Securities Market

Dr. Rana Singh

9811828987
www.ranasingh.org
3/ia3 Securities Market
inancial Market
Segments of inancial Market
Types of inancial Market
Participants in the inancial Market
Primary Market
New ssue Market
u3ctio3s
rigination
Underwriting
Distribution
Methods of floating new issues
- Public ssue
- Rights ssue
- Private Placement
- Book building Method
Steps i3 oati3 a Pubic ssue
Pre-ssue
pening and closing of the issue
Post issue tasks
3terme/iaries
Merchant Banker
Registrars to the ssue
Share Transfer Agent
Banker to an issue
Lead Managers to the ssue
Book Bui/i3 Process
hat is book building process
Assignment
hat is reverse book building?
Prospectus
Prospectus for issuing shares
Primary Market
hat is primary market?
How does it operate
Seco3/ary Market
hat is secondary market?
How does it operate?
Prospectus
3tro/uctio3
Major Poicy Cha3es si3ce 2000
3tro/uctio3 o Roi3 Setteme3ts & shorte3i3 o setteme3t
cyces
utures a3/ optio3s were i3tro/uce/
Setti3 up o CC or /ebt markets, i3terest rate /eriaties &
3eotiate/ /eai3 system or bi//i3 o secs
Pro/uct & Participa3ts
Need of securities market
Securities market provides channel for reallocation of savings to
investments and entrepreneurship.
Savers and investors are not constrained by individual abilities but
by economy's abilities to invest and save.
Categories of Participants
ssuers of securities
nvestors in securities
ntermediaries
Products
Services of ntermediaries
Securities
Types of FinanciaI Markets
Types of FinanciaI Markets
Types of FinanciaI Markets
Types of FinanciaI Markets
Types of FinanciaI Markets
Types of FinanciaI Markets
CapitaI
Market
Money
Market
Forex
Market
Equity
Debt
RetaiI
Corporate
Banks
FI
FIIs
T-BiIIs
CaII Money
ICD, CP,
CD
Banks
Corporate
FI, FIIs
Spots
Forwards
Banks
Corporate
FI, FIIs
AgricuIture
Produces,
MetaIs,
FinanciaI
futures Iike
Interest rate,
currency,
indices etc
Banks, FIs
Corporate
Derivatives
Market
GOI
Ministry of Finance
RBI SEBI
Depositories Companies
Broker
Dealers
Clearing
Corporations
Stock
Exchanges
Mutual
Funds
Banks
Registrar of
Companies
Merchant
Bankers
Registrar &
Transfer
Agents
Primary
Dealers
GOI
Dept of Co. Affairs
Depository
Participants
Structure of Indian FinanciaI
Markets
GOI
Ministry of Finance
RBI SEBI
Depositories Companies
Broker
Dealers
Clearing
Corporations
Stock
Exchanges
Mutual
Funds
Banks
Registrar of
Companies
Merchant
Bankers
Registrar &
Transfer
Agents
Primary
Dealers
GOI
Dept of Co. Affairs
Depository
Participants
Structure of Indian FinanciaI System:
FinanciaI System
Suppliers of Funds
Individuals
Businesses
Governments
Demanders of Funds
Individuals
Businesses
Governments
Financial Markets
Money Market
Capital Market
Financial Institutions
Commercial Banks
Insurance Companies
Mutual Funds
Provident/Pension Funds
Non-banking Financial Companies
Private
Placement
Funds
Securities
Funds
Securities
Funds Funds
Securities
Securities
Funds
Funds
Deposits
Shares
Loans
Primary Market
An Overview
Introduction
Issuers of Securities
Goer3me3t a3/ Corporate
ssuers create a3/ issue resh Securities i3 excha3e
or u3/s
Pubic,Priate ssue
ace Vaue,Premium,Discou3t
Lquity,Debt,lybri/
Domestic Market ,3ter3atio3a Market
ssues Norms
ntry Norm I (N I): 1he compa3y sha meet the
oowi3 requireme3ts:
,a, Net 1a3ibe Assets o at east Rs 3 crores or 3 u
years
,b, Distributabe proits i3 at east three years
,c, Net worth o at east Rs 1 crore i3 three years
,/, cha3e i3 3ame, at east 50 ree3ue or prece/i3 1
year shou/ be rom the 3ew actiity
,e, 1he issue size /oes 3ot excee/ 5 times the pre- issue 3et
worth
ceptions
1he oowi3 are eiibe or exemptio3 rom e3try
3orms
,a, Priate Sector Ba3ks
,b, Pubic sector ba3ks
,c, A3 i3rastructure compa3y whose project has bee3
appraise/ by a P or DC or &S or a ba3k which
was earier a P a3/ 3ot ess tha3 5 o the project cost
is i3a3ce/ by a3y o these i3stitutio3s
,/, Rihts issue by a iste/ compa3y
Prici3 o ssues
ree Prici3
SLB /oes 3ot pay a3y roe i3 price ixatio3
ixe/ Price,Book Bui/i3
1he compa3y a3/ mercha3t ba3ker are howeer require/ to ie u
/iscosures o the parameters which they ha/ co3si/ere/ whie
/eci/i3 the issue price
Book Bui/i3
A process u3/ertake3 by which a /ema3/ or the securities
propose/ to be issue/ by a bo/y corporate is eicite/ a3/ buit
up a3/ the price or the securities is assesse/ o3 the basis o
the bi/s obtai3e/ or the qua3tum o securities oere/ or
subscriptio3 by the issuer 1his metho/ proi/es a3
opportu3ity to the market to /iscoer price or securities
8ook 8uIldIng
DptIons In ook buIIdIng
75 X ook uIIdIng
100 X book uIIdIng
ooks remaIn open for 7 workIng days ( FIxed prIce Issue 10 days)
DnIy EIectronIc IddIng
Ids to be submItted through SyndIcate members
Issue compIeted and tradIng commenced on T + 16 basIs
FIoor prIce dIscIosed one day prIor to bId date
PrIce band of 20 X
Creen Shoe optIon
An optIon of aIIocatIng shares In excess of the shares IncIuded In the
pubIIc Issue and operatIng a post-IIstIng prIce stabIIIzIng mechanIsm In
accordance wIth the provIsIons of Chapter VIII-A of 0IP CuIdeIInes, whIch
Is granted to a company to be exercIsed through a StabIIIsIng Agent.
Features Fixed Price
Process
Book BuiIding
Process
Pricing
!7Ice at whIch the
secu7ItIes a7e
offe7ed/allotted Is known
In advance to the Investo7
!7Ice at whIch secu7ItIes
wIll be offe7ed/allotted Is
not known In advance to
the Investo7 Dnly an
IndIcatIve p7Ice 7ange Is
known
Demand
0emand fo7 the secu7ItIes
offe7ed Is known only
afte7 the closu7e of the
Issue
0emand fo7 the secu7ItIes
offe7ed can be known
eve7yday as the book Is
buIlt
Payment
!ayment If made at the
tIme of subsc7IptIon
whe7eIn 7efund Is gIven
afte7 allocatIon
!ayment only afte7
allocatIon
Difference between shares offered through book buiIding and
offer of shares through normaI pubIic issue
Promoter
1he promoter has bee3 /ei3e/ as a perso3 or perso3s who are i3 oer-a
co3tro o the compa3y
Promoters Co3tributio3 shou/ 3ot be ess tha3 20 o post issue o
capita i3 case o oers or sae a3/ pubic issues by u3iste/ compa3ies
1o bri3 u amou3t o promoter co3tributio3 i3cu/i3
premium o3e /ay prior to issue ope3i3 /ate
Lxceptio3s
Pubic issue o securities iste/ o3 a stock excha3e or at east 3
years with a /ii/e3/ payme3t recor/ o 3 imme/iate prece/i3
years
No i/e3tiiabe promoter or roup exist
Rihts ssue
ock 3 o Securities
Promoters mi3imum co3tributio3 i3 a3y pubic issue ocke/ i3 or 3 years
1he Co3tributio3 oer a3/ aboe 20 ,mi3imum, is ocke/ i3 or o3e
year
1he ocke/ i3 securities ca3 be pe/e/ with ba3ks as coatera
Mercha3t Ba3ker
overned by SI Merchant ank Regulations Act J992
Need to be a ody Corporate other than NC
Required to have a compliance officer
Merchant anker
Pre-lssue rocess:-
1he /ue /iie3ce o compa3y`s operatio3s, ma3aeme3t, busi3ess pa3s, ea
Drati3 a3/ /esi3 o Oer /ocume3ts, Prospectus, statutory a/ertiseme3ts
a3/ memora3/um co3tai3i3 saie3t eatures o the Prospectus
1he BRMs sha e3sure compia3ce with stipuate/ requireme3ts a3/ competio3
o prescribe/ ormaities with the Stock Lxcha3es, RoC a3/ SLB i3cu/i3
i3aisatio3 o Prospectus a3/ RoC ii3
Appoi3tme3t o other i3terme/iaries iz, Reistrar,s,, Pri3ters, A/ertisi3
Ae3cy a3/ Ba3kers to the Oer is aso i3cu/e/ i3 the pre-issue processes
1he M aso /raws up the arious marketi3 strateies or the issue
Post lssue:-
3cu/i3 ma3aeme3t o escrow accou3ts, coor/i3ate 3o3-i3stitutio3a
aocatio3,
i3timatio3 o aocatio3 a3/ /ispatch o reu3/s to bi//ers
i3aizatio3 o tra/i3 a3/ /eai3 o i3strume3ts a3/ /ispatch o
certiicates a3/ /emat o /eiery o shares, with the arious ae3cies co33ecte/
with the work such as the Reistrar,s, to the Oer a3/
Ba3kers to the Oer a3/ the ba3k ha3/i3 reu3/ busi3ess
Credit Rating
Sebi Cre/it rati3 reuatio3s AC1 1999
Promote/ by P, SCB, orei3 Ba3ks operati3 i3 3/ia, orei3
cre/it rati3 ae3cies with 5 yrs o exp Bo/y corporate hai3
co3ti3uous 3et worth o 100 crores or preious 5 yrs
Mi3imum Net worth o 5 crores
A CRA ca33ot rate
A security issue/ by its promoter
Security issue/ by a3 associate , subsi/iary ,a3 associate
promoter o CRA i they hae a commo3 chairma3,
/irector a3/ empoyees
or a /ebt issue reater tha3 or equa to 100 crores , has to be
rate/ by two /iere3t ae3cies
ADR/DR
Metho/ o raisi3 orei3 curre3cy resources
orei3 Co3ertibe curre3cy bo3/s
ADR,GDR
Depository Receipt - 3eotiabe i3strume3t i3 the orm o a certiicate
/e3omi3ate/ i3 US /oars
Certiicates are issue/ by a3 oerseas /epository ba3k aai3st u3/eryi3
shares /eposite/ by the issui3 compa3y with the ba3k
1he DR`s are issue/ by the ba3k to the i3estors
t is a 3o3 oti3 equity ho/i3 with a other be3eits accrue/
Permits cross bor/er tra/i3 a3/ setteme3t , mi3imize tra3sactio3 costs
a3/ broa/e3 the capita base or 3stitutio3a 3estors
ontd.
ADR GDR
Neotiabe U S certiicate
represe3ti3 ow3ership o shares i3 a
No3 U S corp
ssue/ to pubic or priate to markets
i3si/e or outsi/e U S
Quote/ a3/ tra/e/ i3 > i3 U S
markets
Aows issuer to raise capita i3 two or
more markets simuta3eousy
1o aciitate the purchase, ho/i3 a3/
sae o 3o3 U S Securities by U S
i3estors
U3/eryi3 shares correspo3/ to
GDR are ixe/ i3 ratio ie 1 GDR ~
10 shares
A0R's cnd 60R's cre dentccl n leycl, technccl ,operctoncl cnd
cdmnstrctve pont o] vew
Secondary Market
Overview of :
1.) Trading and Settlement.
2.) Order Management.
%ransaction Cycle
%rading & Settlement
Process
nvestor Depository
Exchange
Broker
Clearing
House
Contd.
Market Participants
Lxcha3e - NSL,BSL
Depository - NSD,CDS
Custo/ia3
Depository Participa3ts
Ceari3 Corporatio3 - NSCC,BO share lo/i3
Stock Broker
A broker is a3 i3terme/iary who arra3es to buy a3/ se
securities o3 beha o cie3ts ,the buyer a3/ the seer,
aso k3ow3 as CM - Ceari3 Member
Sub -Broker
3estors
%rading At NS
1he tra/i3 o3 stock excha3es i3 3/ia use/ to
take pace throuh ope3 outcry
NSL i3tro/uce/ a 3atio3-wi/e o3-i3e uy-
automate/ scree3 base/ tra/i3 system NLA1,
SB1S eectro3icay matches or/ers o3 a strict
price,time priority
rder Placement
NSL has mai3 computer which is co33ecte/ throuh Very
Sma Aperture 1ermi3a ,VSA1, i3stae/ at its oice
Brokers hae termi3as ,i/e3tiie/ as the PCs i3 the iure
1, i3stae/ at their premises which are co33ecte/ throuh
VSA1s,ease/ i3es,mo/ems
A3 i3estor i3orms a broker to pace a3 or/er o3 his
beha 1he broker e3ters the or/er throuh his PC, which
ru3s u3/er \i3/ows N1 a3/ se3/s si3a to the Sateite
ia VSA1,ease/ i3e,mo/em 1he si3a is /irecte/ to
mai3rame
Co3t/ .
1he or/er co3irmatio3 messae is imme/iatey
/ispaye/ o3 the PC o the broker
1his or/er matches with the existi3 passie
or/er,s,, otherwise it waits or the actie or/ers to
e3ter the system
O3 or/er matchi3, a messae is broa/cast to the
respectie member
Co3t/ .
A or/ers receie/ o3 the system are sorte/ with the
best price/ or/er etti3 the irst priority or matchi3
ie, the best buy or/ers match with the best se or/er
Simiar price/
or/ers are sorte/ o3 time priority basis, ie the o3e that
came i3 eary ets priority oer the ater o3e
Or/ers are matche/ automaticay by the computer
keepi3 the system tra3spare3t, objectie a3/ air
\here a3 or/er /oes 3ot i3/ a match, it remai3s i3 the
system a3/ is /ispaye/ to the whoe market, ti a resh
or/er comes i3 or the earier or/er is ca3cee/ or
mo/iie/
Clearing & Settlement
1he ceari3 a3/ setteme3t mecha3ism i3 3/ia3
securities market has wit3esse/ si3iica3t cha3es
a3/ seera i33oatio3s /uri3 the ast /eca/e
1-2 roi3 setteme3t has 3ow bee3 i3tro/uce/ or
a securities 1he members receie the
u3/s,securities i3 accor/a3ce with the pay-i3,pay-
out sche/ues 3otiie/ by the respectie excha3es
Co3t/ .
1he obiatio3s o members are /ow3oa/e/ to
members,custo/ia3s by the ceari3 ae3cy
1he members,custo/ia3s make aaiabe the
require/ securities i3 their poo accou3ts with
/epository participa3ts ,DPs, by the prescribe/ pay-
i3 time or securities
Co3t/ .
1he /epository tra3sers the securities rom the
poo accou3ts o members,custo/ia3s to the
setteme3t accou3t o the ceari3 ae3cy
1he securities are tra3serre/ o3 the pay-out /ay by
the /epository rom the setteme3t accou3t o the
ceari3 ae3cy to the poo accou3ts o
members,custo/ia3s
Setteme3t Process i3 CM seme3t o
NSL
Process
,1, 1ra/e /etais rom Lxcha3e to NSCC ,rea-time a3/ e3/ o /ay tra/e ie,
,2, NSCC 3otiies the co3summate/ tra/e /etais to CMs,custo/ia3s who airm
back Base/ o3 the airmatio3, NSCC appies mutiatera 3etti3 a3/
/etermi3es obiatio3s
,3, Dow3oa/ o obiatio3 a3/ pay-i3 a/ice o u3/s,securities
,4, 3structio3s to ceari3 ba3ks to make u3/s aaiabe by pay-i3 time
,5, 3structio3s to /epositories to make securities aaiabe by pay-i3-time
,6, Pay-i3 o securities ,NSCC a/ises /epository to /ebit poo accou3t o
custo/ia3s,CMs a3/ cre/it its accou3t a3/ /epository /oes it,
,, Pay-i3 o u3/s ,NSCC a/ises Ceari3 Ba3ks to /ebit accou3t o
custo/ia3s,CMs a3/ cre/it its accou3t a3/ ceari3 ba3k /oes it,
,8, Pay-out o securities ,NSCC a/ises /epository to cre/it poo accou3t o
custo/ia3s,CMs a3/ /ebit its accou3t a3/ /epository /oes it,
,9, Pay-out o u3/s ,NSCC a/ises Ceari3 Ba3ks to cre/it accou3t o
custo/ia3s,CMs a3/ /ebit its accou3t a3/ ceari3 ba3k /oes it,
,10, Depository i3orms custo/ia3s,CMs throuh DPs
,11, Ceari3 Ba3ks i3orm custo/ia3s,CMs
FIow: Trade Processing
Exchange
Customer
Broker
Trading Terminal
Place order
Enters order
rder confirm
Clearing Corporation Depository
Trade Details
bligation report
Clearing Banks
unds Availability
Security Availability
DP
Security
Transfer
Security transfer
To CM pool acct
Security transfer
CC a/c
Auctions
3itiate/ by Lxcha3e o3 beha o tra/i3 members or
setteme3t reate/ reaso3s
O3 the securities pay-i3 /ay, NSCC i/e3tiies short /eieries a3/ the
respectie ceari3 member is /ebite/ by a3 amou3t equiae3t to the
securities 3ot /eiere/ by him a3/ aue/ at a auatio3 price
NSCC co3/ucts a buyi3-i3 auctio3 or security shortaes o3 the /ay
ater the pay-out /ay throuh the NSL tra/i3 system the buy-i3
auctio3 price is more tha3 the auatio3 price, the member is require/ to
make oo/ the /iere3ce
Cose Out - a shortaes 3ot bouht are /eeme/ cose/ at hihest price o
the tra/i3 perio/ or cosi3 price o3 auctio3 /ay pus 20
rder Management
NSL is Or/er /rie3 market
Or/er ma3aeme3t co3sists o
L3teri3 or/ers
Or/er mo/iicatio3
Or/er ca3ceatio3
Or/er matchi3
ntering rder
Actie s Passie Or/er ,price, time stampi3,
Or/er Book
Reuar ot, Stop oss, specia terms, retai /ebt or/er, auctio3
or/ers
Symbo a3/ Series
Qua3tity
Price
Pri3cipa or Cie3t
Or/er types,co3/itio3s
rder modification
Mo/iy /uri3 market hours
Cha3e u3execute/ qua3tity, price
Ca33ot cha3e cie3t co/e
Ca33ot excee/ price imits
User aue is a/juste/
rder Types/Conditions
%ime
WDay, OC
Price
WMarket, Stop oss, imit, A1O
Quantity
WDQ, M, AoN, Qua3tity reeze
ther conditions
WPro, Cie3t, \arehouse
rder Matching
1ouch i3e
Best buy or/er, Best se or/er
By Price
By 1ime
%rade Management
W Matchi3 o or/ers
W 1ra/e eriicatio3
W 1ra/e Mo/iicatio3
W 1ra/e Ca3ceatio3
Corporate Hierarchy