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Semester 1: Fundamentals of Securities Market – I
Securities Market: Financial Market Segments, Types, Participants, Regulatory System, Primary Market Methods and Regulations
Securities Market
Financial Market Segments
The financial market is broadly categorized into money markets and capital markets. Money markets deal with short-term borrowing and lending, while capital markets focus on long-term investment, including equities and bonds.
Types of Securities
Securities can be classified into two main types: equity securities and debt securities. Equity securities represent ownership in a company, such as stocks. Debt securities represent a loan made by an investor to a borrower, such as bonds.
Market Participants
Key participants in the securities market include individual investors, institutional investors, brokers, dealers, and market makers. Each plays a distinct role in facilitating transactions and providing liquidity.
Regulatory System
Securities markets are regulated to protect investors and maintain fair trading. Regulatory bodies, such as the Securities and Exchange Board of India (SEBI), establish rules and monitor compliance to ensure transparency and reduce fraud.
Primary Market Methods
In the primary market, securities are created and sold for the first time through methods like Initial Public Offerings (IPOs), private placements, and rights issues. Each method has specific procedures and implications for investors.
Regulations
Regulations governing the securities market include disclosure requirements, insider trading laws, and market conduct rules. Compliance with these regulations is crucial for maintaining investor confidence and market integrity.
Stock Exchange: Meaning, Function, Stock Market in India, OTCEI, NSE, ISE
Stock Exchange: Meaning, Function, Stock Market in India, OTCEI, NSE, ISE
Meaning of Stock Exchange
A stock exchange is a platform where securities are bought and sold. It facilitates the trading of stocks, bonds, and other financial instruments. Stock exchanges provide a transparent, regulated environment for investors and companies.
Functions of Stock Exchange
The main functions of stock exchanges include providing liquidity to the market, enabling price discovery, conducting transactions, and providing a platform for companies to raise capital through the issuance of shares.
Stock Market in India
The Indian stock market consists of various exchanges such as NSE and BSE. The market plays a crucial role in the country's economic growth by facilitating investment and providing capital to businesses.
Over The Counter Exchange of India (OTCEI)
OTCEI is a platform for trading shares of smaller companies that are not listed on traditional stock exchanges. It focuses on providing opportunities to companies and investors by facilitating capital raising.
National Stock Exchange (NSE)
NSE is one of the largest stock exchanges in India, known for its electronic trading platform. It offers a robust system for trading various financial instruments including equities, derivatives, and currency.
Indian Stock Exchange (ISE)
ISE was a stock exchange in India that facilitated trading in securities before its merging with other exchanges. It aimed to provide a platform for investors and companies to engage in capital markets.
Regulation of Trading System: Listing Securities and Regulations, Types of Trading System, Settlement, Margin of Trading, Depositories
Regulation of Trading System
Listing Securities and Regulations
Listing securities involves the process of formally registering a company's shares with an exchange so they can be traded. Regulations govern this process to ensure transparency, investor protection, and proper disclosure. Companies must meet specific criteria, such as financial performance and governance standards, before being approved for listing.
Types of Trading System
Trading systems can be classified into various types, including order-driven markets, quote-driven markets, and hybrid markets. Order-driven markets rely on buy and sell orders matched by the exchange, while quote-driven markets depend on market makers providing liquidity. Hybrid systems combine both methods to enhance efficiency and liquidity.
Settlement
Settlement is the process of transferring securities ownership and payment between buyers and sellers after a trade is executed. It typically involves clearinghouses that ensure the trade terms are met. The standard settlement cycle varies by market and security type, often within T+2 days, meaning the transaction is settled two business days after the trade.
Margin of Trading
Margin trading allows investors to borrow funds from a broker to buy securities, amplifying potential gains but also losses. Regulations stipulate margin requirements, ensuring that investors maintain a minimum amount of equity in their accounts. This helps mitigate risk and maintain market stability.
Depositories
Depositories play a crucial role in the trading system by holding securities in electronic form, facilitating easy transfer and settlement of trades. They provide services such as dematerialization of physical shares and maintaining records of ownership. The existence of depositories enhances the efficiency and safety of the securities market.
SEBI and Stock Exchange Members: Regulatory Roles, Broker/Dealer, Market Makers, Agency Brokers and Services
SEBI and Stock Exchange Members: Regulatory Roles, Broker/Dealer, Market Makers, Agency Brokers and Services
Regulatory Role of SEBI
SEBI, or the Securities and Exchange Board of India, is the principal regulatory authority for the securities market in India. Its primary role is to protect the interests of investors, promote the development of the securities market, and regulate its functioning. SEBI formulates rules and regulations to govern the stock exchanges and securities markets.
Stock Exchange Members
Members of a stock exchange are individuals or entities registered to operate on the exchange. They can be brokers, dealers, or market makers who facilitate trading in securities. They must comply with the regulations set by SEBI to maintain industry standards.
Brokers and Dealers
Brokers act as intermediaries between buyers and sellers in the securities market. They earn a commission for their services. Dealers, on the other hand, buy and sell securities for their own account. Both must register with SEBI and adhere to its guidelines.
Market Makers
Market makers are firms or individuals that provide liquidity to the market by being ready to buy or sell securities at publicly quoted prices. They play an essential role in ensuring that there is enough trading volume in the securities market.
Agency Brokers
Agency brokers execute trades on behalf of clients and do not hold any securities in their own account. They act as agents and are typically compensated through commissions. Their primary responsibility is to secure the best possible trade execution for their clients.
Services Offered by Stock Exchanges
Stock exchanges provide various services, including facilitating trading in securities, providing platforms for price discovery, and enabling clearing and settlement of trades. They ensure transparency and fair trading practices in the market.
Market Participants: Investors, Issuers, Intermediaries, Regulators, Security Broking Operations, Trade Life Cycle
Market Participants: Investors, Issuers, Intermediaries, Regulators, Security Broking Operations, Trade Life Cycle
Investors
Investors are individuals or institutions that allocate capital with the expectation of receiving financial returns. They can be categorized into retail investors, who invest smaller amounts, and institutional investors, such as pension funds and mutual funds, which invest large sums.
Issuers
Issuers are entities, often corporations or government bodies, that offer securities to raise capital. They can issue various types of securities including stocks, bonds, and derivatives. Issuers are responsible for ensuring compliance with regulations and providing necessary information to investors.
Intermediaries
Intermediaries play a crucial role in the securities market by facilitating transactions between buyers and sellers. They include brokers, dealers, and investment banks, and are essential for market liquidity and price discovery.
Regulators
Regulators are governmental or independent agencies responsible for overseeing the securities market. They ensure that the market operates fairly and transparently, protecting investors and maintaining the integrity of the securities market.
Security Broking Operations
Security broking operations involve the buying and selling of securities on behalf of clients. Brokers provide services such as research, investment advice, and trade execution, earning commissions or fees for their services.
Trade Life Cycle
The trade life cycle encompasses all phases of a trade, from order placement to settlement. Key stages include order execution, clearing, settlement, and record-keeping. Efficient management of the trade life cycle is critical for market efficiency and investor confidence.
