Chetan GK, KIAMS

1
 MODULE: 02
Financial Markets
FINANCIAL MARKETS
In economics, a financial market is a mechanism
that allows people to buy and sell financial
securities, commodities of value, at low transaction

Chetan GK, KIAMS

costs.
Financial markets facilitate:
 The raising of capital (in the capital markets)

 The transfer of risk (in the derivatives markets)

 International trade (in the currency markets)

3
THE FINANCIAL MARKETS CAN BE DIVIDED
INTO DIFFERENT SUBTYPES:

 Capital markets which consist of:

 Stock markets (including Derivatives markets)
 Bond markets

Chetan GK, KIAMS

 Commodity markets
 Money markets

 Foreign exchange markets.

4
Chetan GK, KIAMS
5
 Chetan GK, KIAMS
6
QIBS
QUALIFIED INSTITUTIONAL BUYERS
 Institutional investors who are generally perceived to possess
expertise and the financial muscle to evaluate and invest in the
capital markets.

 In terms of clause 2.2.2B (v) of DIP Guidelines, a 'Qualified

Chetan GK, KIAMS

Institutional Buyer' shall mean:

a. Public financial institution as defined in section 4A of the

Companies Act, 1956;

b. Scheduled commercial banks;

c. Mutual funds;

d. Foreign institutional investor registered with SEBI;

e. Multilateral and bilateral development financial institutions; 7

f. Venture capital funds registered with SEBI.

g. Foreign Venture capital investors registered with SEBI.

h. State Industrial Development Corporations.

i. Insurance Companies registered with the Insurance

Regulatory and Development Authority (IRDA).

Chetan GK, KIAMS

j. Provident Funds with minimum corpus of Rs.25 crores

k. Pension Funds with minimum corpus of Rs. 25 crores)

These entities are not required to be registered with SEBI

as QIBs.

Any entities falling under the categories specified above

are considered as QIBs for the purpose of participating in
primary issuance process. 8
Chetan GK, KIAMS
9
 Chetan GK, KIAMS
10
DEPOSITORIES
DEPOSITORIES
 A depository is an entity which helps an investor to
buy or sell securities such as stocks and bonds in a
paper-less manner.

Securities in depository accounts are similar to

Chetan GK, KIAMS


funds in bank accounts.
 A depository eliminates the risk associated with
holding physical securities.

 Earlier, the buyer would have to keep checking if

the shares have been transferred safely to his
account, and ensure that theft, damage or loss has
not happened.

 After the depository system came about, such risks

have been greatly reduced since the shares are held 11
in and transferred in an electronic manner.
COTND.
 They also reduce the paper work involved in trading
and fasten the transfer of shares.

Chetan GK, KIAMS

 In 1998, Demat or electronic trading was made
compulsory for institutional investors, which led to a
spike in the overall trading volumes in the Indian
market.

 Foreign investors felt more confident about trading in

the Indian market due to the depository system as
there were far fewer incidents of forgery, delay and
unscrupulous transfer of shares.

12
DEPOSITORY PARTICIPANTS

Chetan GK, KIAMS

13
DEPOSITORY PARTICIPANTS

Chetan GK, KIAMS

14
DPS
 They are the intermediaries between the depository
and the investors.

Chetan GK, KIAMS

 The relationship between the DPs and the depository
is governed by an agreement made between the two
under the Depositories Act.

 In a strictly legal sense, a DP is an entity who is

registered as such with SEBI under the sub section
1A of Section 12 of the SEBI Act.

 As per the provisions of this Act, a DP can offer

depository-related services only after obtaining a 15
certificate of registration from SEBI.
Chetan GK, KIAMS
16
BOOK RUNNING LEAD MANAGERS
(BRLM)

Chetan GK, KIAMS

21
BLRM
 Lead Manager's and Book Running Lead
Managers (BRLM) are involved with the
complete process of an Initial Public Offering or

Chetan GK, KIAMS

IPO.

 Companies cannot launch an IPO without them,

which is why you need a solid BRLM and lead
managers, if your public issue has to be
successful.

22
WHAT DO BOOK RUNNING LEAD
MANAGERS DO?
 Prior to the IPO, the Lead Manager ensures the
complete due diligence of a company's operations.

Chetan GK, KIAMS

 The complete scrutiny also involves a check on the
management,
 business plans including future business plans,
 legal aspects etc.

 One of the most important jobs of them is to

ensure the correctness and accuracy of extremely
critical documents that include prospectus and
promotional material, including advertisements.
23
 What they also do is to ensure the complete
regulatory compliance including those by the
Registrar of Companies, SEBI and other authorities,
including the various stock exchanges.

 Along with the management team of an IPO, they

may also decide and appoint a Registrar to the public

Chetan GK, KIAMS

issue, printers, advertising Agency and Bankers to
the Offer.

 They also ensures marketing strategies for a

successful public issue.

 After the public issue they ensure that the securities

get listed and that the refunds from the IPO are
completed successfully.

 That requires a good coordination with the 24

management and agencies like the registrars,
bankers and others.
WHY THE ROLE OF A BRLM IS
IMPORTANT?
 They have to get the pricing of the IPO right, along
with compliance and ensure success of the issue.

Chetan GK, KIAMS

 If there is non compliance or negligence in some
aspects they could easily be pulled-up by the capital
market watchdog, the Securities and Exchange Board
of India (SEBI).

 In the past the role of Lead Managers has come under

close scrutiny.

 In fact, the country's capital market watchdog has

pulled up several BRLMs in the past, which is why
they have to double check the IPO details honestly
and with great effort. 25
Chetan GK, KIAMS
26
PRIMARY MARKET:
 Primary market deals with the issue of new
securities.

Chetan GK, KIAMS

 Funds flow from investors to the company.

 It is also called as New Issue Market (NIM).

 Fresh capital raising by the companies from the

investor through the issue of equities and
bonds/debentures.

27
 Chetan GK, KIAMS
28
The Business

ORIGIN OF A BUSINESS
SCENE 1 – THE ANGELS

Chetan GK, KIAMS

29
 Let us imagine a budding entrepreneur with a
brilliant business idea – to manufacture

 highly fashionable, organic cotton t-shirts.

The designs are unique (including polo)

Chetan GK, KIAMS



 has attractive price points

 the best quality cotton is used to make these t-

shirts.

 He is confident that the business will be

successful, and is all enthusiastic to launch the
idea into a business. 30
PROBLEM
 Where would he get the money to fund the idea?

Chetan GK, KIAMS

 He would approach his family and friends to
pitch the idea and raise some money.

 He could approach the bank for a loan as well but

this would not be the best option. (Financial Risk)

31
FRIENDS – THE ANGELS

Chetan GK, KIAMS

Note: The money from the angels is not a loan, it is
actually an investment made by them.

32
 Lets now imagine that the promoter along with
the angels raise INR 2.5 Crore in capital.

 This initial money that he gets to kick start his

business is called ‘The Seed Fund’.

Chetan GK, KIAMS

 He also would like assign some monetary value to
his ‘idea’.

 Once the seed capital hits the company’s bank

account, the money will be referred to as the
initial ‘Share Capital’ of the company. Excel

33
 In return of the initial seed investment,

 the original three (promoter plus 2 angels) will be

issued share certificates of the company which
entitles them an ownership in the company.

Chetan GK, KIAMS

 The only asset that the company has at this stage
is cash of INR 2.5 Crs, in addition to the notional
(growth value) value INR 2.5 Crs.

 Hence the value of the company is also INR 5

Crs. This is called the company’s ‘valuation’.

34
 Now the company has INR 5 Crs. With no. of
shares outstanding as 50,00,000 Equity Shares.

 The total of 50 lakh shares is called the

‘Authorized Shares’ of the company.

Chetan GK, KIAMS

 These shares have to be allotted amongst the
promoter and two angels
 plus the company has to retain some amount of
shares with itself to be issued in the future.

 Promoter and two angels own 50% of the shares,

this allotted portion is called ‘Issued Shares’.
35
 Please note the balance 50% of the shares
totaling 25,00,000 equity shares are retained by
the company. These shares are authorized but
not allotted.

Chetan GK, KIAMS

 Now backed by a good company structure and a
healthy seed fund the promoter kick starts his
business operations.

 He wants to move cautiously, hence he decides to

open just one small manufacturing unit and one
store to retail his product.

36
SCENE 2 – THE VENTURE CAPITALIST

Chetan GK, KIAMS

37
 His hard work pays off and the business starts to
pick up.
 At the end of the first two years of operations, the

Chetan GK, KIAMS

company starts to break even.

 The promoter is now no longer a small business

owner,
 instead he is more knowledgeable about his own
business and of course more confident.

38
 Backed by his confidence, the promoter now
wants to expand his business by adding 1 more
manufacturing unit and few additional retail

Chetan GK, KIAMS

stores in the city.

 He chalks out the plan and figures out that the

fresh investment needed for his business
expansion is INR 7 Crs.

 He is now in a better situation when compared to

where he was two years ago.
39
 The big difference is the fact that his business is
generating revenues.

 Healthy inflow of revenue validates the business

and its offerings.

Chetan GK, KIAMS

 He is now in a situation where he can access
reasonably savvy investors for investing in his
business.

 Let us assume he meets one such professional

investor who agrees to give him 7 Crs. for a 14%
stake in his company.
40
 The investor who typically invests in such early
stage of business is called a Venture Capitalist
(VC)

Chetan GK, KIAMS

 and the money that the business gets at this
stage is called Series A funding.

 After the company agrees to allot 14% to the VC

from the authorized capital the shareholding
pattern looks like this: Excel

41
 With the VC’s money coming into the business, a very
interesting development has taken place.

 The VC is valuing the entire business at INR 50

Crs by valuing his 14% stake in the company at

Chetan GK, KIAMS

INR 7Crs.

 With the initial valuation of 5 Crs, there is a 10 fold

increase in the company’s valuation.

 This is what a good business plan, validated by a

healthy revenue stream can do to businesses.

 It works as a perfect recipe for wealth creation.

42
 The promoter now has the additional capital he
requires for the business.

 The company gets an additional manufacturing unit

Chetan GK, KIAMS

and few more retail outlets in the city as planned.

 Things are going great; popularity of the product

grows,
 translating into higher revenues,

 management team gets more professional thereby

increasing the operational efficiency and all this
translates to better profits.
43
SCENE 3 – THE BANKER

Chetan GK, KIAMS

44
 3 more years pass by and the company is
phenomenally successful.

 The company decides to have a retail presence in at

least 3 more cities.

Chetan GK, KIAMS

 To back the retail presence across three cities, the
company also plans to increase the production
capacity and hire more resources.

 Whenever a company plans such expenditure to

improve the overall business, the expenditure is
called ‘Capital Expenditure’ or simply ‘CAPEX’.

 The management estimates 40 Crs. towards their

Capex requirements.
 How does the company get this money or in other
words, how can the company fund its Capex 45
requirements?
There are few options with the company to raise
the required funds for their Capex:

1. The company has made some profits over the

last few years; a part of the Capex requirement can
be funded through the profits. This is also called

Chetan GK, KIAMS

funding through internal accruals.

2. The company can approach another VC and raise

another round of VC funding by allotting shares
from the authorized capital – this is called Series
B funding.

3. The company can approach a bank and seek a

loan. The bank would be happy to tender this loan
46
as the company has been doing fairly well.
 The company decides to exercise all the three
options at its disposal to raise the funds for
Capex.

 It ploughs 15 Crs. from internal accruals, plans a

Chetan GK, KIAMS

series B - divests 5% equity for a consideration of
10 Crs. from another VC and raise 15 Crs. loan
from the bank.

 Note, with 10 Crs coming in for 5%, the valuation

of the company now stands at 200 Crs.

 Of course, we know this is a bit exaggerated!

47
`

Classic real world examples of such wealth creation

Chetan GK, KIAMS

stories would be Bosch, Page Industries, Eicher
Motors, Titan industries and

in the international space one could think of

Google, Facebook, Twitter, WhatsApp etc.

48
SCENE 4 – THE PRIVATE EQUITY

Chetan GK, KIAMS

49
 Few years pass by and the company’s success
continues to shine on. With the growing success of
this 8 year old, 200 Crs. company, the ambitions are
also growing.

Chetan GK, KIAMS

 The company decides to raise the bar and branch out
across the country.

 They also decide to diversify the company by

manufacturing and retailing fashion accessories,
quality cosmetics and perfumes.

 The capex requirement for the new ambition is now

pegged at 60 Crs.
50
 The company does not want to raise money
through debt because of the interest rate burden,
also called the finance charges which would eat
away the profits the company generates.

Chetan GK, KIAMS

 They decide to allot shares from the authorized
capital for a Series C funding.

 They cannot approach a typical VC because VC

funding is usually small and runs into few crores.

 This is when a Private Equity (PE) investor

comes into the picture.
51
 PE investors are quite savvy.

 They are highly qualified, and have an excellent

professional background.

Chetan GK, KIAMS

 They invest large amounts of money with the
objective of not only providing the capital for
constructive use but also place their own people
on the board of the investee company to ensure
the company steers in the required direction.

 Assuming they pick up 15% stake for a

consideration of 60 Crs, they are now valuing the
company at 400 Crs.
 Let’s have a quick look at the share holding and 52
valuations: Excel
 Usually, when a PE invests, they invest with an
objective to fund large capex requirements.

Besides they do not invest in the early stage of a

Chetan GK, KIAMS


business instead they prefer to invest in
companies that already has a revenue stream,
and is in operation for a few years.

 The process of deploying the PE capital and

utilizing the capital for the capex requirements
takes up a few years.

53
SCENE 5 – THE IPO

Chetan GK, KIAMS

54
 5 years after the PE investment, the company
has progressed really well.

 They have successfully diversified their product

Chetan GK, KIAMS

portfolio plus they have a presence across all the
major cities in the country.

 Revenues are good, profitability is stable and the

investors are happy.

 The promoter however does not want settle in for

just this.
55
 The promoter now aspires to go international!

 He wants his brand to be available across all the

major international cities; he wants at least two
outlets in each major city across the world.

Chetan GK, KIAMS

 This means, the company needs to invest in
market research to understand what people like
in other countries, they need to invest in people,
and also work towards increasing the
manufacturing capacities.

 Besides they also need to invest into real estate

space across the world. 56
 This time around the Capex requirement is huge and
the management estimates this at 200 Crs.

 The company has few options to fund the Capex

requirement:

Chetan GK, KIAMS

1. Fund Capex from internal financing
2. Raise Series D from another PE fund
3. Raise debt from bankers
4. Floating the Debentures
5. File for an Initial Public Offer (IPO) by allotting
shares from authorized capital
6. A combination of all the above

57
 Let us assume the company decides to fund the
capex partly through internal accruals and also
file for an IPO.

Chetan GK, KIAMS

 When a company files for an IPO, they have to
offer their shares to the general public.

 The general public will subscribe to the shares

(i.e if they want to) by paying a certain price.

 Now, because the company is offering the shares

for the first time to the public, it is called the
‘Initial Public Offer’.
58
WHY DO COMPANIES GO PUBLIC?
 Provide an exit route for early investors
 Reward employees

Chetan GK, KIAMS

 Improve visibility

 When company needs to expand (Capex

requirement)
 Buy some companies

 Retire its debt

59
 Our company requires 200 Crs. to fund their
capex and the management had decided to fund
this partly by internal accrual and partly by
filing for an IPO.

Chetan GK, KIAMS

 Do recollect that company still has 16% of
authorized capital translating to 550,000 shares
which are not allotted.

 The last valuation of these shares when the PE

firm invested in Series B was 64 Crs.

 The company has progressed really well ever

since the PE firm has invested and naturally the
valuation of these shares would have gone up. 60
CONTD.
 For the sake of simplicity, let us assume the company is
now valuing the 16% shares anywhere between 125 Crs
to 150 Crs.

Chetan GK, KIAMS

 This translates to a per share value, anywhere between
Rs.2,270to Rs.2,730/-…(125Crs/5.5lakh).

 So if the company puts 16% on the block to the public,

they are likely to raise anywhere between 125 to 150
Crs.

 The remainder has to come from internal accruals.

61
 So naturally, the more money they raise, better it is for
the company.
MERCHANT BANKERS
 Merchant bankers are also called Book
Running Lead Managers (BRLM)/Lead
Manager (LM).

Chetan GK, KIAMS

 The job of a merchant banker is to assist the
company with various aspects of the IPO process
including:
 Conduct a due diligence on the company filing for an
IPO, ensure their legal compliance and also issue a
due diligence certificate.

 Should work closely with the company and prepare

their listing documents including Draft Red 62
Herring Prospectus (DRHP)
CONTD.
 Underwrite shares – By underwriting shares,
merchant bankers essentially agree to buy all or part
of the IPO shares and resell the same to public by

Chetan GK, KIAMS

assuming the underwriting commission.

 Help company arrive at the price band for the IPO. A

price band is the lower and upper limit of the share
price within which the company will go public. In
case of our example, the price band will be Rs.1562/-
and Rs.1875/-

63
WHAT HAPPENS AFTER THE IPO?
 The moment the stock gets listed and debuts on
the stock exchange, the stock starts to trade
publicly.

Chetan GK, KIAMS

 This is called the secondary markets.

 Once the stock transitions from primary markets

to secondary markets, the stock gets traded daily
on the stock exchange.

 People start buying and selling the stocks

regularly. 65
FEW KEY IPO JARGONS
 Under Subscription
 Over subscription

Chetan GK, KIAMS

 Green Shoe Option
 Part of the underwriting agreement which allows the
issuer to authorize additional shares (typically 15
percent) to be distributed in the event of over
subscription. This is also called the over allotment
option.
 Fixed Price IPO
 Sometimes the companies fix the price of the IPO and
do not opt for a price band. Such issues are called
fixed price IPO. 66
SECONDARY MARKET

Chetan GK, KIAMS

67
SECONDARY MARKET
 It’s a market contribute in a huge measure to the
growth and expansion of national business.

Chetan GK, KIAMS

 It reflects the nation economy’s health.

 These ensure liquidity and transferability of financial

assets.

 Stock exchange provide an organized market place for

the investors to buy and sell securities freely.

 Efficient functioning of stock market is responsible for

creating a conducive climate for an active primary 68

market.
HISTORY

 First organized stock exchange in India is the BSE,

Mumbai established in 1875. (NSE in 1993)

Chetan GK, KIAMS

 Share quotations were published in contemporary
newspapers.

 Dealing in securities were not regulated.

 Transactions used to happen under the tree.

69
 Outcry system of trading was existed.
MEANING
 A specialized market place that facilitates the
exchange of securities that already exist, is
known as stock exchange or market.

Chetan GK, KIAMS

 It is also called as “Secondary Market” for
securities.
 It is regarded as the economic barometer of
country indicating the nature of the economic
environment at any point of time.

 It regularly provides sufficient marketability and 70

price continuity to the listed scrips.
 How many stock exchanges in India?

Chetan GK, KIAMS

72
STOCK EXCHANGES IN INDIA (AS ON 19.07.2018)
There are 7 stock exchanges in India as on date:

 BSE Ltd. Mumbai

Chetan GK, KIAMS

 Calcutta Stock Exchange Ltd. Kolkata
 India International Exchange (India INX), Gujarat
 Magadh Stock Exchange Ltd. Patna
 Metropolitan Stock Exchange of India Ltd. Mumbai
 NSE Ltd. Mumbai
 NSE IFSC Ltd., Gandhinagar.

Source: http://www.sebi.gov.in/stock-exchanges.html
73
THE NATIONAL STOCK EXCHANGE OF INDIA
LTD. (NSE)
 Itwas set-up on the basis of the recommendations
of the High Powered Study Group on
Establishment of New Stock Exchanges.

 Recognized as a stock exchange under the SCRA,

1956 in April 1993.

It commenced its operations of:

 WDM in June 1994.
 CM (Equity) segment in Nov. 1994.
 Derivatives segment in June 2000. 75

Chetan GK, KIAMS

THE MISSION

 Establishing a nation wide trading facility for

equities and debt instruments.

 Ensuring equal access to investors all over the

country through an appropriate communication
network.

 Providing a fair, efficient and transparent

securities market to investors using electronic
trading system.

 Enabling the shorter settlement cycles and book

entry settlement system, and

 Meeting the current international standards of 76

securities market.
Chetan GK, KIAMS
PROMOTERS
NSE WAS PROMOTED BY LEADING FINANCIAL
INSTITUTIONS, BANKS, INSURANCE CO., AND OTHER
FINANCIAL INTERMEDIARIES SUCH AS:
 IDBI  OBC
 IFCI  Corporation Bank

Chetan GK, KIAMS

 LIC  Indian Bank
 SBI  UBI
 ICICI Bank  The New India Assurance
 IL & FS Ltd. Co. Ltd.
 SHCIL  PNB
 SBI Capital Markets Limited
 UTI
 Bank of Baroda
 Canara Bank
 GIC
77
 National Insurance Co. Ltd.
 MAJOR INDICES
The NSE deals with the following major indices:

 Nifty 50 Index o Nifty Midcap 50 Index

o

Chetan GK, KIAMS

Nifty Midcap 100 Index
 Nifty Next 50 Index
o Nifty Smallcap 250 Index
 Nifty 100 Index
o Nifty Smallcap 50 Index
 Nifty 200 Index o Nifty Smallcap 100 Index
 Nifty 500 Index o NIFTY LargeMidcap 250
 Nifty Midcap150 Index Index
o Nifty MidSmallcap 400 Index
o India Vix Index

78
NIFTY SECTORIAL INDICES
 Nifty Auto Index
 Nifty Bank Index
 Nifty Financial Services Index

Chetan GK, KIAMS

 Nifty FMCG Index
 Nifty IT Index
 Nifty Media Index
 Nifty Metal Index
 Nifty Pharma Index
 Nifty Private Bank Index
 Nifty PSU Bank Index
 Nifty Realty Index

79
DERIVATIVES
Derivatives that are dealt in include:
 S&P Nifty Futures

 S&P Nifty Options

Chetan GK, KIAMS

 Futures on Individual Securities

 Options on Individual Securities

80
PRODUCTS
 Indices: Major indices/other indices.

Chetan GK, KIAMS

 Derivatives-F&O.
 Internet-based Trading: Equities/Derivatives.
 Initial Public Offering.
 Index Funds.
 Working Capital Funding (only for clearing
members).
 Exchange Traded Funds (EFTs).

81
Market Statistics:

 F&O Turnover on NSE 18th July, 2018:

 Rs. 11,96,439.43 Crs.

Chetan GK, KIAMS

 Equity Turnover on NSE 18th July, 2018 :
 Rs. 29,000 Crs.

 Equity Turnover on BSE 18th July, 2018:

 Rs.6,000 Crs.

82
No. of contracts traded in millions

Chetan GK, KIAMS

83

Source: https://www.statista.com/statistics/272832/largest-
international-futures-exchanges-by-number-of-contracts-traded/
PLAYERS IN THE SECONDARY MARKET
 MFs.
 FIs.

 FIIs.

Chetan GK, KIAMS

 HNIs.

 Brokers, Sub-Brokers.
Hedgers
 Insurance companies. Speculators
 Individual Investors. Arbitrageurs
 DP.

 Clearing agents.

 NRIs.

 Domestic corporate.
84
FUNCTIONS OF SECONDARY MARKET:
 The stock exchange provides a market place for purchase and sale
of securities.

 The stock exchange provides the linkage between the savings in

the house hold sector and investment in corporate economy.

 Provides a market quotation of the prices of shares and bonds.

 Ready market for buyers and sellers and hence liquidity in the
market is ensured.

 Collective judgment of many people operating simultaneously in 87

the market.
Chetan GK, KIAMS
CONTD.
 Ever-changing demand and supply conditions results in a
continuous revaluation of assets.

 Asset prices corrects, adjusts, altered frequently.

Chetan GK, KIAMS

 This process is never ending one.

 Stock exchanges hence act as a barometers of the state of

health of the nation’s economy.

 Provision of safety to the investors.

 Dissemination of market data.

 Investors’ education. 88
TRADING

 Market timings is 9.15am-3.30pm (sat & sun H)

 One has to buy and sell or sell and buy on that day
itself (squaring off on the same day).

 No carry forward of the trade, if they feel necessary

investors can take delivery of securities with full
payment.

89

Chetan GK, KIAMS

CONTD.
 So, its better to trade how much money we have or
how much amount of shares we have in our d-mat
account.

Chetan GK, KIAMS

 What if the client has ordered the stocks over phone??

 Brokerage is ranging from 0 - 2.5%.

 Sub-broker can charge 0 - 1.5% (usually here brokers

charge 0.3% for delivery and 0.03% intra-day for one
side).

 For delivery of securities settlement takes at T+2. 90

CONTD..
 Contractnotes would be issued by the broker/sub-
broker soon after the trade take place.

 Trader could book stop loss order in order to limit

his loss.

 Investorcan modify or cancel the rate or order

which he has ordered.

 The rates which he booked would be for that

particular day only and it will be erased as soon as
the day ends (Fill or Kill orders).

91

Chetan GK, KIAMS

CONTD.
 Current market price of each stock would be
determined by the demand and supply forces.
And the stock price (if the script is the index

Chetan GK, KIAMS

constituent) would be connected to the index.

 Red color shows the price is worsen and

blue/green color indicates that the price has been
appreciated.

92
Chetan GK, KIAMS
93
CONTD..
 Inoutcry system, brokers used to cheat the
investors by practicing “GALA” which is
impossible in current scenario.

 Today’s stock market is safest in the sense that

transparent at the same time ensuring high
liquidity.

 Now investors need not come to the brokerage

houses. They could trade by sitting by the
PC/with their hand held mobile phones.

94

Chetan GK, KIAMS

CONTD..

 Indices consists of well diversified sector stock

categories.
 Buy around “support” and sell around
“resistance” is the common technique used by
the traders.
 Limited physical market is in existence and
which facilitates transfer of physical shares
which are below 500 in number and which are
odd lots.
 Price, time priority is the main feature of the
96
NEAT system.
Chetan GK, KIAMS
Chetan GK, KIAMS
97
CLEARING AND SETTLEMENT:
 Indian securities market has witnessed significant
changes and several innovations during the last
decade.

Chetan GK, KIAMS

These include:
 Use of the state-of-art information technology.

 Emergence of clearing corporations.

 Shorter settlement cycle.

 Dematerialization and electronic transfer of securities.

 Fine-tuned risk management system.

98
CONTD:
 T+2 settlement has now been introduced for all
securities.
 The trades are settled irrespective of default by a
member.

Chetan GK, KIAMS

 Setting up of the Clearing Corporation, the market has
full confidence that settlements will take place on time.
 NSDL and CDSL provide electronic transfer of
securities.
 More than 99% of turnover is settled in dematerialized
form.
 The pay-in and pay-out of securities is effected on the
same day for all settlements.
 Selected banks have been empanelled by clearing agency 99
for electronic transfer of funds.
TRANSACTION CYCLE:

Chetan GK, KIAMS

100
DEPOSITORIES
 NSDL
 CDSL

Chetan GK, KIAMS

101
SETTLEMENT PROCESS IN NSE

Source: Capital Market (Dealers) Module of NCFM 104

Chetan GK, KIAMS

 Explanation:
(1) Trade details from Exchange to NSCCL (real-time and end of day trade
file).
(2) NSCCL notifies the consummated trade details to CMs/custodians who
affirm back. Based on the affirmation, NSCCL applies multilateral netting
and determines obligations.
(3) Download of obligation and pay-in advice of funds/securities.

Chetan GK, KIAMS

(4) Instructions to clearing banks to make funds available by pay-in time.
(5) Instructions to depositories to make securities available by pay-in-time.
(6) Pay-in of securities (NSCCL advises depository to debit pool account of
custodians/CMs and credit its account and depository does it).
(7) Pay-in of funds (NSCCL advises Clearing Banks to debit account of
custodians/CMs and credit its account and clearing bank does it).
(8) Pay-out of securities (NSCCL advises depository to credit pool account of
custodians/CMs and debit its account and depository does it).
(9) Pay-out of funds (NSCCL advises Clearing Banks to credit account of
custodians/CMs and debit its account and clearing bank does it).
(10) Depository informs custodians/CMs through DPs.
105
(11) Clearing Banks inform custodians/CMs.
DELIVERY INSTRUCTION – THE NEW AGE
CHEQUE (OFF MARKET TRANSACTION)

Chetan GK, KIAMS

106
 SEBI Guidelines on
Secondary Market.

119

Chetan GK, KIAMS

REFERENCES
 www.nseindia.com
 www.bseindia.com

Chetan GK, KIAMS

 www.capitalmarket.com

 www.wikipedia.com

 www.investopedia.com

 NCFM: Capital Market (Dealers) Module

 Financial Markets and Institutions-Dr S Gurusamy

 Indian Financial System- M Y Khan

 Security Analysis and Portfolio Management

– Sudhindra Bhat. 128

 Chetan GK, KIAMS
129
S
Chetan GK, KIAMS
130