We have different options to channelize our savings.
a)Banks a)Financial Markets

Banks -
A bank is a financial institution and a financial intermediary that accepts deposits and channelize those deposits into lending activities either directly or through capital markets.
Financial Market -
A financial market is a market where financial assets are bought or sold.
Financial Assets are Shares, Debentures and Bonds etc.

CONCEPT OF FINANCIAL MARKET
SAVERS
FINANCIAL
MARKETS
INVESTORS
Household Business Firms

Functions of Financial Markets
1. Mobilization of savings and channelizing them into most productive use.
2. Facilitates price discovery.
3. Provide liquidity to financial assets.
4. Reduce cost of transaction.

Organized Market
Classification of Financial Markets
Unorganized Market
Capital Market
Money Market
Call Money
Commercial
Bills
Treasury Bills
Certificates of
Deposits
Industrial
Securities
Govt.
Securities
Long-term
Loans
Primary Market Secondary Market

Money Market –Money Market is the market where transactions are made for Short term securities.
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It is a market for short term funds which deals in monetary assets whose period of maturity is up to one year. In it short term debt instruments that are highly liquid are issued and traded actively everyday.
Money market securities are usually sold in large denominations .
They have low default risk
They mature in one year or less from their issue date

Reserve Bank of India
Commercial Banks
Non-Banking Finance Companies
State Governments
Large Corporation Houses
Mutual Funds.

It is an instrument of short-term borrowing by the Government of India maturing in not less than one year. They
T-bills.jpg
are issued by RBI on behalf of the Central
Government to meet its short-term requirements. They are issued at a price which is lower than their face value and repaid at par. They are issued for a period of 14 to 364 days.

It is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period i.e.
15 days to one year. It is an alternative to bank borrowing for large companies that are generally considered to be financially strong.
It is sold at discount and redeemed at par.

It is a short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions.
Call money is a method by which banks borrow from each other to be able to maintain the cash reserve ratio. The interest rate paid On call money loans is known as the call rate.

A commercial bill is a bill of exchange used to finance the working capital requirements of business firm. It is a short- term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms. The seller (drawer) of the goods draws the bill and the buyer
(drawee) accepts the bill. On being accepted, it becomes a marketable instrument and is called a trade bills. These bills can be discounted with a bank if the seller needs funds before the bill matures.

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• Call Money –call money is short term finance used for inter –bank
Transactions with maturity period of one to fifteen days .
• Commercial Bills –The holder of a trade bill has the liberty to retain
Till the date of maturity or they can discount these bills with bank,
If they are in need of funds, before the maturity date of these bills.
When Trade bills are accepted by the commercial banks ,they are known as Commercial bills.
• Treasury bills-T-bills are instruments for short term borrowing issued by Govt. of India .Their maturity is less than one year. They are freely transferable. These are issued by RBI on behalf of central govt.
• Certificate of deposit- It refers to short term instruments issued by
Commercial to the individual ,corporation and companies.

 Long Term Funds
 Raised by
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Government
Corporates
 Trading Instruments used
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Shares
Debts
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Derivatives
Units of Mutual Funds

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Debt
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Contract
One Party lends to another Party
Predetermined
 Interest Rates and Term
Participants
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Banks
Financial Institutions
Mutual Funds
Insurance Companies etc.
Instruments
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Government Securities (G-Secs)
Public Sector Units Bonds
Corporate Securities

 Stock
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Capital raised by corporations
Through issue and distribution of shares
 Share
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Signifies ownership in the company
A company might have thousands of Shareholders
 Which company issued shares for the first time in the world???
 The Dutch East India Company in 1602

 Primary Markets
 Newly issued securities sold by the issuer (e.g., a company sells bonds to pay for a manufacturing plant)
 Usually no commission to buyer (seller pays full commission)
 Secondary Markets
 Issuer not involved, all trades between investors

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Features Of Primary Market are:-
1. This is the market for new long term capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called New Issue Market (NIM).
2. In a primary issue, the securities are issued by the company directly to investors.
3. The company receives the money and issue new security certificates to the investors.
4. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.
5. The primary market performs the crucial function of facilitating capital formation in the economy.
6. 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’.

Raising of capital via private organizations rather than public placement. The result is the sale of securities to a relatively small number of investors.
The examples of the private placement are: shares of Cyberspace Infosys are privately placed to the UTI, GIC and LIC.

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When a company issues common stock to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.
In an IPO, the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue
(common or preferred), best offering price and time to bring it to market.
IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.

When a company gives the right to an existing share holder to buy a specified number of new shares from the firm at a specified price, within a specified time period. A right issue, is offered to all existing shareholders.
Rights are often transferable, allowing the holder to sell them on the open market.

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Preference shares, is typically a higher ranking stock than voting shares , and its terms are negotiated between the corporation and the investor.
Preferred stock usually carry no voting rights but may carry superior priority over common stock in the payment of dividends and upon liquidation. Preferred stock may carry a dividend that is paid out prior to any dividends to common stock holders. Preferred stock may have a convertibility feature into common stock. Preferred stockholders will be paid out in assets before common stockholders and after debt holders in bankruptcy. Terms of the preferred stock are stated in a "Certificate of Designation".

A company can also issue capital to public through the online system of the stock exchange. The appointment of various intermediaries by the issuer includes a prerequisite that such members/registrars have the required facilities to accommodate such an online issue process.

 Place where the shares are traded
 BSE
 NSE
 BSE – Bombay Stock Exchange
 Oldest Stock Exchange in Asia
 Sensex – Sensitive Index
 Index of 30 Actively traded Companies
 NSE – National Stock Exchange
 Incorporated in 1992
 Nifty
 Index of 50 Actively traded Companies

 Regional Stock Exchanges
 Ahmedabad Stock Exchange
 Calcutta Stock Exchange
 Over the counter market (OTC)
 OTCEI

Structure of Indian Financial System:
GOI
Ministry of Finance
GOI
Dept of Co. Affairs
SEBI RBI
Registrar of
Companies
Stock
Exchanges
Clearing
Corporations
Depositories
Mutual
Funds
Banks
Broker
Dealers
Merchant
Bankers
Depository
Participants
Registrar &
Transfer
Agents
Primary
Dealers
Companies

WHAT IS STOCK MARKET
 STOCK MARKET IS A PLACE WHERE SECURITIES-
SHARES,DEBENTURES,BONDS ARE TRADED
 STOCK MARKET HAS TWO BASIC ELEMENTS
 1.CORPORATE/ COMPANY NEED - FOR FUNDS
 2.INVESTOR NEED - TO GAIN PROFITS
 STOCK INVESTMENTS ARE MADE IN
 1.COMPANY SHARES
 2.OTHER SECURITIES
 3.DERIVATIVES

MECHANISM OF STOCK MARKET
 STOCKS ARE LISTED & TRADED ON -- STOCK
EXCHANGES
 STOCK EXCHANGES ARE SPECIALIZED
ENTITIES,WHICH TRANSPARENTLY BRINGS
BUYERS & SELLERS TOGETHER
 EXAMPLES:
 1.UNITED STATES OF AMERICA - NYSE,NASDAQ
 2.EUROPE - LONDON STOCK EXCHANGE ETC.
 3.INDIA - NSE,BSE AND REGIONAL EXCHANGES
 ACTUAL TRADES ARE BASED ON ---- AUCTION
MARKET PARADIGM

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TRADING IS EXCHANGE OF SECURITIES BETWEEN BUYERS
AND SELLERS
BUYERS ---- BID X PRICE
SELLERS---- ASKS Y PRICE
WHEN X=Y ---- SALE ON MATCHING PRICE ON FIRST
COME FIRST SERVE BASIS
ORDERS ARE EXECUTED THROUGH A PROFESSIONAL AT
STOCK EXCHANGE __ (BROKER)
BROKERS ARE REGISTERD TO OPERATE ON STOCK
EXCHANGES
REGISTRATION PROCESS INVOLVES VARIOUS CRITERIA
LIKE FINANCIAL STRENGTH & TRACK RECORD ETC.
BROKERS REFER THEIR REG. NO. ALONGWITH
REGULATORY AUTH. NO. --LIKE S.E.B.I. NO.ETC. TO BUYERS .

The securities contracts act , 1956 has defined stock exchange as on association
, organisation or body of individuals
,where incorporated or not , established for the purpose of assisting ,regulating and controlling business in buying , selling and dealing in securities.

OBJECTIVES AND FUNCTIONS OF STOCK
EXCHANGE
 Ready Market :Stock exchange provides ready and continuous market where investors can convert their money into securities and securities into money easily and quickly.
 Evaluation of Securities : Stock exchange helps in determining the prices of various securities that reflect their real worth.

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:Stock exchange ensures fair dealings and safety of funds due to government control of the working of stock exchanges.
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Stock exchange helps in mobilizing surplus funds of individuals and institutions by investment in securities .
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Stock exchange not only mobilises the existing saving but also includes people to save and invest their money in industrial securities which yield higher return .

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: Stock exchange is a very sensitive barometer of business conditions in the country . Price trends on the stock exchange reflect the economic climates in the country.
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: Stock exchange through its rules and regulations exercises control on the functioning of the company .

TRADING PROCEDURE ON STOCK EXCHANGE
Till a few years ago trading on a stock exchange took place through a public outcry or auction system .
This has been replaced by an online screen based electronic trading system as almost all exchange have become electronic.
Trading has, therefore, shifted from the stock market floor to broker’s office where trades are executed through a computer .
Broker’s are members of stock exchange through whom trading of securities is done.
They are intermediaries between the buyers and sellers.

A company’s securities can be traded on a stock exchange only if they are listed or quoted on it .
Company’s have to fulfill a stringent set of requirements to get their securities listed on stock exchange. This ensures that the interest of the shareholders is adequately looked after .
Transactions on a stock exchange may be carried out on either cash basis or a carry over basis . The carry over basis is also called ‘ badla ’ and is a unique feature of Indian stock markets, particularly BSE .

NATIONAL STOCK EXCHANGE OF INDIA
The National Stock Exchange is the latest , most modern technology driven exchange. It was incorporated in 1992 and was recognized as a stock exchange in April
1993. It started operations in 1994 ,with trading as the whole sale debt market segment . Subsequently,it launched the capital market segment in November, 1994 as a trading platform for equities and the futures and options segment in June 2000 for various derivative instruments . NSE has set up on a nation -wide-fully automated screen based trading system.

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Establishing the nationwide trading facility for all types of securities.
 Ensuring equal access to investors all over the country through an appropriate communication network.
 Providing a fair ,efficient and transparent securities market using electronic trading system .
 Enabling shorter settlement cycles and book entry settlements.
 Meeting international benchmarks and
standards.

The securities and exchange board of India was established by the government of India on 12 April 1988 as an interim administrative body to promote orderly and healthy growth of securities market and for investors protection . It was to function under the over all administrative control of the Ministry of Finance of the Government of India.

Sensex (Bombay Stock Exchange Sensitive
Index) goes up and down all times and seems to be very important part of business and economic news.
The SENSEX is the bench mark index of
BSE. Since the BSE has been the leading exchange of the Indian Secondary
Market, the Sensex has been an important indicator of the Indian Stock
Market. It is most frequently used indicator while reporting on the state of the market.

An index has just one job: to capture the price movement. The Stock Index reflects the price movement of the shares while a bond index captures the manner in which bond prices go up or down. If the Sensex rises it indicates the market is doing well. Since Stock are supposed to reflect what companies expect to earn in the future, a rising index indicates that the investors expect better earning from companies. It is also a measure of state of the
Indian Economy. If the Indian companies are expected to do well, obviously the economy should do well too.

The Sensex, launched in 1986 is made up of 30 of the most actively traded stock in the market. In fact, they account for half the BSE’s market capitalization.

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STOCK MARKET TERMINOLOGY
BROKERAGE:COMMISSION OF BROKER FOR PURCHASE/SALE
TRANSACTION(MAX.2.5% OF TRADE VALUE)
DEMATERIALISATION:PROCESS OF CONVERSION OF PHYSICAL
/PAPER SHARES TO ELECTRONIC SHARES.ELECTRONIC SHARE
BALANCE(DEMAT ACCOUNT) IS MAINTAINED ON HIGHLY SECURE
SYSTEMS AT DEPOSITORY ---e.g. NSDL/CSDL IN INDIA
ORDER DRIVEN TRADING:TRADING INITIATED BY BUY/SELL ORDERS
FROM INVESTORS/BROKERS
SCREEN BASED TRADING:BUYING/SELLING SECURITIES THROUGH
COMPUTERS WHERE MATCHING OF TRADE IS MADE BY A STOCK
EXCHANGE COMPUTER(ONLINE TRADING)
SETTLEMENT:SCRIPWISE NETTING OF TRADES BY BROKER AFTER
THE TRADING IS OVER
CLEARING:PROCESS OF SETTLEMENT OF TRANSACTIONS OF
MEMBERS THROUGH MULTILATERAL NETTING
SETTLEMENT GUARANTEE:GUARANTEE PROVIDED BY CLEARING
CORPORATION FOR SETTLEMENT OF ALL TRADES EVEN IF A PARTY
DEFAULTS TO DELIVER SECURITIES/PAY CASH

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TERMINOLOGY
TRADING FOR DELIVERY:TRADING WITH INTENTION TO DELIVER
SHARES, PAYMENT FOR THE DEAL HAS TO BE MADE ON THE SAME
/NEXT DAY
SQUARE OFF DEALS: A POSITION WHICH IS SETTLED WITHIIN THE
SAME TRADING DAY BY SQUARING OFF THE BUY/SELL ORDER
PAY-IN: DESIGNATED DAY ON WHICH THE SECURITIES/FUNDS ARE
PAID IN BY THE MEMBERS TO THE CLEARING HOUSE OF THE
EXCHANGE
PAY-OUT: DESIGNATED DAY ON WHICH SECURITIES/FUNDS ARE
DELIVERED/PAID-OUT TO THE MEMBERS BY THE CLEARING HOUSE
OF THE EXCHANGE
PRICE BAND:THE DAILY/WEEKLY PRICE LIMITS WITHIN WHICH
PRICE OF A SECURITY IS ALLOWED TO RISE/FALL
CIRCUIT BREAKERS:MECHANISM BY WHICH EXCHANGES
TEMPORARILY SUSPENDS THE TRADING IN A SECURITY WHEN ITS
PRICES ARE VOLATILE AND TEND TO BREACH THE PRICE BAND
FORWARD TRADING:TRADING WHERE CONTRACTS TRADED TODAY
ARE SETTLED AT SOME FUTURE DATE AT PRICES DECIDED TODAY
OVER THE COUNTER TRADING:TRADING IN THOSE STOCKS WHICH
ARE NOT LISTED ON A STOCK EXCHANGE(THOUGH LISTED ON
OTCEI)

TERMINOLOGY(CONT.)
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INSIDER TRADING:TRADING IN A COMPANYS SHARES BY A
CONNECTED PERSON HAVING NON-PUBLIC,PRICE SENSITIVE
INFORMATION e.g. EXPANSION PLANS,TAKEOVER BIDS ETC.
PRICE RIGGING:WHEN A PERSON/GROUP OF PERSONS ACTS TO
ARTIFICIALLY INCREASE/DECREASE THE PRICE OF A SECURITY
JUMBO CERTIFICATE:A SINGLE COMPOSITE SHARE CERTIFICATE
FORMED BY CONSOLIDATING/AGGREGATING A LARGE NO. OF
MARKET LOTS
MARKET LOTS: MINIMUM NUMBER OF SHARES OF A PARTICULAR
SECURITY THAT MUST BE TRANSACTED ON A EXCHANGE.MULTIPLES
OF THE MARKET LOT MAY ALSO BE TRANSACTED.IN DEMAT SCRIPS
THE MARKET LOT IS – 1 — SHARE
TRANSFER DEED:A FORM USED FOR EFFECTING TRANSFER OF
SHARES/DEBENTURES DULY SIGNED/STAMPED BY
TRANSFEROR&TRANSFEREE.(ELECTRONIC SHARES ARE
AUTOMATICALLY TRANSFERRED BY DEPOSITORY DUE TO
AUTHORISATION BY INVESTOR)
REMATERIALISATION OF SHARES:A PROCESS FOR CONVERSION OF
ELECTRONIC SHARES HELD IN A DEPOSITORY TO PHYSICAL FORM

SEBI was established to regulate the functions of securities market with the view to promoting the orderly and healthy development, to provide the adequate rotation to investors and to create and environment to facilitate mobilization of adequate protection through to the securities market. The regulatory body for the investment market in India. The purpose of this board is to maintain stable and efficient markets by creating and enforcing regulations in the market place. It was resoluted in the year 1988 but it made a statutory body in the year 1992.

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2.
3.

• 1. It checks price rigging by prohibiting unfair trade practices in the securities market. It keeps a watch on the operators so that they may not inflate the market price for the securities.
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• It check fraudulent practices by the companies entering the market with fresh issues of securities, for instance, it takes stem action against the directors of a company of the prospectus contents misleading statements to induce the purchase of securities by the investors.
The SEBI has taken several steps to educate the investors. In fact investors education is an important function of the SEBI.

 1. It has made optional the underwriting of new issues.
 It has permitted interest trading through the registered stock brokers.
 It undertakes programs for the training of intermediaries in the securities market.

 It regulates business in the securities market by enforcing its rules and regulations.
 It registers and regulates the working of the collective investment scheme including the mutual funds.
 It promotes and regulates self regulatory organizations.

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INVESTOR RIGHTS
RIGHT TO GET
1.THE BEST PRICE
2.PROOF OF
PRICE/BROKERAGE CHARGED
3.MONEY/SHARES ON TIME
4.SHARES THROUGH AUCTION
WHERE DELIVERY IS NOT
RECEIVED
5.SQUARE UP AMOUNT WHERE
DELIVERY NOT RECEIVED IN
AUCTION
RIGHT FOR REDRESSAL
AGAINST
FRAUDULENT PRICE
UNFAIR BROKERAGE
DELAYS IN RECEIPTS OF
MONEY/SHARES
INVESTOR UN FRIENDLY
COMPANIES
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INVESTOR OBLIGATIONS
THE OBLIGATION TO
SIGN A PROPER MEMBER-
CONSTITUENT/SUB-BROKER-
CLIENT AGREEMENT
POSSESS A VALID CONTRACT OR
PURCHASE/SALE NOTE
DELIVER SECURITIES WITH
VALID DOCUMENTS AND
PROPER SIGNATURES
THE OBLIGATION TO ENSURE
TO MAKE PAYMENT ON TIME
TO DELIVER SHARES ON TIME
TO SEND SECURITIES FOR
TRANSFER TO THE COMPANY ON
TIME
TO DEAL ONLY WITH S.E.B.I.
REGISTERED TRADING
MEMBERS AND SUB-BROKERS

REGULATORY BODIES OF INDIA
 MARKET REGULATORS
 SECURITIES AND EXCHANGE BOARD OF
INDIA(S.E.B.I.)
 DEPTT.OF COMPANY AFFAIRS,GOVT.OF INDIA
 RESERVE BANK OF INDIA
 GRIEVANCES REDRESSAL
 SECURITIES AND EXCHANGE BOARD OF
INDIA(S.E.B.I.)
 DEPTT.OF COMPANY AFFAIRS,GOVT.OF INDIA
 STOCK EXCHANGE REDRESSAL FORUMS
 CONSUMER DISPUTES REDRESSAL FORUMS
 COURTS OF LAW

OFFICES OF S.E.B.I
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OFFICES
HEAD OFFICE
MITTAL COURT,”B” WING,1 ST .
FLOOR,224,NARIMAN POINT,MUMBAI-
400021
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 JURISDICTION
GUJARAT,MAHARASHTRA, MADHYA
PRADESH,GOA,DAMAN-DIU,DADRA AND
NAGAR HAVELI
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NORTHERN REGIONAL OFFICE
BLOCK NO.1,RAJENDRA
BHAWAN,RAJENDRA PLACE,DISTT.
CENTRE,NEW DELHI-110008
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EASTERN REGIONAL OFFICE
FMC FORTUNA,5 TH FLOOR,234/3A.AJC
BOSE ROAD,KOLKATA-700020
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SOUTHERN REGIONAL OFFICE
3 RD FLOOR,D,MONTE COLONY,TTK
ROAD,ALWERPET,CHENNAI-600018
 HARYANA,HIMACHAL
PRADESH,JAMMU&KASHMIR,PUNJAB,
RAJASTHAN,UTTAR PRADESH,DELHI AND
CHANDIGARH
 ASSAM,BIHAR,MANIPUR,MEGHALAYA,
NAGALAND,ORISSA, WEST
BENGAL,SIKKIM,ARUNACHAL
PRADESH,MIZORAM,TRIPURA,
ANDMAN&NICOBAR
 ANDHRA
PRADESH,KARNATAKA,KERALA,TAMILNADU,
PONDICHERRY,LAKSHDWEEP AND MINICOY
ISLANDS