A PRESENTATION ON FINANCIAL SYSTEM With Special Focus To CAPITAL MARKET

PREPARED BY : DR. BHAWIN PATEL

CORE FACULTY - FINANCE NSVKMS MBA COLLEGE, VISNAGAR. EMAIL: drbhawin@gmail.com
A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance) 1

FINANCIAL SYSTEM
What is Financial System? Financial system is a set of Financial Markets, Financial Intermediaries and Financial Instruments (products).

A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance)

FINANCIAL MARKETS
CAPITAL MARKET

1. PRIMARY MARKET
2. SECONDARY MARKET MONEY MARKET COMMODITIES MARKET DEBT MARKET

FOR-EX MARKET
DERIVATIVE MARKET
A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance) 3

FINANCIAL INTERMEDIARIES
Banks Insurance Companies Merchant Bankers ETC.
Financial Intermediaries helps in Capital Formation in the economy by transferring monetary resources from Money Savers to Money Seekers.

A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance)

FINANCIAL INSTRUMENTS
Banking Products

Insurance Policies
Mutual Funds

Bonds and Debentures

Shares of all types

Govt. Securities etc

A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance)

CAPITAL MARKET
CAPITAL MARKET MEANING Capital Market is market for long-term funds.

PRIMARY MARKET OR NEW ISSUE MARKET (NIM)

MEANING AND FUNCTIONS

SECONDARY MARKET OR STOCK EXCHANGE (SE)

MEANING AND FUNCTIONS

ISSUE MECHANISM

SEBI
LISTING OF SECURITIES
A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance) 6

PRIMARY MARKET
It is also known as New Issue Market.
The Primary Market is that part of the capital market that deals with the issueance of new securities. Companies, governments or public sector institutions can obtain funding or finance through the sale of a new stock or bond issue. The New Issues by Companies in Primary Market is called as Initial Public Offerings (IPO).

A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance)

FEATURES OF PRIMARY MARKETS

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.
A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance) 8

SECONDARY MARKET
Secondary Market is also known as Stock Exchange like BSE and NSE. The secondary market, is a part of Capital Market in which previously issued shares, bonds, options, and futures are bought and sold. The term "secondary market" is also used to refer to the market for any used goods or assets. In Secondary Market the existing shares are bought and sold by investors and thus its provide liquidity to investors indirectly.
A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance) 9

FUNCTIONS OF SECONDARY MARKET

MARKET PLACE - PROVIDE LIQUIDITY, AND MARKETABILITY TO INVESTORS CONTINUOUS PRICE FORMATION BASED ON DD/SS POSITION WHAT OTHER FACTORS AFFECTS?
ECONOMIC /INTERNATIONAL /POLITICAL / RIOTS/ NATURAL CALAMITIES/ EXCHANGE RATES/ GOVT.POLICIES/ INTEREST RATE STRUCTURE/ MARKET RUMORS/ WAR / POLITICAL DISPUTES / INFLATION / CORPORATE RESULTS AND SO ON.
A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance) 10

RELATIONSHIP BETWEEN NEW ISSUE MARKET (NIM) AND STOCK EXCHANGE (SE)
MAJOR DIFFRENCES: 1. NEW V/s OLD SECURITIES 2. NATURE OF FINANCING 3. ORGANISATIONAL DIFFERENCES (LOCATION) THE NIM HAS NO GEOGRAPHICAL EXISTANCE MAJOR SIMILARITIES: 1. STOCK EXCHANGE LISTING 2. ECONOMIC INTERDEPENDENCE - BOTH MARKETS DEALING WITH INDUSTRIAL SECURITIES - ACTIVITY IN THE NIM AND THE MOVEMENT IN THE PRICES OF
STOCK EXCHANGE SECURITIES ARE BROADLY RELATED; NEW ISSUES INCREASE WHEN SHARE VALUES ARE RISING AND VICE VERSA
A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance) 11

SECURITIES MARKET INFRASTRUCTURE

GOVERNMENT: GIVING THE RIGHT DIRECTION TO THE MARKET, PREPARING MARKET FRIENDLY LAWS.

REGULATORS: ENABLING STRUCTURES TO BE PUT IN PLACE, FACILITATING A VIBRANT MARKET.

EXCHANGES: CREATING INFRASTRUCTURE FOR TRADING. DEPOSITORIES: CREATING INFRASTRUCTURE FOR SETTLEMENT. BANKS: ENABLING THE MOVEMENT OF FUNDS MARKET INTERMEDIARIES: BUILDING INFRASTRUCTURE ACROSS THE COUNTRY.
A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance) 12

ISSUE MECHANISM
PUBLIC ISSUE THROUGH PROSPECTUS TENDER/BOOK BUILDING METHOD OFFER FOR SALE
- COMP > MERCHANT BANK/INVESTMENT BANK > INVESTORS

PLACEMENT METHOD
- PRIVATE PLACEMENT > SHARES ISSUED TO FRIENDS/RELATIVES ETC - PREFERENTIAL ALLOTMENT > SHARES ISSUED TO QIBs

RIGHT/BONUS ISSUE
A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance) 13

SEBI SECURITY EXCHANGE BOARD OF INDIA

Securities & Exchange Board of India (SEBI) formed under the SEBI Act, 1992 with the prime objective of Protecting the interests of investors in securities, Promoting the development of, and Regulating, the securities market and for matters connected therewith or incidental thereto.
Focus being the greater investor protection, SEBI has become a vigilant watchdog.
A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance) 14

FUNCTIONS OF SEBI:
Regulation of Business of the Stock Exchanges. A review of the market operations, organizational structure and administrative control of the exchange. Registration and regulation of the working of Merchant Bankers, Underwriters, Portfolio Managers, Stock Brokers etc. Regulates the working of the Depositories [Participants], Custodians of Securities, FII, Credit Rating Agencies and such other Intermediaries in the Primary and Secondary Market. Other functions...
A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance) 15

LISTING OF SECURITIES
Admission of the securities for dealing on a recognized stock exchange. Security may be of Company, Central or State Government, Quasi government organizations.

A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance)

16

The Objectives Of Listing

Provide LIQUIDITY TO SECURITIES.

MOBILIZE SAVINGS for economic development

Protect INTEREST OF INVESTORS by ensuring full disclosures.

A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance)

17

Listing Process:
1. 2. 3. 4. 5. 6. 7. Minimum Listing Requirements for new companies Minimum Listing Requirements for companies listed on other stock exchanges Minimum Requirements for companies delisted by this Exchange seeking relisting of this Exchange Permission to use the name of the Exchange in an Issuer Company's prospectus Submission of Letter of Application Allotment of Securities Trading Permission Requirement of 1% Security Deposit Payment of Listing Fees Compliance with Listing Agreement
A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance) 18

Listing requirements prescribed by Stock Exchange Minimum Listing Requirements:

A. For NEW COMPANIES:
1. In respect of Large Cap Company and

2. In respect of Small Cap Company

B. Minimum Listing Requirements for companies listed on other stock exchanges C. Minimum Requirements for companies delisted by this Exchange seeking relisting of this Exchange
A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance) 19

A. Minimum Listing Requirements for NEW COMPANIES.

IN RESPECT OF LARGE CAP COMPANIES:
The minimum post-issue paid-up capital of the applicant company shall be Rs. 3 crores. The minimum issue size shall be Rs. 10 crores;

and
The minimum market capitalization of the Company shall be Rs. 25 crores
A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance) 20

Listing of Security:
IN RESPECT OF SMALL CAP COMPANY
The minimum issue size shall be Rs. 3 crores. The minimum post-issue paid-up capital of the Company shall be Rs. 3 crores The minimum market capitalization of the Company shall be Rs. 5 crores The minimum income/turnover of the Company should be Rs. 3 crores in each of the preceding three years. Minimum number of shareholders after the issue shall be 1000.
A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance) 21

B. Minimum Listing Requirements for companies listed on other stock exchanges:

Criterias: The company should have minimum issued and paid up equity capital of Rs. 3 crores. The Company should have profit making track record for last THREE years. Minimum net worth of Rs. 20 crores (net worth includes Equity capital and free reserves excluding revaluation reserves). Minimum market capitalization of the listed company should be at least two times of the paid up capital. The company should have a dividend paying track record for the last 3 consecutive years and the minimum dividend should be at least 10%. A Presentation by Dr. Bhawin Patel (Asst. 22
Professor - Finance)

B. Minimum Listing Requirements for companies listed on other stock exchanges: Criterias Cont
Minimum 25% of the company's issued capital should be with Non-Promoters shareholders as per Clause 35 of the Listing Agreement. The company should have at least two years listing record with any of the Regional Stock Exchange. The company should sign an agreement with CDSL & NSDL for D-MAT trading. *** CDSL = Central Depository Services (India) Limited *** NSDL = National Securities Depository Limited
A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance) 23

C. Minimum Requirements for companies delisted by this Exchange seeking relisting of this Exchange

The companies delisted by this Exchange and seeking

relisting are required to make a fresh public offer/issue and comply with the prevailing SEBI's and BSE's guidelines regarding initial public offerings.

A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance)

24

STEPS OF LISTING OF SECURITY:

1. Submission of Letter of Application
As per Section 73 of the Companies Act, 1956, a company seeking listing of its securities on the Exchange is required to submit a Letter of Application to all the Stock Exchanges where it proposes to have its securities listed before filing the prospectus with the Registrar of Companies.

A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance)

25

Listing of Security:
2. Allotment of Securities
As per Listing Agreement, a company is required to complete allotment of securities offered to the public within 30 days of the date of closure of the subscription list and approach the Regional Stock Exchange for approval of the basis of allotment. In case of Book Building issue, Allotment shall be made not later than 15 days from the closure of the issue failing which interest at the rate of 15% shall be paid to the investors.

A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance)

26

Listing of Security: 3. Trading Permission

As per SEBI Guidelines, the issuer company should complete the formalities for trading at all the Stock Exchanges where the securities are to be listed within 7 working days.

Time limit for all securities and dispatch of Allotment Letter /D MAT form /Share Certificates if any in a due time.
Manage the Refund Orders in due time, if any.

A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance)

27

Listing of Security:
4. Payment of Listing Fees
All companies listed on the Exchange have to pay Annual Listing Fees by the 30th April of every financial year to the Exchange. Initial Listing Fee (One Time): Rs.20,000 Annual Listing Fee:

(Paid Capital Up To Rs 5 cr.): Rs.10,000

(Above Rs.5 Cr And Up To Rs.10 Cr):Rs.15,000 (Above Rs. 10 Cr And Up To Rs. 20 Cr): Rs. 20,000 Companies which have a paid-up capital* of more than Rs. 20 crores will pay additional fee of Rs. 750/- for every increase of Rs. 1 crores. by Dr. Bhawin Patel (Asst. A Presentation 28
Professor - Finance)

Listing of Security:
5. Requirement of 1% Security Deposit
The companies making public/rights issues are required to deposit 1% of issue amount with the Regional Stock Exchange before the issue opens.
This amount is liable to be forfeited in the event of the company not resolving the complaints of investors regarding delay in sending refund orders/share certificates, nonpayment of commission to underwriters, brokers, etc.

A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance)

29

Listing of Security:
6. Compliance with Listing Agreement
The companies desirous of getting their securities listed are required to enter into an agreement with the Exchange called the Listing Agreement and they are required to make certain disclosures and perform certain acts like A. To forward copies of annual reports and balance sheets to the shareholders B. To furnish financial results on a quarterly basis to SEBI C. To comply with the conditions of corporate governance

D. To provide facilities for prompt transfer of shares

E. The requirement of minimum number of shareholders F. To comply with listing regulationsPatel (Asst. time to time etc. from A Presentation by Dr. Bhawin
Professor - Finance) 30

TO BE CONTD

A Presentation by Dr. Bhawin Patel (Asst. Professor - Finance)

31