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CONTENT.......................................................................................................................................................1 MEANING AND CONCEPT OF CAPITAL MARKET............................................................................2 DEFINITIONS OF CAPITAL MARKET...................................................................................................2 THE MAJOR OBJECTIVES OF CAPITAL MARKET: .........................................................................2 SIGNIFICANCE, ROLE OR FUNCTIONS OF CAPITAL MARKET...................................................3 INVESTMENT INSTRUMENTS ................................................................................................................4 SEGMENTS OF CAPITAL MARKET .......................................................................................................5 PRIMARY MARKET.......................................................................................................................................5 SECONDARY MARKET..................................................................................................................................7 DIFFERENCE BETWEEN CAPITAL MARKET AND MONEY MARKET........................................7 CAPITAL MARKET IN BANGLADESH...................................................................................................8 HISTORY OF STOCK EXCHANGE..........................................................................................................8 VISION............................................................................................................................................................8 MISSION.........................................................................................................................................................8 OBJECTIVES.................................................................................................................................................8 MANAGEMENT OF STOCK EXCHANGES............................................................................................9 CATEGORIZATION OF LISTED COMPANY.........................................................................................9 TRADING SYSTEM....................................................................................................................................10 FUNCTION: SECURITIES & EXCHANGE COMMISSION (SEC)....................................................10 FUNCTIONS: DHAKA STOCK EXCHANGE LTD. (DSE) & CHITTAGONG STOCK EXCHANGE LTD. (CSE)............................................................................................................................10 FUNCTIONS: CENTRAL DEPOSITORY BANGLADESH LTD. (CDBL).........................................10 FINAL GLANCE AND CONCLUSION ON CAPITAL MARKET.......................................................11 REFERENCES.............................................................................................................................................12

Meaning and Concept of Capital Market Capital Market is one of the significant aspects of every financial market. Hence it is necessary to study its correct meaning. Broadly speaking the capital market is a market for financial assets which have a long or indefinite maturity. Unlike money market instruments the capital market instruments become mature for the period above one year. It is an institutional arrangement to borrow and lend money for a longer period of time. It consists of financial institutions. These institutions play the role of lenders in the capital market. Business units and corporate are the borrowers in the capital market. Capital market involves various instruments which can be used for financial transactions. Capital market provides long term debt and equity finance for the government and the corporate sector. Capital market can be classified into primary and secondary markets. The primary market is a market for new shares, where as in the secondary market the existing securities are traded. Capital market institutions provide rupee loans, foreign exchange loans, consultancy services and underwriting. Definitions of Capital Market A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets (e.g., the money market). The capital market includes the stock market (equity securities) and the bond market (debt) The major objectives of capital market: The major objectives of Capital Market are: To mobilize resources for investments. To facilitate buying and selling of securities. To facilitate the process of efficient price discovery. To facilitate settlement of transactions in accordance with the predetermined time schedules.

Significance, Role or Functions of Capital Market Like the money market capital market is also very important. It plays a significant role in the national economy. A developed, dynamic and vibrant capital market can immensely contribute for speedy economic growth and development. Let us get acquainted with the important functions and role of the capital market. Mobilization of Savings: Capital market is an important source for mobilizing idle savings from the economy. It mobilizes funds from people for further investments in the productive channels of an economy. In that sense it activate the ideal monetary resources and puts them in proper investments. Capital Formation: Capital market helps in capital formation. Capital formation is net addition to the existing stock of capital in the economy. Through mobilization of ideal resources it generates savings; the mobilized savings are made available to various segments such as agriculture, industry, etc. This helps in increasing capital formation. Provision of Investment Avenue: Capital market raises resources for longer periods of time. Thus it provides an investment avenue for people who wish to invest resources for a long period of time. It provides suitable interest rate returns also to investors. Instruments such as bonds, equities, units of mutual funds, insurance policies, etc. definitely provides diverse investment avenue for the public. Speed up Economic Growth and Development: Capital market enhances production and productivity in the national economy. As it makes funds available for long period of time, the financial requirements of business houses are met by the capital market. It helps in research and development. This helps in, increasing production and productivity in economy by generation of employment and development of infrastructure. Proper Regulation of Funds: Capital markets not only helps in fund mobilization, but it also helps in proper allocation of these resources. It can have regulation over the resources so that it can direct funds in a qualitative manner. Service Provision: As an important financial set up capital market provides various types of services. It includes long term and medium term loans to industry, underwriting services, consultancy services, export finance, etc. These services help the manufacturing sector in a large spectrum. Continuous Availability of Funds: Capital market is place where the investment avenue is continuously available for long term investment. This is a liquid market as it makes fund available on continues basis. Both buyers and seller can easily buy and sell securities as they are continuously available. Basically capital market transactions are related to the stock exchanges. Thus marketability in the capital market becomes easy. These are the important functions of the capital market.

Investment Instruments Investment is a deployment of funds in one or more types of assets that will be held over a period of time. Various forms of investment are available to an investor. They cover bank deposits, term deposits, recurring deposits, company deposits, postal savings schemes, deposits with non-bank financial intermediaries, Government and corporate bonds, life insurance and provident funds, equity shares, mutual funds, tangible assets like gold, silver and jewellery, real estate and work of arts, etc. Capital market instruments can be broadly divided into two categories namely Debt, Equity and Hybrid instruments. Derivative Products like Futures, Options, Forward rate agreements and Swaps. Debt: Instruments that are issued by the issuers for borrowing monies from the investors with a defined tenure and mutually agreed terms and conditions for payment of interest and repayment of principal. Debt instruments are basically obligations undertaken by the issuer of the instrument as regards certain future cash flows representing interest and principal, which the issuer would pay to the legal owner of the instrument. Debt instruments are of various types. The key terms that distinguish one debt instrument from another are as follows: Issuer of the instrument Face value of the instrument Interest rate and payment terms Repayment terms (and therefore maturity period / tenor) Security or collateral provided by the issuer Different kinds of money market instruments, which represent debt, are commercial papers (CP), certificates of deposit (CD), treasury bills (T-Bills), etc. Equity: Instruments that grant the investor a specified share of ownership of assets of a company and right to proportionate part of any dividend declared. Shares issued by a company represent the equity. The shares could generally be either ordinary shares or preference shares. Major difference between Equity and Debt: Share represents the smallest unit of ownership of a company. If a company has issued 1,00,000 shares, and a person owns 10 of them, he owns 0.01% of the company. A debenture or a bond represents the smallest unit of lending. The bond or debenture holder gets an assured interest only for the period of holding and repayment of principal at the expiry thereof, while the shareholder is partowner of the issuer company and has invested in its future, with a corresponding share in its profit or loss. The loss is, however, limited to the value of the shares owned by him. Hybrids: Instruments that include features of both debt and equity, such as bonds with equity warrants e.g. convertible debentures and bonds.

Derivatives: Derivative is defined as a contract or instrument, whose value is derived from the underlying asset, as it has no independent value. Underlying asset can be securities, commodities, bullion, currency, etc. The two derivative products traded on the Indian stock exchanges are Futures and Options. Futures (Index and Stock): Futures are the standardized contracts in terms of quantity, delivery time and place for settlement on a pre-determined date in future. It is a legally binding agreement between a seller and a buyer, which requires the seller to deliver to the buyer, a specified quantity of security at a specified time in the future, at a specified price. Such contracts are traded on the exchanges. Options (Index and Stock): These are deferred delivery contracts that give the buyer the right, but not the obligation to buy or sell a specified security at a specified price on or before a specified future date.

Segments of capital market The Capital Market consists of A) Primary Market B) Secondary Market Primary Market The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Primary markets creates long term instruments through which corporate entities borrow from capital market.

Features of primary markets are: This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM). In a primary issue, the securities are issued by the company directly to investors. The company receives the money and issues new security certificates to the investors. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business. The primary market performs the crucial function of facilitating capital formation in the economy. The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public." The financial assets sold can only be redeemed by the original holder. Methods of issuing securities in the primary market are: Initial public offering; Rights issue (for existing companies); Preferential issue. Activities in the Primary Market 1. Appointment of merchant bankers 2. Pricing of securities being issued 3. Communication/ Marketing of the issue 4. Information on credit risk 5. Making public issues 6. Collection of money 7. Minimum subscription 8. Listing on the stock exchange(s) 9. Allotment of securities in demat / physical mode 10. Record keeping

Secondary Market Secondary Market is the market where, unlike the primary market, an investor can buy a security directly from another investor in lieu of the issuer. It is also referred as "after market". The securities initially are issued in the primary market, and then they enter into the secondary market. All the securities are first created in the primary market and then, they enter into the secondary market. In the New York Stock Exchange, all the stocks belong to the secondary market. In other words, secondary market is a place where any type of used goods is available. In the secondary market shares are maneuvered from one investor to other, that is, one investor buys an asset from another investor instead of an issuing corporation. So, the secondary market should be liquid. Example of Secondary market: In the New York Stock Exchange, Importance of Secondary Market: Secondary Market has an important role to play behind the developments of an efficient capital market. Secondary market connects investors' favoritism for liquidity with the capital users' wish of using their capital for a longer period. For example, in a traditional partnership, a partner can not access the other partner's investment but only his or her investment in that partnership, even on an emergency basis. Then if he or she may breaks the ownership of equity into parts and sell his or her respective proportion to another investor. This kind of trading is facilitated only by the secondary market Activities in the Secondary Market 1. Trading of securities 2. Risk management 3. Clearing and settlement of trades 4. Delivery of securities and funds Difference between Capital Market and Money Market Basically the difference between the capital markets and money markets is that capital markets are for long term investments, companies are selling stocks and bonds in order to borrow money from their investors to improve their company or to purchase assets. Whereas money markets are more of a short term borrowing or lending market where banks borrow and lend between each other, as well as finance companies and everything that is borrowed is usually paid back within thirteen months. Another difference between the two markets is what is being used to do the borrowing or lending. In the capital markets the most common thing used is stocks and bonds, whereas with the money markets the most common things used are commercial paper and certificates of deposits.

Capital market in Bangladesh Bangladesh capital market is one of the smallest in Asia but the third largest in the south Asia region. It has two full-fledged automated stock exchanges namely Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE). And an over-the counter exchange operated by CSE. It also consists of a dedicated regulator, the Securities and Exchange Commission (SEC), since, it implements rules and regulations, monitors their implications to operate and develop the capital market. It consists of Central Depository Bangladesh Limited (CDBL), the only Central Depository in Bangladesh that provides facilities for the settlement t of transactions of dematerialized securities in CSE and DSE. History of Stock Exchange Dhaka Stock Exchange was set up on 28th April, 1954 that started formal trading on early 1956. Postindependence government did not promote a capital market during the first five years, and it was activated again in 1976 with 9 issues on board. In 1995, a second bourse, the Chittagong Stock Exchange, was set up with sophisticated logistic support and modern management. Vision Regulating the market structure through proper rules and strict compliance by members Expansion of CSE trading network to cover 504 thanas Introduce Book Building system in Bangladesh capital market Introducing derivative market Continuous promotion of stock investment throughout the country Create opportunity to cross border trading with SAFE countries. Introduce Global Depository Receipts (GDR) Mission To create an efficient and transparent Market facilitating entrepreneurs to raise capital, so that it accelerates industrial growth for overall benefit of the economy of the country. Objectives Develop a strong platform for entrepreneurs for raising capital; Provide an investment opportunity for small and large investors; Develop a transparent market ensuring investor's interest;

 Provide a fully automated trading system with most modern amenities to ensure: quick, easy, accurate transactions and easily accessible to all; Attract non-resident Bangladeshis to invest in Bangladesh stock market; Attract foreign institutional investors to invest in Bangladesh; Collect, preserve, disseminate data and information on stock exchange; Management of Stock Exchanges DSE & CSE comprises of 25 members of whom 12 are elected through direct election from the 235 and 134 share holders respectively. Another 12 members representing distinguished personalities from different key economic and social arena of the country. The CEO of the Exchange is also a Director of the Board. Categorization of listed company Category: A, B, G, N & Z Category A B G N Z Debenture (A Category) Treasury Bonds Grand Total DSE 155 18 1 13 98 8 75 368 CSE 130 13 1 14 72 2 232

Criteria of the share Category A Category Companies: Companies which are regular in holding the Annual General Meetings (AGM) and have declared dividend at the rate of 10 percent or more in a calendar year. (Mutual fund, debentures and bonds are being traded in this category). B Category Companies: Companies which are regular in holding the AGM but have failed to declare dividend at least at the rate of 10 percent in a calendar year. G Category Companies: Green field companies. N Category Companies: All newly listed companies except Green field companies will be placed in this category and their settlement system would be like B-Category companies. Z Category Companies: Companies which have failed to hold the AGM or failed to declare any dividend or which are not in operation continuously for more than six months or whose accumulated loss after adjustment of revenue reserve, if any is negative and exceeded its paid up capital.

Trading System Fully automated screen-based. Nation-wide online trading network. Present coverage :Chittagong, Dhaka, Sylhet, Rajshahi, Khulna, Barisal, Tangail and Coxsbazar Continuous expansion. Function: Securities & Exchange Commission (SEC) Registering and regulating the business of stock exchanges, stock-brokers, merchant bankers and managers of issues, trustee of trust deeds, underwriters, portfolio managers and other intermediaries in the securities market. Promoting investors education and providing training for intermediaries of the securities market. Prohibiting fraudulent and unfair trade practices relating to securities trading in any securities market Functions: Dhaka Stock Exchange Ltd. (DSE) & Chittagong Stock Exchange Ltd. (CSE) Listing of securities and ensuring compliance by the issuers. Trading provisions for listed securities through efficient trading platform (Online screen based trading system). Over the counter market (OTC) & Internet based trade facilities provide by CSE. Real time online market Surveillance of trading and regular monitoring and compliance inspection of trading operations. Clearing and Settlement of executed trades. Management of the Members. Functions: Central Depository Bangladesh Ltd. (CDBL) Operate and maintain the Central Depository System (CDS) of Electronic Book Entry. Recording and maintaining securities accounts and registering transfer of securities. Changing the ownership without any physical movement or endorsement of certificates.

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 Execution of transfer instruments, as well as various other investor services including providing a platform for the secondary market trading of Treasury Bills and Government Bond issued by the Bangladesh Bank. Supervision of Depository Participant activities. Final Glance and Conclusion on Capital Market The lack of an advanced and vibrant capital market can lead to underutilization of financial resources. The developed capital market also provides access to the foreign capital for domestic industry. Thus capital market definitely plays a constructive role in the over all development of an economy.

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References http://www.businessknowledgesource.com/investing/the_difference_between_cap ital_markets_and_money_markets_024885.html http://www.cdslindia.com/downloads/Certification/BCCD-Book-August-2009.pdf http://en.wikipedia.org/wiki/Primary_market http://finance.mapsofworld.com/secondary-market/ http://kalyan-city.blogspot.com/2010/09/what-is-capital-market-meaning.html http://www.cmda.gov.mv/docs/Anx-IV%20Bangladesh%20-%20Capital %20Market%20in%20Bangladesh%20Trands%20and%20Practices.pdf http://en.wikipedia.org/wiki/Capital_market

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