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Capital Markets
WHAT IS FINANCIAL MARKET?
• Primary Market
- Merchant bankers,
- underwriters,
- portfolio managers,
- bankers,
- registrar,
- share transfer agent,
- rating agencies
• Secondary Market
- Stock brokers,
- Depository/Depository participant,
- Custodian
Major changes in Stock Market
• Trading system
- ‘Public outcry’ – inefficient system, lack of transparency, OTCEI first
exchange to introduce SBTS.
- Orders matched on price/time priority
• Depository
• An entity which holds securities in electronic form on behalf of investor
after dematerialisation
• Dematerialisation – Process by which physical certificates are destroyed
and an equivalent number of securities are credited to the account of the
investor
• Problems of physical certificates : physical storage and transfer of
securities, risk of bad delivery, transaction costs higher.
- NSDL first depository – set up in 1996
Major changes in Stock Market
- Clearing mechanism
- National Securities Clearing Corporation (NSCC) set up, bears the
counterparty risk in all trading deals
- Settlement system
- Earlier calendar system of settlement eg A group (14 days), Trading
week not uniform leading to arbitrage- now dispensed with. Earlier there
was T+5, T+3 SYSTEMS WHICH IS ALSO DISPENSEDWITH
- Rolling settlement introduced – T+2 settlement
- Carry forward system
- Banned carry forward transactions (badla/undha badla)
- Derivatives introduced
- Margin system
• Lack of stringent margin requirements and laxity in collection led to
chaos, whenever default
• Mark to market margin( DAY TO DAY MARKING)
Major changes in Stock Market (Contd.)
• Capital adequacy
- Brokers operated on small capital base, introduced minimum capital
norms
- Indices
- Important tool to measure price behaviour of overall market, used as
benchmarks to monitor markets and judge performance
- Construction and maintenance of well designed and responsive indices
- Main criteria for inclusion of stocks – Market capitalisation, liquidity,
floating stock
- Derivatives
- Futures and options introduced
Main indices
- In the world
- Nasdaq 100 (USA), FTSE 100 (UK), Hang Seng (Hong Kong), Dow
Jones (USA), Nikkei 225 (Japan)
- In India
- Sensex
- 30 stock large MC index
• S&P CNX Nifty
- 50 stock large MC index
- S&P CNX Defty
- US $ denominated Index of S&P CNX Nifty
- S&P CNX Industy Indices
- In 73 industy sectors, each sector forms an index by itself
- CNX Nifty Junior
• 50 stock index which comprise the next rung of large and liquid stocks
after S&P CNX Nifty
• CNX Midcap 200
- A midcap index of 200 stocks
- CNX PSE/MNC/IT/FMCG Index
Terms and terminology
• Arbitrage
• Bad delivery
• Book Building
• Bid/Ask
• Blue Chip
• Bulls/bears/stag/wolf
• Cum dividend/cum bonus
• Day trader
• Ex dividend/ex bonus
• EPS
• Greenshoe option
• Insider trading
• IPO
• P/E multiple
• Put/call option
• Private placement
• Stop loss order
• Zero coupon bond
Events of importance