capital market basics 734

8/3/2019 Capital Market Basics 734

1/47

Fundamentals of Capital Market


2/47


3/47

What is a share / stock?

A type of security that signifies ownership in acorporation and represents a claim on part ofthe corporation's assets and earning

There are two main types of stock:

common and preferred. Common stock usually entitles the owner to vote

at shareholders' meetings and to receivedividends.

Preferred stock generally does not have votingrights, but has a higher claim on assets andearnings than the common shares.


4/47


5/47

What is full form of SENSEX?

The Sensex is a "securities index". What is an index?

An index is basically an indicator.

It gives you a general idea about whethermost of the stocks have gone up or mostof the stocks have gone down.

The Sensex is an indicator of all the major

companies of the BSE. The Nifty is an indicator of all the major

companies of the NSE.


6/47

Who used the word SENSEX?

Mr. Deepak Mohani

CEO of Trendwatchindia

An IIT and IIM pass-out 1989


7/47

What is share / stock trading?

Trading is buying and selling of shares or securities

What is normal trading?

A normal trading is nothing but trading in permitted lots(bunch)

What is odd lot trading?

Odd lot is a securities trade in which fewer trading units

exchange hands when compared to the "normal" amountfor that particular security.

In stock trading, an odd lot is an order for anything lessthan 100 shares (which is called a "round lot"). However,thinly traded stocks sometimes trade in 10-shareincrements.

This concept is not invogue in our country at present


8/47

Short selling.

The selling of a security that the sellerdoes not own, or any sale that iscompleted by the delivery of a securityborrowed by the seller

Long position The buying of a security such as a stock,

commodity or currency, with theexpectation that the asset will rise in value.


9/47

Mechanics of Trading

Trading on stock exchanges takes place either onthe basis of the Auction system or Trading floor orHybrid Trading

Floor Trading

The floor where trading activities are conducted Trading floors are found in the buildings of various

exchanges

This may be a Open outcry or Online Trading

system BSE has moved from Outcry to BOLT in the year

1995


10/47

Membership

The trading platform of the exchange is accessible to the investorsonly through the members

The members are admitted or terminated as per the SCRA(1956) Corporate Structure Paidup capital Rs. 30 lakh

Net Worth Rs. 200 lakh Interest free security deposit Rs.150 lakh Collateral Security Deposit Rs. 25 lakh Annual Subscription Rs.1 lakh Capital Adequacy

Track Record Education Experience


11/47

Benefits

Access to the market

Wide trading facilities Equities, Debt,Derivatives

State of the art technology

Standards of trading

Demutualised Exchanges


12/47

Depository

National Securities Depository Limited(NSDL)

Central Depository Services Limited(CDSL)

Depository Participant

Depository Participants Pool account Settlement Account of Clearing Agency


13/47

What is an IPO?

What is FPO? What is a Rights Issue?

What is a Bonus Issue?

What is a Mutual Fund? What is FDI?

What is FII?

What is Market Capitalisation?

What is Dalal Street?


14/47

Auction trading

In the Auction Market Auctions are initiated bythe Exchange on behalf of trading members

This is an order driven trading system where

customers buy and sell orders are matched ata central point

This system allows the buyer and the seller tofind a mutually agreeable price with no

intervention of broker dealers In India except BSE all other exchanges areauction based


15/47

Hybrid Trading

Hybrid trading system is an auction type oftrading with bids and offers being madeby open outcry and at the same time it is

quote driven system too


16/47

Transaction Cycle

A Seller / Buyer

A Broker

Through an exchange Order to Trade

Settlement Schedule

Funds Settlement


17/47

National Exchange for AutomateTrading (NEAT)

NSE introduced for the first time in India, fullyautomated screen based trading.

It uses a modern, fully computerised tradingsystem designed to offer investors across the

length and breadth of the country a safe andeasy way to invest

The NSE trading system called 'NationalExchange for Automated Trading' (NEAT) is a

fully automated screen based trading system,which adopts the principle of an order drivenmarket

VSAT = Very Small Aperture Terminal


18/47


19/47

BSEs On Line Trading System (BOLT)

To facilitate smooth transaction, BSE had replaced its

open outcry system with BSE On-line Trading (BOLT)facility in 1995 This totally automated screen based trading in securities

was put into practice nation-wide within a record time ofjust 50 days

The BOLT platform capacity has been enhanced to 40lakh orders per day by upgrading the hardware. BOLT has been certified by DNV for conforming to

BS7799 security standards. With this, BSE is the secondstock exchange in the world to have this certification

Exchange has also introduced the world's firstcentralized exchange based Internet trading system,BSEWEBx.com.

The initiative enables investors anywhere in the world totrade on the BSE platform


20/47


21/47

Rest tomorrow


22/47

Indian Economy and CapitalMarket at a Glance

With Sensex crossing 20000 markahead of most of the emerging economieswith a P/E ratio of 22.01

NSE (Indias National Stock Exchange) is

the third largest in the world in the numberof trades after NYSE and NASDAQ


23/47


India has 23 small and 2 big stockexchanges

The 2 big stock exchanges (National StockExchange and Bombay Stock Exchange)account for 90 per cent of trade

Over 7000 listed companies on the stockexchanges largest in the world


24/47


9040 brokers in cash segment and 1064 inderivative segment of the market

122 investment bankers in the market

58 under writers to support primary issues

40 foreign venture capital funds

120 Portfolio managers


25/47


11 custodian banks

2 depositories with over 9 millionbeneficiary owner accounts

120 Portfolio managers Number of traders at 20 million

Number of internet trading clients at 1.44

million Internet trading at 12 per cent of total

trading


26/47


Rise in index during the last TWELEVEmonths over 100 per cent

Year on year return during the last year at74 per cent

Daily volatility of the market 0.76 per cent

to 1.29 per cent 39 mutual funds with over 700 schemes

for investment


27/47


Cumulative assets of mutual funds overUS$68 billion

India launches Capital Protection Fundand Gold Exchange Traded Funds

About 1000 foreign institutional investors


28/47


Investors by foreign institutional investorsat over $50 billion

At current prices, it is around 15 per centof the total market capitalization

Only broad based entities established andincorporated abroad are eligible to be

registered as Foreign Institutionalinvestors in India


29/47


FIIs can invest on behalf of their clientsthrough sub-accounts

For normal FIIs, limit for investment inequity is at least 70 per cent while the restcould be invested in debt up to a

maximum limit of 30 per cent


30/47


FIIs could also be dedicated debt funds who caninvest up to 100 per cent in debt

FIIs can issue overseas derivative instruments

like Participatory Notes (PNs) to the entitiesregistered in the country of origin.

There are 86 venture capital funds and 54foreign venture capital investors

Most Foreign venture capital funds provide seedcapital to firms with enormous growth potential


31/47

Why invest in Indian capitalmarkets?

Business Week says that of 100 emergingmarket firms which are rapidly globalising21 are Indian firms

Economists project India to become thethird largest economy in the world by 2040

Indian capital market regulator has

acquired international credibility in theleast possible time


32/47


India has a disclosure based regime ofregulation

Disclosure and Investor Protectionguidelines available

Indias accounting standards are closer to

international standards

India has a well laid down legal framework


33/47


India has T+2 rolling settlement asopposed to T+3 in NYSE.

In India the transactions are totallyelectronic on a real time basis.

India has several protective safeguards forthe retail investor such as grading system

of public offering, retail quota at 25 percent etc.


34/47


SEBI has made corporate governanceguidelines mandatory for listed companies

Mutual funds are permitted to investoverseas up to $3 billion

Margin trading is in vogue

Corporatisation and demutualization ofstock exchanges on card - foreignparticipation in bourses permitted.


35/47


As an integral part of risk managementtrading and exposure limits, var marginsand mark to market margins are in vogue

Clearing houses and corporations withnovation in place

Almost 100 per cent risk free electronic

settlement through depository system SEBI has a surveillance and enforcementsystem in place


36/47


India to become a regional hub for bondtrading once a free financial zone is set up

India to set up a world class NationalInstitute for Securities Markets with 7business schools under its fold


37/47

Corporate Hierarchy

The trading member has the facility ofdefining a hierarchy amongst its users ofthe NEAT system.

Corporate Manager

BRANCH 1BRANCH 2

DEALER 1 DEALER 2 DEALER 3 DEALER 4


38/47

Market Makers

Dealers who are responsible for creating andmaintaining market in a security market is called MarketMakers

A broker-dealer firm that accepts the risk of holdinga certain number of shares of a particular security in

order to facilitate trading in that security. Each market maker competes for customer order flow by

displaying buy and sell quotations for a guaranteednumber of shares.

Once an order is received, the market maker

immediately sells from its own inventory or seeks anoffsetting order. This process takes place in mereseconds


39/47

Market Phase

Bull Phase

Bear Phase

Open Close


40/47

Bull

An investor who thinks the market, aspecific security or an industry will rise

Bulls are optimistic investors who are

presently predicting good things for themarket, and are attempting to profit fromthis upward movement.

For example if you are bullish on the S&P500 you will attempt to profit from a rise inthe index by going long on it.


41/47

Bear

An investor who believes that a particularsecurity or market is headed downward.

Bears attempt to profit from a decline inprices.

Bears are generally pessimistic about thestate of a given market.


42/47

Open

An unexecuted order that is still valid.

The start of trading on a securitiesexchange

Orders that are entered by investors butnot yet transacted are deemed to be openuntil they expire or are filled.


43/47

Close

The end of a trading session.

The closing price is quoted in thenewspaper


44/47

Jobbers & Brokers

A Jobber is a dealer in securities

A Broker is an agent of a buyer or seller ofsecurities

Remisiers are the sub-brokers or agentsappointed by the brokers


45/47

Trading Mechanism

It was open outcry

Replaced with Screen Based Trading System (SBTS)

Punching of orders through a remote computer

Price Time priority

Wireless application Protocol (WAP) helps in bringingequal access to all the investors across the country

The data is transmitted through VSAT / Leased Line /Modem

It is transparent , objective and fair Complete Market Information On-line


46/47

Trading

Basket Trading

Index Trading

Buyback Trading


47/47

Index Trading The purpose of Index Trading is to provide

a facility to NEAT user with a facility ofbuying and selling of Indices , in terms ofsecurities that comprises of Index

Currently it available only for NIFTYsecurities

The index trade provides user with thechoice of gaining with the rise / decline of

the index values either by buying / selling

capital market basics 734

Documents