shares

Zero Coupon Bonds

Convertible Bonds Debentures

Commercial Papers
Coupons Treasury Bills

Cumulative Convertible Preference Shares

Participating Preference Shares

 Equity shares: These are those shares which are ordinary in the course of company's business. The holders of such shares are members of the company and have voting rights. Rights issue/Rights shares: The issue of new securities to existing shareholders at a ratio to those already held. Bonus Shares: Shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years.

 Preferred stock/Preference shares: Owners of these kind of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. Cumulative Preference Shares: A type of preference shares on which dividend accumulates if remains unpaid. Cumulative convertible preference shares: A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company.

 Participating preference shares: The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid. Bonds: A negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. Zero coupon bonds: A debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.

Convertible bonds: A bond that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder.Convertibles are sometimes called "CVs." Debentures: Bonds issued by a company bearing a fixed rate of interest usually payable half yearly on specific dates and principal amount repayable on particular date on redemption of the debentures. Commercial Papers: An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities

 Coupons: The interest paid on a bond. That is, the coupon is the amount that the issuer must pay to the holder of each bond in exchange for investing in that bond. Treasury Bills: T-bills are issued through a competitive bidding process at a discount from par, which means that rather than paying fixed interest payments like conventional bonds, the appreciation of the bond provides the return to the holder.

Participants in the Secondary Market

Stock Exchange - debt and equity securities of varying types are traded - facilitates capital mobilization and allocation Depository - holds the securities in a dematerialized form - NSDL/CDSL Clearing Corporation - Responsible for the post-trade activities - National Securities Clearing Corporation Ltd. (NSCCL)

Participants (cont.)
Clearing Member / (Stock Broker)
Registrar - responsible for tallying and analyzing the applications

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Role of brokers in Secondary market

A broker is an entity that acts on behalf of an investor who wishes to execute orders. In economic and legal terms, a broker is said to be an agent of the investors.

Brokers aid investors by collecting and transmitting orders to the market bring wiilling buyers and sellers together negotiate prices,and by execute order.

Charges by the Stock Broker

Brokerage charged by member broker
Maximum 2.5%

Penalties arising on specific default on behalf of client (investor) Service tax as stipulated. Securities Transaction Tax (STT) as applicable.

Stock exchange
Stock Exchange is an organized market for the purchase and sale of industrial and financial security. It is convenient place where trading in securities is conducted in systematic manner i.e. as per certain rules and regulation London stock exchange (LSE) is the oldest stock exchange in the world. While Bombay stock exchange (BSE) is the oldest in India. Similar Stock exchanges exist and operate in large majority of countries of the world.

Various stock exchange in India

Bombay Stock Exchange BSE BSE is the leading and the oldest stock exchange in India as well as in Asia. It was established in 1887. National Stock Exchange NSE National Stock Exchange of India Limited (NSE) in 1992 is one important development in the Indian capital market Regional stock exchanges

Features of Stock Exchange

Market for securities Deals in second hand securities Regulates trade in securities Allows dealings only in listed securities Transactions effected only through members Association of persons

Features of Stock Exchange

Recognition from Central Government Working as per rules Specific location Financial Barometers

Thank you