Financial Markets
Dr. Anu Thakur
Markets
The term "market" is sometimes used for what are more
strictly exchanges, organizations that facilitate the trade in financial
securities, e.g., a stock exchange or commodity exchange. This may be
a physical location (like the NYSE, BSE, LSE) or an electronic system.
Financial markets is a generic term used to describe the marketplace for
all financial investment and trading products into which investors can
deploy their savings and capital.
“The place where people and organizations wanting to borrow money
are brought together with those having surplus funds is called financial
market.”
Securities Market
Securities Market
Security has broad and inclusive definition:
• Shares, bonds, debentures or other marketable securities of any
incorporated company.
• derivatives.
• Units or any other such instrument issued to the investors under any
mutual fund scheme.
• Government securities.
• Units or any other such instrument issued by any collective
investment scheme to the investors.
Regulatory Framework for
Securities Market
Securities laws framework in India consists of:
• Securities contracts (Regulation) Act, 1956
• SEBI Act 1992
• The depositories act 1996
• Provisions of companies act 2013 dealing with Securities and issues.
• Foreign exchange management act 1999
• Income tax act 1961
• Also affected by stamp law (both central and state)
• Benami transactions Act 1988
CAPITAL
MARKETS
Capital Market
Investment Banking is all about capital market activity that requires a
deep understanding of various securities that are used by issuers to
raise capital.
Deals with a variety of long-term debt and equity securities issued by
companies.
Capital Market consists of both the raising of capital by issuers through
issue of various securities and the subsequent trading through stock
exchange.
Stock Exchange where securities are bought and sold publicly.
Evolution of Indian Capital
Market
The Indian Capital Market is one of the oldest markets in Asia having
found its initiation nearly 200 years ago.
The first deals in shares and securities were witnessed in Bombay was
around 1830s.
By 1874, native brokers started assembling in the famous Dalal Street in
South Bombay to conduct transactions in shares and securities.
BSE was established in 1875 as stock-brokers association.
BSE was the 1st stock exchange in India to have been granted
permanent recognition in 1956 by the GOI under SCRA, 1956.
Transformation of Indian Capital
Market
In 1991, with LPG reforms, the Capital Issues (Control) Act was
abolished, and a new regulatory authority called SEBI was established
under SEBI act 1992 to promote the orderly growth and development
of the capital market.
The Capital Market has become the most important source of long-term
capital for the Indian corporate sector due to the increase in capital
mobilization from investors.
Capital Market segments
Primary market
Secondary market
Both markets complement each other in their functionality, and one
cannot exist without the other.
The Primary market create marketable securities, the secondary market
provides the infrastructure for putting such marketability to work.
Capital Market segments
1. Primary Market (New issues): Deals with the issue of new
securities. The Issuer may be a new company or an existing
company.
2. Secondary Market: consists of providing trading mechanisms
for day-to-day purchase and sale of securities.
The instruments that have been issued in the primary market are
traded constantly in the secondary market providing investors
ready market, transparent pricing mechanism and liquidity for
the securities.
Global Stock Exchanges
• The New York Stock Exchange (NYSE) is the world’s biggest stock
market in terms of market capitalization. Started in 1792.
• The NASDAQ Exchange: ‘National Association for Securities Dealers
Automated Quotation System’ founded in 1971. Second largest after
NYSE.
• The American Stock Exchange (AMEX)
• European Stock Exchange London Stock Exchange (LSE), based on
which the BSE was modelled.
• Tokyo Stock Exchange, Shanghai Stock Exchange, Hong Kong Stock
Exchange, Singapore Stock Exchange, etc.
Evolution of Indian Stock
Exchanges
BSE was established in 1875
Ahmedabad Stock Exchange was established in 1894
In 1880s and 1990s Calcutta was driven by the boom in jute, tea and coal
businesses and in 1908 the Calcutta Stock Exchange was established.
Madras Stock Exchange came into existence in 1920 and went out of
existence and re-established in 1937.
Several other Stock Exchanges such as Uttar Pradesh Stock Exchange
(1940), Nagpur Stock Exchange (1940), Hyderabad Stock Exchange (1944)
and Delhi Stock Exchange (1947) were established.
Development of Stock Market in India
Till the early 1990s, the Indian stock market comprised regional stock
exchanges with the BSE heading the list. The Indian stock market was
weighed down with many limitations:
Lack of transparency
High transaction cost
Uncertain delivery and settlement periods.
Uncertainty of execution prices.
Failure of the entire market.
Regulation of Stock
Exchanges
The stock markets in India are regulated by the central government under
the Securities Contracts (Regulation) Act, 1956, which provides the
recognition of stock exchanges, supervision and control of recognized
stock exchanges, regulation of contracts in securities, listing of securities,
etc.
The Securities and Exchange Board of India Act, 1992 provides for the
establishment of SEBI to protect the investors’ interest in securities and
promote and regulate the securities market.
Bombay Stock Exchange (BSE)
Established in 1875, BSE (formerly known as Bombay Stock Exchange Ltd.), is Asia's first & the
Fastest Stock Exchange in world and one of India's leading exchange groups. BSE has
facilitated the growth of the Indian corporate sector by providing it an efficient capital-
raising platform. Popularly known as BSE, the bourse was established as "The Native
Share & Stock-Brokers' Association" in 1875. BSE is also the 1st listed stock exchange of
India.
Today, BSE provides an efficient and transparent market for trading in equity, currencies,
debt instruments, derivatives, mutual funds. It also has a platform for trading in equities
of small-and-medium enterprises (SME).
Bombay Stock Exchange (BSE)
BSE provides a host of other services to capital market participants including risk
management, clearing, settlement, market data services and education. It has a
global reach with customers around the world and a nation-wide presence. BSE
systems and processes are designed to safeguard market integrity, drive the
growth of the Indian capital market and stimulate innovation and competition
across all market segments.
It operates one of the most respected capital market educational institutes in the
country (the BSE Institute Ltd). BSE also provides depository services through its
Central Depository Services Ltd. (CDSL) arm.
Bombay Stock Exchange (BSE)
Trading and Settlement System
The BSE has adopted a fully automated computerized mode of tracing i.e. BOLT (BSE
– On-line Trading) system with effect from March 14, 1995. Members can enter
orders from trader workstations (TWS) installed in their offices instead of
assembling trading ring.
The Consolidation Phase
• With the rise of nation-wide screen-based exchange in the form of NSE,
the importance of regional Stock Exchanges started to fade away.
• NSE gradually attained market leadership with its sophisticated screen-
based trading.
• Depositories Act 1996 further consolidated the shift to modern
securities trading platforms and holding system.
• Soon BSE halted its traditional open outcry system on the Stock
Exchanges floor and migrated to screen-based trading system.
The Consolidation Phase
The depth and reach offered by nation-wide Screen Based Trading
System (SBTS) of NSE and BSE made regional stock exchanges redundant.
This phenomenon can be noticed from the fact that in 2006, all regional
SEs reported nil or close to nil turnover; whereas BSE and NSE accounted
for 99.8% of the total turnover out of which NSE was the clear leader.
In order to stay relevant, the regional Stock Exchanges tried several
strategies.
National Stock Exchange (NSE)
NSE was incorporated in November 1992 and received recognition as a stock
exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993.
The National Stock Exchange of India Limited (NSE) is the leading stock exchange of
India, located in Mumbai.
The NSE was established in 1992 as the first electronic exchange in the country.
NSE was the first exchange in the country to provide a modern, fully automated
screen-based electronic trading system which offered easy trading facility to the
investors spread across the length and breadth of the country.
National Stock Exchange (NSE)
The National Stock Exchange (NSE) is the leading stock exchange in India and the
fourth largest in the world by equity trading volume in 2015, according to World
Federation of Exchanges (WFE).
It began operations in 1994 and is ranked as the largest stock exchange in India in
terms of total and average daily turnover for equity shares every year since 1995,
based on annual reports of SEBI.
NSE launched electronic screen-based trading in 1994.
NSE has a fully-integrated business model comprising our exchange listings, trading
services, clearing and settlement services, market data, technology solutions and
financial education offerings.
National Stock Exchange (NSE)
• NSE is a fully system driven and automated Stock Exchange that allows
its members to deal from their own premises.
• Providing access on equal and fair basis to investors across the country
through efficient and transparent securities trading system.
• Provide shorter settlement cycles and book entry settlements.
National Stock Exchange (NSE)
Features:
1. NSE employs a fully automated screen-based trading system (SBTS), called
NEAT (National Exchange for Automated Trading).
2. The NSE market is fully automated screen-based environment. There is no
trading floor as is prevalent in the traditional stock exchange.
3. The trading members in the capital market segment are connected to the
central computer in Mumbai through a satellite link-up using VSAT (Very Small
Aperture Terminals).
4. The NSE set up the National Securities Clearing Corporation Limited (NSCCL)-
the first clearing corporation in the country, to provide settlement guarantee.
National Stock Exchange (NSE)
Trading and Settlement
NSE employs a fully automated screen-based trading system (SBTS), called NEAT
(National Exchange for Automated Trading).
National Securities Clearing Corporation Limited (NSCCL) carries out clearing and
settlement functions as per the settlement cycles provided in the settlement
schedule.
NSCCL has devised to handle various exceptional situations like security shortages,
bad delivery, company objections, auction settlement, etc.
Constituents of Capital Market
Constituents of Capital Market
The basic constituents of a capital market are the five “I”:
1. Issuers of securities are companies incorporated under the statute
governing (Companies Act, 2013). These companies can be privately owned
or owned by the government (either central or state). The government can
also raise finance from capital market using long-term route.
2. Investors in securities can be either wholesale or retail investors. wholesale
investors comprises of institutional investors as mutual funds, investment
institutions. Retail investors consists of households and other small
investors.
Constituents of Capital Market
The basic constituents of a capital market are the five “I”:
3. Intermediaries and service providers help in the mobilization of resources
from the investors and provide other support services. Consist of brokers,
merchant bankers, underwriters and market makers. Support services
providers include custodians, depository participants, registrars and share
transfer agents.
4. Infrastructure consists of Stock Exchanges, the depositories, the regulators
and the necessary statutory framework.
Constituents of Capital Market
The basic constituents of a capital market are the five “I”:
5. Instruments are securities debt and equity. Equity securities as equity shares,
preference shares, convertible and pure debt instruments such as non-convertible
debentures and bonds.
Debt securities carry interest, which is usually fixed beforehand so that the investor
knows the return that can be made in the investment.
Equity securities (called shares) are more akin to ownership in the underlying business
and do not carry any assured return and can either provide high returns or can wipe
out the entire investment itself, if loss.
THANK YOU
