UNIT – IV
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SECURITY
MARKETS:
Features of capital
markets.
Functioning - capital
markets.
New issues market,
IPO’s,
valuation of issues
fundamental
and
technical
considerations
Role of SEBI.
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STOCK EXCHANGES:
role and importance,
Trading procedures in
securities,
brokers and Jobbers,
Impact
of
certain
economic
indicators
on the stock market.
A PRESENTATION ON
IPO, BOOK BUILDING
PROCESS, BASIS OF
ALLOTMENT
THE NECESSITY
FOR AN IPO






EXPANSION ACTIVITIES
ACQUISITIONS / MERGERS
ENTRY INTO NEW BUSINESS AVENUES
WORKING CAPITAL REQUIREMENTS
TO PROVIDE LIQUIDITY TO THE EXISTING
SHAREHOLDERS
LISTING OF EXISISTING SHARES
MODES OF RAISING
MONEY
 INITIAL PUBLIC OFFER
 RIGHTS ISSUE
 PRIVATE PLACEMENT
 PREFERENTIAL ALLOTMENT
 ADR/GDR/FCCB ISSUES
THE METHODS OF RAISING
MONEY
FIXED PRICE METHOD
BOOK BUILDING
FIXED PRICE METHOD
 THIS IS THE NORMAL WAY OF RAISING FUNDS
THROUGH PUBLIC ISSUE
 THE SHARES OF THE COMPANY ARE
EVALUATED MUCH BEFORE THE IPO AND THE
SHARES ARE OFFERRED AT THE PRE-FIXED
PRICE
 TIME TAKEN IS LONGER THAN THE BOOK
BUILDING PROCESS
WHAT IS
BOOK BUILDING?
 IT IS A PROCESS WHEREIN THE INVESTORS
DETERMINE THE PRICE OF THE SHARES
 OPTION IS GIVEN TO INVESTORS TO
SUBSCRIBE AT THE FLOOR PRICE OR ABOVE
AT THEIR DISCRETION
 IT IS A PROCESS USED FOR MARKETING A
PUBLIC OFFER OF EQUITY SHARES OF A
COMPANY.
FEATURES OF BOOK
BUILDING
THE ISSUER COMES OUT WITH
AN ISSUE WITHOUT
FINALISING THE ISSUE PRICE
THE FLOOR PRICE AND THE CAP
PRICE ARE ANNOUNCED JUST
BEFORE THE OPENING OF THE
ISSUE
THE ISSUER HAS THE LIBERTY
TO REVISE THE OFFER PRICE
FEATURES OF BOOK
BUILDING
 THE ALLOTMENT IS NORMALLY ON
PROPORTIONATE BASIS TO THE RETAIL
INVESTORS
 ABOUT 15% TO RETAIL INVESTORS
 15% TO NON-INSTITUTIONAL BIDDERS and.,
 50% TO QUALIFIED INSTITUTIONAL
BIDDERS
FEATURES OF BOOK
BUILDING
 RETAIL INDIVIDUAL BIDDERS COULD BID AT
CUT OFF PRICE IF THE TOTAL VALUE OF
SECURITIES APPLIED IS LESS THAN
Rs.1,00,000/-
 RETAIL BIDDERS TO PAY THE BID MONEY
ALONG WITH APPLICATION
 TO REGISTER THE BID THROUGH AN ONLINE
TERMINAL OF NSE OR BSE AT AN
AUTHRISED BID CENTER
PRICE DISCOVERY
 IT IS LARGELY BASED ON THE TOTAL
SUBSCRIPTIONS RECEIVED
 THE PRICE AT WHICH THE ISSUE GETS
SUBSCRIBED ATLEAST ONE TIME
 THE BOOK RUNNING LEAD MANAGERS IN
CONSULTATION WITH THE ISSUER WOULD
DETERMINE THE PRICING OF THE SHARES
THE PROCESS
OF BIDDING
 THE ISSUER TO APPOINT A BOOK RUNNER
(NORMALLY A MERCHANT BANKER)
 THE ISSUER ANNOUNCES THE PRICE BAND
AND BID SHARES
 THE ISSUER APPOINTS SYNDICATE
MEMBERS WITH WHOM THE INVESTORS
COULD REGISTER THEIR BIDS
THE PROCESS
OF BIDDING
 INVESTORS’ BIDS ARE ENTERED INTO THE
ELECTRONIC BOOK – THE PROCESS IS CALLED
BIDDING (IT IS SIMILAR TO OPEN
AUCTION)
 BIDS LESS THAN FLOOR PRICE NOT
ACCEPTED
 BIDS COULD BE REVISED FOR ANY NUMBER
OF TIME BEFORE THE ISSUE CLOSES
IPO PROCESSING AND
ALLOTMENT
 AS PER SEBI REGULATIONS AND OTHER
GOVERNING CORPORATE LAWS
 RECONCILIATIONS OF AMOUNTS AND NO.
OF SHARES APPLIED
 ONLY VALID APPLICATIONS
 INVERSE WRITING OF THE APPLN. No.
IPO PROCESSING AND
ALLOTMENT
 PREPARATION OF BASIS OF ALLOTMENT
 DRAWAL OF LOTS IN THE PRESENCE OF
PUBLIC REPRESENTATIVE APPOINTED BY
STOCK EXCHANGE
 ALLOTMENT OF SHARES AND NECESSARY
CERTIFICATION BY MERCHANT
BANKER/BOOK RUNNER
REJECTIONS
 APPLICATION BY UNAUTHORISED PERSONS
 APPLICATIONS WITH OUT DP ID/CLIENT ID
 UNSIGNED APPLICATIONS
 INCOMPLETE APPLICATIONS
 APPLICATIONS FOR SHARES AT LESS THAN
THE FINAL PRICING DETERMINED
KEY FACTORS
Escrow
Account
Red Herring
Prospectus
Book Building
Process
Categories
of Investors
Price Band &
Cut-off Price
Bidding
Period &
Bidding
Centers
Minimum
Lot size
Margin
Amount
Book Building
Process
Basis of
Allotment
Revision of
Bids
Key Players
The Investors
The Issuer
Book Running Lead Managers
Syndicate Members
Bidding Centers
Escrow Bankers
Registrars
With the support of
The stock exchanges
The Depositories
The Postal System
Process of Bidding
Submission of Bid form by Investor
Acceptance of the Bid form by SM
Registration of bids on SE module
Acknowledgement of Bids to Investor
Banking of bid amount
Analysis of bids and display of demand
Process of Allotment
Price discovery & Allocation
Issue of CAN & collection of balance monies
Filing of prospectus
Allotment
Refund of excess monies received
Crediting of shares in Investor's DP A/c
Escrow Account
In a book building process, since the margin amount collected
is not the application money, the same will be deposited in an
escrow account. After the discovery of the price, the money
lying in the escrow account is transferred on the designated
date either in full or to the extent of the shares proposed to be
issued to the public issue account before allotment / allocation
of shares by the Board of Directors of the issuer
Red Herring Prospectus
In a book building process, the issue price and on
some occasions even the quantum of shares
proposed to be issued is / are not known. Hence
the document prepared to invite / solicit
subscription is referred to as Red Herring
Prospectus
Categories of Investors
Qualified Institutional Investors
Non Institutional Investors
Retail Individual Investors
Employees of promoter companies
Existing shareholders of the issuer
Price Band
The lower end of the price band is the floor price and the upper
end of the price band is the cap price.
 The cap price is the price band should not be more than 20% of
the floor price.
The investors can opt to bid at any of the prices (including the
floor price and ceiling price) in multiples of Rs.1 within the price
band.
The issuer in consultation with the BRLMs can revise the price
band (upward or downward) during the period the bid is open
subject to keeping the bidding period open for a minimum of 3
days after the revision.
Cut-off Price
Retail individual bidders can bid at “cut off”
price. In which case, they need not indicate the
price as the specific number and yet become
eligible to be considered for allotment irrespective
of the issue price finally decided through the price
discovery process. They must pay the margin
amount calculated at the ceiling price. The other
categories of investors (QIBs and non-institutional
bidders) are forbidden from applying at cut off
price
Minimum Lot Size
The minimum lot size of the shares that can be
bid shall be determined in such a manner that
the amount payable at the floor price and cap
price shall be in the range of Rs. 5000 to 7000.
Bids should be for the minimum lot size or
multiples there of.
Bidding Period
The bid shall be open for a period of 5 –
10 days (recently revised to 3 to 7
working days). However, if there is a
revision in price band the period shall be
extended by three days from the date of
revision subject to ensuring that the total
period does not exceed 13 days (10 days
if the recent guidelines are applicable)
Bidding Centers
Bidding centers are essentially broking
outfits associated with the Book Running
Lead Managers / Syndicate Members. They
have on-line connectivity to either or both
BSE and NSE. Investors desirous of
participating in the bidding process should
submit their bid cum application forms to
any of the designated bidding centers
Revision of Bids
1. Book building process provides for revision of the
“options”
2. Revision is possible both in respect of the quantum of
shares and / or the bid price
3. Revision is possible for any number of times before the
closure of the issue.
4. Bidders are required to go to the same bidding center
where the original bid earlier revision was registered
along with the transaction registration slip issued by the
bidding center.
Margin Amount
The money collected along with the application is referred to as
margin amount and need not necessarily be the total amount
payable for the option exercised. The syndicate members are
generally vested with powers to decide on the quantum /
percentage of margin payable along with the bid-cumapplication. However, the current practice is to stipulate 100%
margin to retain ad non-institutional investors ad no margin for
QIBs.
Basis of Allotment
The allotment shall be made on proportionate basis to the
investors. The number of shares allotted shall not be less
than minimum lot prescribed and thereafter in multiples of
one share. Where the shares available for allotment to
any category is less than the minimum lot prescribed, on
the basis of drawal lots the successful investors in that
category shall be identified.
Role of the Bidding Centers
 Accept bid-cum-application forms from investors along with
cheque/ demand draft
 Register bids (for all options) through on-line / off-line
terminals
 Generate transaction registration slips for each of the options
 Lodge bid-cum-applications with an escrow banker and obtain
acknowledgement on a daily basis
Timelines
Activity
Time
Days after
closure
Deposit of application forms from Bidding
centres to Escrow Bank
1
T+1
Processing at Banks before despatch to
Registrars
3
T+4
Transit time
2
T+6
Processing at Registrars till preparation of
basis of allotment
5
T+11
Scrutiny and approval by Stock Exchange
2
T+13
Despatch of refunds and uploading of credits
2
T+15
Total
15
Manpower required
Sl
No.
Activity
Man days
1
DEOs @ one for every 200 applications
5000
2
Verification of data entered (check list)
4000
3
Updating correction check list
500
4
Verification of corrections
400
5
Beneficiary account validation
100
6
Reconciliation
100
7
Technical rejections
100
8
Miscellaneous system / admn support
200
9
Supervisors & Managerial work
100
Illustration of Book Building
and Price Discovery Process
Bidders can bid at any price within
the price band
For instance, assume a price band of
Rs.20 to
Rs. 24 per share, issue
size of 3,000 equity shares and receipt
of five bids from bidders, details of
which are shown in the table below
The illustrative book as shown below
shows the demand for the shares of the
company at various prices and is collated
from bids from various investors
Bid
Quantity
Bid Price
(Rs.)
Cumulative
Quantity
Subscription
500
24
500
16.67%
1,000
23
1,500
50.00%
1,500
22
3,000
100.00%
2,000
21
5,000
166.67%
2,500
20
7,500
250.00%
Illustration of Book Building
and Price Discovery Process
The price discovery is a function of
demand at various prices. The highest price
at which the issuer is able to issue the
desired number of shares is the price at
which the book cuts off, i.e., Rs. 22 in the
above example.
The issuer, in consultation with the book
running lead managers, will finalise the
issue price at or below such cut off price,
i.e., at or below Rs. 22.
Stock Exchanges

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Secondary market is a market for secondary sale of
securities.
In other words, securities, which have already passed
through the new issue market, are traded in this
market.
Generally such securities are quoted in the stock
exchange and it provided a continuous and regular
market for buying and selling of securities.
origin

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
The origin of the stock market in India goes back to the end
of the 18th century when long-term negotiable securities
were first issued.
But the real beginning occurred in the middle of the 19th
century after enactment of the companies act in 1850, which
introduced the feature of the limited liabilities and generated
investor interest in the corporate securities.
NATIVE SHARE AND STOCK BROKERS ASSOCIATIONS at
BOMBAY in 1875, which is at present called BOMBAY STOCK
EXCHANGE was formed.
STOCK EXCHANGES IN INDIA
There are 20 Recognized stock exchanges
under the securities contracts (regulation)
act,1956.
 And 1 OTCEI
 And 1 NSE
Currently under the supervision of SEBI
 This market consists of all stock exchanges recognized by the
government of India.



The stock exchanges in India are regulated under the
securities contracts (Regulations) Act, 1956.
The Bombay stock exchange is the principal stock exchange in
India, which sets the tone of the other stock markets.
Key stock exchanges

AHAMADABAD STOCK EXCHANGE 1894
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CULCUTTA STOCK EXCHANGE 1908
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MADRAS STOCK EXCHANGE 1937
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BANGALORE STOCK EXCHANGE
Bombay Stock Exchange Limited (BSE)

Bombay Stock Exchange Limited (BSE) which was founded
in 1875 with six brokers has now grown into a giant institution
with over 874 registered Broker-Members spread over 380
cities across the country.

Today, BSE's Wide Area Network (WAN) connecting over
8000 BSE Online Trading (BOLT) System Trader Work
Stations (TWS) is one of the largest of its kind in the country.
List of India indices current value, Previous
value and % change. On 7-feb08
Name
Current
Previous Close
% Change
SENSEX
17301.8
17,526.93
-1.28
BSE_100
9210.58
9,381.13
-1.82
BSE_200
2174.37
2,217.44
-1.94
BSE_500
6976.63
7,126.87
-2.11
BSE_IT
3850.92
3,705.30
3.93
BSE_FMCG
2127.45
2,125.37
0.10
BSE_CG
15675.5
16,120.62
-2.76
BSE_CD
4679.71
4,893.78
-4.37
BSE_H
3609.83
3,639.95
-0.83
BSE_PS
8164.45
8,350.80
-2.23
BSE_TECK
3346.54
3,296.01
1.53
BANKEX
10036.6
10,384.77
-3.35
AUTO
4707.33
4,783.80
-1.60
METAL
14990.62
15,528.84
-3.47
OIL &GAS
10547.48
10,668.66
-1.14
MIDCAP
7537.92
7,781.12
-3.13
SMLCAP
9839.8
10,202.63
-3.56
DOL30
3592.5
3,638.79
-1.27
DOL100
2409.79
2,454.11
-1.81
DOL200
915.55
933.57
-1.93
9599.02
10,030.33
-4.30
3688.1
3,782.74
-2.50
BSE REALTY
BSE Power
NATIONAL STOCK EXCHANGE

The National Stock Exchange of India Limited has genesis in the
report of the High Powered Study Group on Establishment of New
Stock Exchanges, which recommended promotion of a National
Stock Exchange by financial institutions (FIs) to provide access to
investors from all across the country on an equal footing.

Based on the recommendations, NSE was promoted by
leading Financial Institutions at the behest of the
Government of India and was incorporated in November
1992 as a tax-paying company unlike other stock
exchanges in the country.

On its recognition as a stock exchange under the Securities
Contracts (Regulation) Act, 1956 in April 1993, NSE
commenced operations in the Wholesale Debt Market
(WDM) segment in June 1994. The Capital Market
(Equities) segment commenced operations in November
1994 and operations in Derivatives segment commenced in
June 2000.
NATIONAL STOCK EXCHANGE
List of India indices current value, Previous value and % change.
Live Indices
Name
Current
Previous Close
% Change
Bank Nifty
8694.95
8960.45
-2.96
CNX 100
4941.85
5022.25
-1.60
S&P CNX 500
4264.80
4354.20
-2.05
S&P CNX Defty
4433.60
4497.65
-1.42
CNX IT
3972.35
3846.25
3.28
CNX Midcap
7068.35
7282.05
-2.93
NIFTY (S&P
CNX)
5067.00
5133.25
-1.29
CNX Nifty Junior
9622.10
9968.15
-3.47
INTERNATIONAL STOCK MARKETS
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In United Kingdom, dealings in stocks and share began with the
merchant ventures in the 17th century.
Gradually informed market developed around the coffee houses in
the city of LONDON.
In 1773 new Jonathans coffee houses became the stock exchange
though it was not formally constituted until 1802, with some 550
subscribers and 100 clerks.
Earlier to this also there were share dealings on the AMSTERDAN
STOCK EXCHANGE as early as 1602.
In the 19th century global co-operation has shown its inevitable
influence on the securities trade with the establishment of
international federation of stock exchanges.
Major stock
exchanges in the
world.
Asian Stock Exchanges
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Sydney Futures Exchange, Australia
Australian Stock Exchanges, Australia
Shenzhen Stock Exchange, China
Stock Exchange of Hong Kong,Hong Kong
Hong Kong Futures Exchange,Hong Kong
National Stock Exchange of India,India
Bombay Stock Exchange, India
Jakarta Stock Exchange, Indonesia
Indonesia NET Exchange,Indonesia
Nagoya Stock Exchange,Japan
Osaka Securities Exchange, Japan
Tokyo Grain Exchange, Japan
Tokyo International Financial Futures Exchange (TIFFE), Japan
Tokyo Stock Exchange, Japan
Korea Stock Exchange, Korea
Kuala Lumpur Stock Exchange, Malaysia
European Stock Exchanges
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Vienna Stock Exchange, Austria
EASDAQ, Belgium
Zagreb Stock Exchange, Croatia
Prague Stock Exchange, Czech Republic
Copenhagen Stock Exchange, Denmark
Helsinki Stock Exchange, Finland
Paris Stock Exchange, France
LesEchos: 30-minute delayed prices, France
NouveauMarche, France
MATIF, France
Frankfurt Stock Exchange, Germany
Athens Stock Exchange, Greece
Budapest Stock Exchange, Hungary
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Italian Stock Exchange, Italy
National Stock Exchange of Lithuania,Lithuania
Macedonian Stock Exchange, Macedonia
Amsterdam Stock Exchange, The Netherlands
Oslo Stock Exchange, Norway
Warsaw Stock-Exchange, Poland
Lisbon Stock Exchange, Portugal
Bucharest Stock Exchange, Romania
Russian Securities Market News, Russia
American Stock Exchanges
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Alberta Stock Exchange, Canada
Montreal Stock Exchange, Canada
Toronto Stock Exchange, Canada
Vancouver Stock Exchange, Canada
Winnipeg Stock Exchange, Canada
Canadian Stock Market Reports, Canada
Canada Stockwatch, Canada
Mexican Stock Exchange, Mexico
AMEX, United States
New York Stock Exchange (NYSE),United States
NASDAQ, United States
The Arizona Stock Exchange, United States
Chicago Stock Exchange, United States
Chicago Board Options Exchange, United States
Chicago Board of Trade, United States
Chicago Mercantile Exchange, United States
Kansas City Board of Trade, United States
Minneapolis Grain Exchange, United States
Pacific Stock Exchange, United States
Philadelphia Stock Exchange, United States
Major index of the world
List of Global indices from various countries with index value, net change and % change.
World Indices
Indices
Country
Date
Index
Net Change
% Change
Nasdaq
United States
08-Feb-08
2,293.03
14.28
0.63
DJIA
United States
08-Feb-08
12,247.00
46.90
0.38
S&P 500
United States
08-Feb-08
1,336.91
10.46
0.79
Hang Seng
Hong Kong
06-Feb-08
23,469.46
-1,339.24
-5.40
Nikkei 225
Japan
08-Feb-08
13,017.24
-189.91
-1.44
Straits Times
Singapore
06-Feb-08
2,931.97
-106.45
-3.50
Seoul Composite
South Korea
05-Feb-08
1,696.57
6.44
0.38
FTSE 100
United Kingdom
07-Feb-08
5,724.10
-151.30
-2.58
KLSE Composite
Malaysia
06-Feb-08
1,415.94
-16.41
-1.15
Jakarta Composite
Indonesia
06-Feb-08
2,639.09
-65.16
-2.41
How does the Stock Market/
Exchange work?

The stock market might seem mysterious, but the inner workings of the
market are no big secret.

Have you ever attended an auction? When you buy an object at auction,
you aren't buying from the auctioneer.

It's the auctioneer's job to match buyers with sellers, and to get the best
price possible for the seller.

Since there's no fixed price for any auction item, the selling price is set by
the amount that a buyer is willing to pay.

The stock market works in similar fashion. It's an auction-based market, and
a stockbroker is an intermediary who serves to match buyers and sellers of
stocks.
DEMAT




De – Materalisation of shares
It is an account facility offered by a depository
participant
Compulsory for trading
It is like your savings bank account, where
shares are deposited and withdrawn
How a stock's price is set?




Rule of Demand and Supply
The price of a stock trade depends upon how little the
seller will accept and how much the buyer is willing to
pay.
So what are all those prices you see in the stock tables
in the newspaper? The prices you see are the prices of
the trades of the prior day.
You can also find the best price that buyers will pay for a
share at the current time, as well as the best price that
sellers will accept. If you're buying, the price you pay for
shares may be worse or it might be better than the most
recent quoted price -- by a little or a lot.
What is electronic trading?




Brokers can trade from their offices, using fully
automated screen-based processes.
Electronic trading eliminates the need for physical
trading floors.
Their workstations are connected to a Stock Exchange's
central computer via satellite using Very Small Aperture
Terminus (VSATs).
The orders placed by brokers reach the Exchange's
central computer and are matched electronically.
How many Exchanges are
there in India?
The Stock Exchange, Mumbai (BSE) and the
National Stock Exchange (NSE) are the
country's two leading Exchanges.
 There are 20 other regional Exchanges,
connected via the Inter-Connected Stock
Exchange (ICSE).
 The BSE and NSE allow nationwide trading via
their VSAT systems.

What is an Index?






An Index is a comprehensive measure of market trends,
intended for investors who are concerned with general stock
market price movements.
An Index comprises stocks that have large liquidity and market
capitalization.
Each stock is given a weightage in the Index equivalent to its
market capitalization.
At the NSE, the capitalization of NIFTY (fifty selected stocks) is
taken as a base capitalization.
Similarly, BSE Sensitive Index or Sensex comprises 30 selected
stocks.
The Index value compares the day's market capitalization vis-àvis base capitalization and indicates how prices in general have
moved over a period of time.
NATIONAL STOCK EXCHANGE
List of India indices current value, Previous value and % change.
Live Indices
Name
Current
Previous Close
% Change
Bank Nifty
8694.95
8960.45
-2.96
CNX 100
4941.85
5022.25
-1.60
S&P CNX 500
4264.80
4354.20
-2.05
S&P CNX Defty
4433.60
4497.65
-1.42
CNX IT
3972.35
3846.25
3.28
CNX Midcap
7068.35
7282.05
-2.93
NIFTY (S&P
CNX)
5067.00
5133.25
-1.29
CNX Nifty Junior
9622.10
9968.15
-3.47
How does one execute an order?

Select a broker of your choice and enter into a brokerclient agreement and fill in the client registration form.

Place your order with your broker preferably in writing.

Get a trade confirmation slip on the day the trade is
executed and ask for the contract note at the end of the
trade date.
Contract Note

It is a trade document which specifies





the number of shares brought,
the price,
date and time and
total Debit or credit to your account.
DP ID, DEMAT NO. and terms and conditions of settlement and
disputes juridiction.

It is mandatory that DPs has to provide such document as
per the SEBI rules.

It is generated immediately after the days trading hours.
Why does one need a broker?

As per SEBI (Securities and Exchange Board of India.) regulations,
only registered members can operate in the stock market.

One can trade by executing a deal only through a registered broker
of a recognized Stock Exchange or through a SEBI-registered subbroker.
What is a contract note?




A contract note describes the rate, date, time at which the trade was
transacted and the brokerage rate.
A contract note issued in the prescribed format establishes a legally
enforceable relationship between the client and the member in
respect of trades stated in the contract note.
These are made in duplicate and the member and the client both
keep a copy each. A client should receive the contract note within 24
hours of the executed trade.
Sample contract note
What is a book-closure/record date?




Book closure and record date help a company determine exactly the
shareholders of a company as on a given date.
Book closure refers to the closing of register of the names or
investors in the records of a company. Companies announce book
closure dates from time to time.
The benefits of dividends, bonus issues, rights issue accruing to
investors whose name appears on the company's records as on a
given date, is known as the record date.
An investor might purchase a share-cum-dividend, cum rights or
cum bonus and may therefore expect to receive these benefits as
the new shareholder.
What is the difference between
book closure and record date?

In case of a record date, the company does not close its
register of security holders.

Record date is the cut off date for determining the
number of registered members who are eligible for the
corporate benefits.

In case of book closure, shares cannot be sold on an
Exchange bearing a date on the transfer deed earlier
than the book closure. This does not hold good for the
record date.
What is a no-delivery period?




Whenever a company announces a book closure or
record date, the Exchange sets up a no-delivery (ND)
period for that security.
During this period only trading is permitted in the
security.
However, these trades are settled only after the nodelivery period is over.
This is done to ensure that investor's entitlement for the
corporate benefit is clearly determined.
What is an ex-dividend date?

The date on or after which a security begins
trading without the dividend included in the
contract price.
What is an ex-date?

The first day of the no-delivery period is the exdate. If there are any corporate benefits such as
rights, bonus, dividend announced for which
book closure/record date is fixed, the buyer of
the shares on or after the ex-date will not be
eligible for the benefits.
What is Earnings Per Share?

Earnings Per Share (EPS) is the net profit
earned per share of the company. It can be
obtained by dividing the Profit after Tax (PAT) by
the outstanding equity shares of the company.
EPS indicates the profitability of the company in
relation to its share capital.
What is a Bonus Issue?





While investing in shares the motive is not only capital gains but also a
proportionate share of surplus generated from the operations once all
other stakeholders have been paid.
But the distribution of this surplus to shareholders seldom happens.
Instead, this is transferred to the reserves and surplus account.
If the reserves and surplus amount becomes large, the company may
transfer some amount from the reserves account to the share capital
account by a mere book entry.
This is done by increasing the number of shares outstanding and every
shareholder is given bonus shares in a ratio called the bonus ratio and
such an issue is called bonus issue. If the bonus ratio is 1:2, it means
that for every two shares held, the shareholder is entitled to one extra
share.
So if a shareholder holds two shares, post bonus he will hold
three.However, one should note that the price of the share may adjust
downwards once it becomes ex-bonus.
What is a Split?



A Split is book entry wherein the face value of the share is altered to
create a greater number of shares outstanding without calling for
fresh capital or altering the share capital account.
For example, if a company announces a two-way split, it means that
a share of the face value of Rs 10 is split into two shares of face
value of Rs 5 each and a person holding one share now holds two
shares.
This may also result in the price of the stock adjusting downwards
ex-split.
Company
Old FV
10
Walchand
nagar
GBN
10
2
Triton
Corp
New FV
2
Year : 2008
Split Date
25-02-2008
2
1
21-02-2008
18-02-2008
Kulkarni
Power
10
5
14-02-2008
Phoenix
Mills
10
2
13-02-2008
GVK
Power
10
1
08-02-2008
Sanwaria
2
1
04-02-2008
What is a Buy Back?


As the name suggests, it is a process by which a
company can buy back its shares from shareholders.
A company may buy back its shares in various ways:
from existing shareholders on a proportionate basis;


through a tender offer from open market;
through a book-building process; from the Stock Exchange; or
from
odd
lot
holders.
A company cannot buy back through negotiated deals on or off
the Stock Exchange, through spot transactions or through any
private arrangement. Clearing and Settlement?.
What is an auction?


An auction is conducted for those securities that
members fail to deliver/short deliver during pay-in.
Three factors primarily give rise to an auction:



short deliveries,
un-rectified bad deliveries,
un-rectified company objections
Is there a separate market for
auctions?

The buy/sell auction for a capital market security
is managed through the auction market. As
opposed to the normal market where trade
matching is an on-going process, the trade
matching process for auction starts after the
auction period is over.
What is bad delivery?

SEBI has formulated uniform guidelines for good
and bad delivery of documents. Bad delivery
may pertain to a transfer deed being torn,
mutilated, overwritten, defaced, or if there are
spelling mistakes in the name of the company or
the transfer. Bad delivery exists only when
shares are transferred physically. In "Demat"
bad delivery does not exist.
What happens if the shares are
not bought in the auction?


If the shares are not bought at the auction i.e. if the
shares are not offered for sale, the Exchange squares up
the transaction as per SEBI guidelines.
The transaction is squared up at the highest price from
the relevant trading period till the auction day or at 20
per cent above the last available Closing price whichever
is higher. The pay-in and pay-out of funds for auction
square up is held along with the pay-out for the relevant
auction.
What is Book Value?




Book Value is also called as Net Asset Value per share. It indicates
the assets backing per share of the company.
The ratio can be computed as follows:
Book Value =
Paid-up Equity Capital + Reserves & Surplus - Fictitious Assets
----------------------------------------------------------------------Number of Equity Shares Outstanding
Book Value can be regarded as the liquidation value of the share.
In case the company is liquidated immediately, the book value is the
amount likely to be available per share (unless all the assets and
liabilities are not stated at their realizable value in the balance sheet
- which is often the case.
What is a settlement cycle?

The accounting period for the securities traded on the
Exchange.


On the NSE, the cycle begins on Wednesday and ends on the
following Tuesday, and on the
BSE the cycle commences on Monday and ends on Friday.
At the end of this period, the obligations of each broker are
calculated and the brokers settle their respective obligations as
per the rules, bye-laws and regulations of the Clearing
Corporation.
If a transaction is entered on the first day of the settlement, the
same will be settled on the eighth working day excluding the day
of transaction. However, if the same is done on the last day of
the settlement, it will be settled on the fourth working day
excluding the day of transaction.
What is a rolling settlement?


The rolling settlement ensures that each day's trade is settled by
keeping a fixed gap of a specified number of working days between a
trade and its settlement.
At present, this gap is five working days after the trading day. The
waiting period is uniform for all trades.

When does one deliver the shares and pay the money to broker?

As a seller, in order to ensure smooth settlement you should deliver the
shares to your broker immediately after getting the contract note for
sale but in any case before the pay-in day. Similarly, as a buyer, one
should pay immediately on the receipt of the contract note for purchase
but in any case before the pay-in day.
What is short selling?

Short selling is a legitimate trading strategy. It is a sale of
a security that the seller does not own, or any sale that is
completed by the delivery of a security borrowed by the
seller. Short sellers take the risk that they will be able to
buy the stock at a more favourable price than the price at
which they "sold short."
Membership rules



Introduction: The rising demand of stock broking is in turn
increasing the demand for trained professionals who can meet
the requirements of the investors.
Qualifications: The minimum qualification required to be a
stock broker is a graduation with at least 2 years of
experience in a stock broking firm. A sub-broker, the
previous stage of being a broker needs to have passed the
XIIth standard to be eligible for his job.
The




courses
on
stock
broking
in
India
are
-
Post-graduate membership course in capital market and financial services.
One-year Post-Graduate Diploma in fundamentals of capital market
development.
Certificate Courses
Chartered
Financial
Analyst
Equity
Research
Major Institutes offering Courses
on Stock Broking








Bombay Stock Exchange's BSE Training Institute,
Mumbai
Institute of Capital Market Development, 1965 Arya
Samaj Road, Karol Bagh, New Delhi - 05
All India Centre for Capital market Studies, J.D.C Bytce
Institute of Management Studies and Research, Nashik 05
Institute of Company Secretaries of India, New Delhi
Institute of Financial and Investment Planning,
B/303,Ventex Vikas, M.V.Road, Andheri(E) Mumbai 69
Institute of Chartered Financial Analysts of India
(ICFAI), Road No.3, Banjara Hills, Hyderabad 34
The Orion Institute of Capital Market, S- 11, Adarshini
Plaza, 91, Adchini, Aurobindo Marg, New Delhi
The UTI Insitute of capital Market, Plot 82, Sector - 17,
Vashi,
Navi
Mumbai
400
705
After completing the course



one has to register with the Securities and
Exchange Board of India (SEBI) to become a
broker.
Benefits: Previously no formal course was
required to enter into the business of stock
broking.
But with growing competition the scenario
has changed. The courses on stock broking
today, equips a person with a prior
knowledge of dealing with stocks and the
kinds of transactions that takes place in a
stock market. This makes him more
competent
to
enter
the
business.

Scope in India: Careers in Stock Broking are not frowned
upon any more today. Stock Broking is providing
youngsters with varied scopes. A person who has done a
Stock Broker course can find jobs in the following areas –

Business Houses
Stock Broking Firms
Investment Banks
One can work as a dealer or an analyst (to be an analyst
one
needs
to
be
be
a
M.B.A
or
a
C.A)



Scope Abroad: Stock Broking provides ample opportunities
outside India also. Though the job profile remains the
same, i..e. of a broker, dealer or analyst, the remunerations
are higher. Becoming a Stock Broker in NASDAQ obviously
implies far greater monetary gains.
Stock Broker



A stock broker is a person or a firm that trades on its
clients behalf, you tell them what you want to invest in and
they will issue the buy or sell order. Some stock brokers
also give out financial advice that you a charged for.
There are three different types of stock brokers.
1. Full Service Broker - A full-service broker can provide
a bunch of services such as investment research advice, tax
planning
and
retirement
planning.
2. Discount Broker – A discount broker let’s you buy and
sell stocks at a low rate but doesn’t provide any investment
advice.
3. Direct-Access Broker- A direct access broker lets you
trade directly with the electronic communication networks
(ECN’s) so you can trade faster. Active traders such as day
traders tend to use Direct Access Brokers
Types of Brokers
Commission Broker
 Jobber
 Floor Broker
 Tarawaniwalla
 Odd lot dealers
 Budliwalla

Grouping of Shares
"A"
 "B1,
 “B2"
 "C"
 "Z" are from the equities
 and "F" is from debt market..

'A' Group

'A' Group is a category where there is a facility
for carry forward (Badla) to the next settlement
cycle.

These are companies with fairly good growth
record in terms of dividend and capital
appreciation.

The scrips in this group are classified on the basis
of equity capital, market capitalisation, number of
years of listing on the exchange, public share
holding, floating stock, trading volume etc.
'B1,B2'

'B1,B2'Group is a subset of the other listed
shares that enjoy higher market capitalizations
and liquidity than the rest.

It is categorized on its trading volumes and
delivery
'C' group

'C' group covers the odd lot securities in 'A', 'B1' & 'B2' groups

Odd Lot In the stock market shares are generally bought and sold in
MARKET LOTS, which are easy to trade.

Any number of shares less than the market lot makes an odd lot.

Odd lots typically arise from BONUS or RIGHTS issues. Apart from the
difficulty in buying or selling odd lots, there is another disadvantage: you
may have to sell an odd lot at a considerably lower price than that quoted
for a market lot.

The government has now advised all listed companies to form a trust to
deal in odd lot shares. The trustee will sell shares only of that company,
through brokers, and not indulge in independent trading. The company will
send the rights and bonus shares of the scrip to the trustee, and when the
trustee has consolidated them into marketable lots he will go to a
recognized broker dealing in the shares of the company. The holder of the
scrip will pay a small service charge and the usual brokerage.


'T'' Also termed as the trade to trade group this category
comprises of shares which have to be settled in delivery for all
buys and sells and square off of bought and sold positions during
the day is not permitted. This is a part of the survelience from the
BSE to counter any ackward unwarranted movements in such
scrips
'Z' Group category comprises of shares of the companies which
does not comply with the rules and regulations of the Stock
Exchange and are at times suspended from trading due to the
above
said
reasons
The trading cycle for the above scrips is from monday to friday and
starting sat(carry forward for A scrips) the settlement by payment
of money and delivery of securities in the following week.

'F'
Group
represents
the
debt
market
segment
The trading cycle for scrips under this group starting thursday
ending next wednesday and then the settlement by friday.
Hope this helps u in ur doubt.
Functions of Stock Exchange








Liquidity and Marketability
Safety of funds
Long term supply of funds
Ensures Flow of capital in the economy
Motivation for improved performance
Promotion of investments
Reflects the Business cycle
Platform of new issues.
Bull Markets and Bear Markets

The stock market moves up and down every day, but when movements
continue downwards for a period of time the market is referred to as a 'bear
market'.

Upward moving markets are 'bull markets'. If a particular stock is doing
well, it is said to be bullish. If it is losing value it is bearish.

Bull and Bear are the terms to describe the general conditions of the stock
market. These do not refer to short term fluctuations – a bear market is
commonly understood as one where prices of key stocks have fallen in price
by 20% or more over a period of at least 2 months.

Even during a bear market, however, prices may increase temporarily. Bull
markets are the opposite of bear markets – they are indicated by a rise in
prices
of
key
stocks
over
a
certain
period
of
time.
Eligibility to be DP









As per Regulation 19(a) of SEBI (Depositories &
Participants) Regulations, following are the categories that
are eligible to become DPs:
A public financial institution as defined in section 4A of the
Companies Act, 1956 (1 of 1956)
A bank included for the time being in the Second Schedule to the
Reserve Bank of India Act, 1934 (2 of 1934)
A foreign bank operating in India with the approval of Reserve
Bank of India
A state financial corporation established under the provisions of
section 3 of the State Financial Corporations Act, 1951 (63 of
1951)
An institution engaged in providing financial services, promoted by
any of the institutions mentioned in sub clause (i), (ii), (iii), (iv),
jointly or severally
A custodian of securities who has been granted a certificate of
registration by the Board under sub-section (1A) of section 12 of
the Act
A clearing corporation or a clearing house of a stock exchange
A stock broker who has been granted certificate of registration by
the Board under sub-section (1) of section 12 of the Act:






Provided that the stock broker shall have a minimum net worth of
rupees 50 lakhs and the aggregate value of the portfolio of
securities of the beneficial owners held in dematerialised form in a
depository through him shall not exceed 100 times of the net
worth of the stock broker.
Provided further that if the stock broker seeks to act as a
participant in more than one depository , he shall comply with the
criteria specified in the first proviso separately for each such
depository.
A non-banking finance company, having a net worth of not less
than rupees fifty lakh
Provided that such company shall act as a participant only on
behalf of itself and not on behalf of any other person
Provided further that a non-banking finance company may act as
a participant on behalf of any other person, if it has a networth of
Rs. 50 crore in addition to the networth specified by any other
authority.
A registrar to an issue or share transfer agent who has a minimum
net worth of Rs. 50 lakhs and who has been granted a certificate
of registration by the board under sub-section (1) of section 12 of
the Act.



The Regulations empower NSDL to set its own selection criteria in
the Bye Laws. Therefore, the applicants must also adhere to the
following admission criteria stated in NSDL Bye Laws:
The applicant should have a minimum Networth of Rs.1 crore.
The applicant should not have been convicted in any of the five
years immediately preceding the filing of the application in any
manner involving misappropriation of funds & securities, theft,
embezzlement of funds, fraudulent conversion or forgery.

The applicant should not have been expelled, barred or suspended
by SEBI, self regulatory organisation or any stock exchange.

The applicant shall be required to furnish information and details
of his business history for a minimum period of three years;
provided that the Depository may , if it is satisfied that it would be
in the interest of the investors and the applicant is otherwise
eligible to become a participant, waive this requirement of three
years.