sapm - module i

7/24/2019 Sapm - Module i

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MODULE-1

INTRODUCTION TO CONCEPTS OF INVESTMENTS:

In its broadest sense, an investent is a sa!ri"!e o# !$rrent one% or ot&er

reso$r!es #or #$t$re bene"ts' T&ere are an% aven$es o# investent avai(ab(e

toda%, vi) de*osit in ban+ a!!o$nt, *$r!&ase o# (on ter overnent bond, b$%e$it% s&ares o# a !o*an%., !ontrib$te to *rovident #$nd a!!o$nt, *$r!&ase o# a

*(ot o# (and et!',

/n investent is a !oitent o# #$nds ade in e0*e!tation o# soe *ositive

ret$rn' I# t&e investent is *ro*er(% $nderta+en t&e ret$rn i(( !oens$rate it&

t&e ris+ t&e investor ass$es'

Finan!ia( and non-"nan!ia( assets Investents enera((% invo(ve rea( assets and

"nan!ia( assets' Rea( assets are tanib(e ateria( t&ins s$!& as b$i(dins,

a$toobi(es, te0t boo+s et!, "nan!ia( assets are *ie!es o# *a*er re*resentin an

indire!t !(ai to rea( assets &e(d b% soeone e(se' T&ese *ie!es o# *a*er re*resent

debt or e$it% !oitents in t&e #or o# IOUs or sto!+ !erti"!ates' /on t&e

an% *ro*erties t&at distin$is& rea( #ro "nan!ia( assets are o# s*e!ia( interest to

investor is (i$idit%' Li$idit% re#ers to t&e ease o# !onvertin an asset into one%

$i!+(%, !onvenient(% and bit (itt(e e0!&ane !ost' Rea( assets are enera((% (ess

(i$id t&an "nan!ia( assets, (are(% be!a$se rea( assets are ore &eteroeneo$s,

o#ten *e!$(iar(% ada*ted to a s*e!i"! $se and %ie(d bene"t on(% in !oo*eration it&

ot&er *rod$!tive #a!tors' In addition, ret$rn on rea( assets are #re$ent(% ore

di2!$(t to eas$re a!!$rate(% oin to t&e absen!e o# broad, read% ad a!tive

ar+ets' Man% o# t&e !on!e*ts te!&ni$es and de!ision r$(es a**(i!ab(e to "nan!ia(

assets are a**(i!ab(e to rea( assets' 3oever #o!$s o# t&e s$b4e!t is on "nan!ia(

assets'

Investent a!tivit%Finan!ia( assets 5/C6UISION OF /SSETS7 P&%si!a( assets

In brie# rea( assets *rod$!e oods and servi!e, &ereas "nan!ia( assets de"ne

a((o!ation o# in!oe or ea(t& aon investors' Rea( assets o*era on(% on asset

side o# ba(an!e s&eet' Finan!ia( assets a**ear on bot& sides' Finan!ia( assets are

!reated and destro%ed in t&e !o$rse o# b$siness' Rea( assets are destro%ed d$e to


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ear o$t or a!!ident'

Se!$rit%: Investent in !a*ita( ar+et is in vario$s "nan!ia( instr$ents &i!& are

a(( !(ais on one%' T&ese instr$ents are !a((ed se!$rities in t&e ar+et *ar(an!e'

Se!$rities Contra!t Re$(ations a!t 51897 &as de"ned se!$rit% as in!($sive o#

s&ares, s!ri*s, sto!+s, bonds, debent$res sto!+ or an% ot&er ar+etab(e se!$rities o#

a (i+e nat$re in or an% debent$res o# a !o*an% or bod% !or*orate, t&e overnentand sei overnent bod% et!',' it in!($des a(( ri&ts and interests in t&e

in!($din arrants and (o%a(t% !o$*ons et!', iss$ed b% an% o# t&e bodies

orani)ations or ovt' Port#o(ios are !obinations o# assets &e(d b% investors'

T&e to +e% as*e!ts o# an% investent are tie and ris+' ;&i(e sa!ri"!e #or a+in

an investent is !ertain, t&e e0*e!ted bene"ts in t&e #$t$re tends to be $n!ertain'

In soe investents (i+e overnent bonds, t&e tie e(eent is doinant' In sto!+

o*tions investent in a !o*an% ris+ e(eent is doinant' Fina((% in investents in

e$it% s&ares bot& tie and ris+ are i*ortant'

Ob4e!tives o# "nan!ia( investent $se #$nds or savins #or #$rt&er !reation o# assets

or a!$isitions o# e0istin assets'

Investent et&ods T&e vario$s aven$es #or investent ranin #ro ris+ (ess to

&i& ris+ investent o**ort$nities !onsist o# bot& se!$rit% and non se!$rit% #ors o#

investent'

/(( se!$riti)ed #ors iven be(o are ar+etab(e'

/' Se!$rit% #ors o# investent

a' Cor*orate bonds< = Debent$res

i' Convertib(eii' Non-!onvertib(e

b' P$b(i! se!tor >onds

i' Ta0ab(e

ii' Ta0 #ree

!' Pre#eren!e s&ares

d' E$it% s&ares

i' Ne iss$e

ii' Ri&ts iss$e

iii' >on$s iss$e

>' Non- se!$rit% #ors o# Investent 5non-ar+etab(e7a' Nationa( Savins s!&ee

b' Nationa( savins Certi"!ates

!' Provident #$nd

i' Stat$tor% Provident F$nd

ii' Re!onised P F

iii' Un re!oni)ed P F

iv' P$b(i! Provident F$nd


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d' Cor*orate Fi0ed De*osits

i' P$b(i! se!tor

ii' Private se!tor

e' Li#e Ins$ran!e Po(i!ies 5LIC ? ot&er *rivate se!tor7

i' ;&o(e (i#e *o(i!ies

ii' Liited *a%ent (i#e *o(i!%iii' Convertib(e &o(e (i#e ass$ran!e *o(i!%

iv' Endoent ass$ran!e *o(i!%

v' @eevan itra

vi' S*e!ia( endoent *(an it& *ro"ts

vii' @eevan sat&i

viii' T&e ne one% ba!+ *(an et!',

#' S!&ees o# Unit Tr$st o# India 5soe ar ar+etab(e aon t&ese7

i' Unit s!&ees o# UTIMF5UTI-II7

ii' Unit s!&ees o# UTI-I

iii' Unit (in+ed ins$ran!e *(an, 18A1!a*ia( ains $nit s!&ee 18B

iv' C&i(drens i#t rot& #$nds 18B

v' Parents i#t rot& #$nds 18B

vi' Mont&(% in!oe $nit s!&ee it& e0tra bon$s *($s rot&

vii' Master s&ares

viii' Master ains

i0' E$it% (in+ed savins s!&ee

0' roin ont&(% in!oe $nit s!&ee

0i' Master *($s et!',

More t&an UTI s!&ees and $t$a( #$nds o# ban+s

' Post o2!e savins ban+ a!!o$nti' Re!$rrin de*osit

ii' Tie de*osit

iii' Mont&(% in!oe s!&ee

iv' So!ia( se!$rit% !erti"!ates

&' ot&ers s$!& as

i' Ra&at *atras or re(ie# bonds

ii' Gissan vi+as *atra

iii' De*osits in !o-o*erative ban+s

1' Re!$rrin de*osits

H' tie de*osits

So$r!es o# in#oration So$r!es o# in#oration or in#oration on sto!+ ar+et

a!tivit% is re*orted in vario$s edia' It is !overed in nes *a*ers, b$siness

*eriodi!a(s, ot&er *$b(i!ations, radio and te(evision' For ost o# t&e investors t&e

!overae in E!onoi! Ties or t&e Finan!ia( E0*ress is ade$ate' For reater

detai(s t&e ost !o*re&ensive so$r!e o# in#oration is Dai(% O2!ia( 6$otation (ist

o# >SE' In addition *ros*e!t$s o# t&e *$b(i! iss$e !an be re#erred'


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@$st as se!$rities and "nan!ia( instit$tions !oe into e0isten!e as nat$ra( res*onses

to investor deand, so too do ar+ets evo(ve to eet needs' T&ere are #o$r t%*es

o# ar+ets' Vi)' Dire!t sear!& ar+et, bro+ered ar+ets, dea(er ar+ets and a$!tion

ar+ets'

/ dire!t sear!& ar+et is (east orani)ed ar+et' 3ere b$%ers ? se((ers eet see+

ea!& ot&er o$t dire!t(%' One e0a*(e is o# a transa!tion ta+in *(a!e in s$!& a

ar+et o$(d be t&e sa(e o# a $sed re#rierator in &i!& t&e se((er advertises in t&e

(o!a( nes*a*er' S$!& ar+ets are !&ara!teri)ed b% s*oradi! *arti!i*ation and (o

*ri!ed and non standard oods' It does not *a% ost *eo*(e or "rs see+ *ro"ts b%

s*e!ia(i)in in s$!& an environent'

>ro+ered ar+et In bro+ered ar+ets &ere tradin in a ood, is s$2!ient(% a!tive,

bro+ers !an "nd it *ro"tab(e to oJer sear!& servi!es to b$%ers and se((ers' /n

e0a*(e is rea( estate ar+et, &ere e!onoies o# s!a(e in sear!& o# avai(ab(e

&oes and *ros*e!tive b$%ers a+e it ort& &i(e #or *arti!i*ants to *a% bro+ers to

!ond$!t sear!&es #or t&e' >ro+ers deve(o* s*e!ia(i)ed +no(ede on va($in asset

traded in a iven ar+et' /n i*ortant bro+ered investent ar+et is *riar%

ar+et, &ere ne iss$es o# se!$rities are oJered to *$b(i!' In *riar% ar+et

investent bro+ers a!t as bro+ers' T&e% see+ o$t investors to *$r!&ase se!$rities

dire!t(% #ro t&e iss$in !or*oration' /not&er bro+ered ar+et is t&at #or (are b(o!+

o# s&ares 5K 1 s&ares7, are so (are t&at bro+ers or b(o!+ &o$ses are o#ten

enaed to sear!& dire!t(% #or ot&er (are traders rat&er t&an brinin t&e trade

dire!t(% to t&e sto!+ e0!&ane &ere re(ative(% sa((er investors trade'

;&en tradin a!tivit% in a *arti!$(ar t%*e o# assets in!reases dea(er ar+ets arise'

3ere dea(ers s*e!ia(i)e in vario$s assets, *$r!&asin t&e #or t&eir inventor% andse((in t&e #or a *ro"t #ro t&eir inventor%' Dea(ers $n(i+e traders, trade assets

#ro t&eir on a!!o$nt ' T&e *ro"t arin is bid as+ed s*read, t&e diJeren!e

beteen b$%in and se((in #ro t&e inventor%' Dea(er ar+et save traders sear!&

!osts be!a$se ar+et *arti!i*ants !an easi(% (oo+ $* *ri!es at &i!& t&e% !an b$%

#ro or se(( to dea(ers' T&e over t&e !o$nter 5OTC7 se!$rities is a ar+et is an

e0a*(e o# dea(er ar+et' Fair ao$nt o# ar+et a!tivit% is re$ired be#ore dea(in

in a ar+et be!oe an attra!tive so$r!e o# in!oe' Tradin aon investors o#

a(read% iss$ed se!$rities is said to ta+e *(a!e in se!ondar% ar+et' OTC ar+et is

an e0a*(e o# se!ondar% ar+et' Tradin in se!ondar% ar+et does not aJe!t t&e

o$tstandin ao$nt o# se!$rities oners&i* is si*(% trans#erred #ro one investorto anot&er'

T&e ost interated ar+et is an a$!tion ar+et in &i!& a(( transa!tors in a ood

!onvere at one *(a!e to bid on or oJer a ood' >ot& M$bai Sto!+ E0!&ane 5>SE7

and Nationa( Sto!+ E0!&ane o# India 5NSE7 are e0a*(es o# an a$!tion ar+et' /n

advantae o# a$!tion ar+et over dea(er ar+ets is t&at one need not sear!& #or a

best *ri!e to b$% a ood' I# a(( t&e *arti!i*ants !onvere t&e% !an arrive $*on a


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$t$a((% areeab(e *ri!e and t&$s a+e bid-as+ed s*read'

Contin$o$s a$!tion ar+et re$ires ver% &eav% and #re$ent tradin to !over t&e

e0*ense o# aintainin t&e ar+et' For t&is reason >SE, NSE, NSE and ot&er

e0!&anes set $* (istin, re$ireent &i!& (iits t&e s&are traded on e0!&ane to

t&ose "rs in &i!& s$2!ient tradin interest is (i+e(% to e0ist' T&e orani)ed sto!+e0!&anes are a(so se!ondar% ar+et'

Investent instr$ents : Treas$r% >i((s , Certi"!ates o# De*osits , Coer!ia( Pa*er

, E$ro do((ar , Re*os and reverse Re*os , Ca(( Mone% Mar+et , LI>OR Mar+et ,

overnent Se!$rities , Internationa( >onds'

Treas$r% >i((s are t&e ost ar+etab(e o# a(( t&e one% ar+et instr$ents' T->i((s

re*resent si*(est #or o# borroin' T&e overnent raises one% b% se((in bi((s

to t&e *$b(i!' Investors b$% t&e bi(( at dis!o$nt #ro t&e stated at$rit% va($e' /t

t&e bi((s at$rit% t&e &o(der re!eives #ro t&e overnent a *a%ent e$a( to t&e

#a!e va($e o# t&e bi((' T&e diJeren!e beteen t&e *$r!&ase *ri!e and $(tiate

at$rit% va($e !onstit$tes t&e investors earnins'

T->i((s are iss$ed it& initia( at$rities o# 81 or da%s 5introd$!ed in 188H7' Ti((

188B t&e %ie(d on t&e 81 da% T->i((s reained $n!&aned at '9' ban+s and

*riar% dea(ers, *rovident #$nds and ot&er investors !an *$r!&ase T->i((s dire!t(% at

an a$!tion or in t&e se!ondar% ar+et #ro a *riar% dea(er' T->i((s are &i&(% (i$id

: t&at is t&e% are easi(% !onverted in to !as& and so(d at (o transa!tion !ost and

it& not $!& *ri!e ris+' T&e #a!e va($e o# T->i(( is Rs' 1 and t&e% are avai(ab(e #or

a ini$ ao$nt o# Rs' H9 and in $(ti*(es o# Rs' H9 a#ter t&at'

Certi"!ate o# De*osit : CD is a tie de*osit it& a ban+' /s *er R>I $ide(ines are

iss$ed at a dis!o$nt to t&e #a!e va($e' CDs are iss$ed in denoinations o# Rs' one

(a+& and are neotiab(e : t&at is t&e% !an be so(d to anot&er investor i# t&e oner

needs !as& be#ore its at$rit% date' CDs are iss$ed it& at$rit% *eriod ranin

beteen 1 da%s to 1 %ear' S&ort ter CDs are &i&(% ar+etab(e, a(t&o$& ar+et

sini"!ant(% t&in o$t #or at$rities o# t&ree ont&s or ore' T&e (i$idit% o# t&e

ar+et i*roved sini"!ant(% in O!tober H a#ter t&e R>I red$!ed t&e ini$

ten$re o# t&e CD #ro 8 da%s to 1 da%s' T&e "nan!ia( instit$tions !an iss$e CDs

it& at$rit% da%s ranin beteen one %ear to t&ree %ears'

Coer!ia( Pa*er: &i&(% rated !o*anies in India 5it& a CRISIL ratin o# PH and

above or an e$iva(ent ratin #ro anot&er ratin aen!%7 !an iss$e 5in a *rivate

*(a!eent7 t&ere on s&ort ter $nse!$red debt notes' T&ese notes are !a((ed

Coer!ia( Pa*er' No "nan!ia( instit$tions 5a*art #ro *riar% dea(ers and

sate((ite dea(ers7 !an a(so raise s&ort ter #$nds b% iss$in Coer!ia( Pa*ers'

Coer!ia( Pa*er at$rit% rane beteen 19 da%s to one %ear' CPs are iss$ed in


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denoinations o# Rs 9 (a+&s or $(ti*(es t&ere o#' Li+e CDs CPs are a(so iss$ed at a

dis!o$nt to t&e #a!e va($e' In ar!& 188A, Indian !o*anies ere a((oed to iss$e

CPs $*to 1 o# t&e a0i$ *erissib(e ban+ "nan!e' In India CPs attra!t

sta* d$t% and sta* d$ties are biased' T&$s #or e0a*(e &en t&at tenor o# t&e

CP is (ess t&an 8 da%s, t&e sta* d$t% #or t&e ban+ '9 as aainst '1H9 #or

non ban+in entities' T&ere#ore ban+s are a4or *(a%ers in t&e *riar% ar+et #orCPs in India' 3oever se!ondar% ar+et transa!tions in CPs do not attra!t an%

sta* d$t% and &en!e non ban+s "nd it !ost eJe!tive to o*erate in t&e se!ondar%

ar+et' O# (ate t&e one% ar+et $t$a( #$nds in India &ave be!oe (are *(a%ers

in se!ondar% ar+et #or CPs'

E$rodo((ars E$rodo((ar denoinated de*osits at #orein ban+s or #orein bran!&es o#

/eri!an ban+s' >% (o!atin o$tside t&e United States , t&ese ban+s es!a*e

re$(ation b% t&e Federa( Reserve >oard' Des*ite t&e ta E$ro, t&ese a!!o$nts need

not be in E$ro*ean ban+s, a(t&o$& t&at is &ere t&e *ra!ti!e o# a!!e*tin do((ar

denoinated de*osits o$tside t&e United States bean'

Most E$rodo((ar de*osits are #or (are s$s and ost are tie de*osits (ess t&an

ont&s' / variation on t&e E$rodo((ar tie de*osit is t&e E$rodo((ar Certi"!ate o#

De*osit' / E$rodo((ar CD reseb(es a doesti! ban+ CD e0!e*t t&at it is t&e (iabi(it%

o# non-US bran!& o# a ban+, t%*i!a((% a London bran!&' T&e advantae o# E$rodo((ar

CD over E$rodo((ar tie de*osit is t&at t&e &o(der !an se(( t&e asset to rea(i)e its

!as& va($e be#ore at$rit%' E$rodo((ar CDs are !onsidered (ess (i$id and ris+ier

t&an doesti! CDs, &oever t&e% oJer &i& %ie(ds' Firs a(so iss$e E$rodo((ar

bonds, &i!& are do((ar denoinated bonds o$tside t&e US, a(t&o$& bonds are not

a one% ar+et investent be!a$se o# t&eir (on at$rities'

Re*os and reverse Re*os: one !an $se re*$r!&ase areeent a(so !a((e Re*os, as

a #or o# s&ort ter, $s$a((%, overni&t borroin' T&e ini$ *eriod #or re*os

transa!tion as t&ree da%s at one *oint o# tie, no it &as been bro$&t don toone da%' In a re*o transa!tion, one trans#ers overnent se!$rities 5no state ovt'

se!$rities and bonds iss$ed b% *$b(i! se!tor $nderta+ins and Private Cor*orate

Se!tor 5*rovided t&e% are in deat #or7 are e(iib(e #or re*o transa!tion7 to an

investor or an 5$s$a((%7 overni&t basis, it& an areeent to b$% ba!+ t&ose

se!$rities a#ter t&e re*o *eriod at a s(i&t(% &i&er *ri!e' T&e in!rease in *ri!e is t&e

interest #or t&e re*o *eriod 5ad4$sted #or !o$*on7'

/ reverse re*o is t&e irror iae o# a re*o' 3ere se!$rities are *$r!&ased it& a

!oitent to se(( t&e ba!+ a#ter t&e re*o *eriod' Sin!e @$ne H, t&e R>I is

!ond$!tin re*o transa!tions ever% or+in da%'

Ca(( Mone% Mar+et Ca(( one% ar+et re#ers to t&e ar+et #or s&ort ter #$nds it&at$rit% *eriod ranin beteen one da% and 1 da%s' In India ban+s and *riar%

dea(ers are a((oed to bot& borro and (end one% in t&e !a(( one% ar+et'

3oever "nan!ia( instit$tions, $t$a( #$nds 5in 188A a(( SE>I reistered $t$a( #$nd

ere a(so a((oed to (end one% in t&e !a(( ar+et7 and a se(e!t ro$* o#

Cor*orates are a((oed on(% to (end one% in !a(( one% ar+et' Fro diJerent id

ter revies t&e onetar% and !redit *o(i!%, t&e R>I is sendin !(ear sina( t&at it

ants to !onvert t&e !a(( ar+et in India into *$re inter-ban+ !a(( one% ar+et'


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T&e non-ban+ entities are en!o$raed to *arti!i*ate in t&e re*o ar+et no'

LI>OR Mar+et: t&e London inter-ban+ oJered 5LI>OR7 is t&e rate at &i!& (are

ban+s are i((in to (end one% aon t&ese(ves' T&is rate &i!& is $oted do((ar

denoinated (oans &as be!oe t&e *reier s&ort ter interest rate $oted in t&e

E$ro*ean one% ar+et and it serves at a re#eren!e rate #or a ide rane o#transa!tion' For e0a*(e a !or*orate i&t borro at a Qoatin rate o# LI>ORH'

>ond Mar+et: >ond Mar+et is !o*osed o# (oner-ter borroin or debt instr$ent

t&an t&ose traded in t&e one% ar+et' T&is ar+et in!($des overnent

Se!$rities 5-Se!s7, bonds iss$ed b% State overnents, Cor*orate >onds, P$b(i!

Se!tor Underta+in and Finan!ia( Instit$tions'

T&ese instr$ents are soeties said to !o*rise t&e "0ed in!oe !a*ita(

ar+et, be!a$se ost o# t&e *roise eit&er a "0ed strea o# in!oe or a strea

o# in!oe t&at is deterined a!!ordin to a s*e!i"! #or$(a' In *ra!ti!e t&ese

#or$(ae !an res$(t in a Qo o# in!oe t&at is #ar #ro "0ed' T&ere#ore t&e ter

"0ed in!oe is *robab(% not #$((% a**ro*riate' It is si*(er and ore strai&t

#orard to !a(( t&ese se!$rities eit&er debt instr$ents or bonds'

-Se!s: t&e overnent o# India borros #$nds in (are *art b% se((in dated -

Se!s' -Se!s at$rities rane $* to %ears' T&e #a!e va($e o# -Se!s is Rs 1'

T&e -Se!s a+e sei-ann$a( *a%ents !a((ed !o$*on *a%ents, a nae derived

#ro *re-!o*$ter da%s, &en investors o$(d (itera((% !(i* !o$*ons atta!&ed to t&e

bond and *resent a !o$*on to re!eive t&e interest *a%ent'

Federa( /en!% Debt in U'S' : soe overnent aen!ies in U'S' t&eir onse!$rities to "nan!e t&eir a!tivities' T&ese aen!ies are $s$a((% #ored to !&anne(

!redit to* a *arti!$(ar se!tor o# t&e e!ono% t&at !onress be(ieves i&t not

re!eive ade$ate !redit t&ro$& nora( *rivate so$r!es' E0a*(e Federa( Far

Credit Loan, 3oe Loan, Tenness% Va((e% /$t&orit% Loan, et!'

Internationa( >onds : an% "rs borro #ro abroad and an% investors b$% bonds

#ro #orein iss$es' In addition nationa( !a*ita( ar+et t&ere is a t&rivin

Internationa( !a*ita( ar+et, (are(% !entered in London'

/ E$ro >ond is a bond denoinated in a !$rren!% ot&er t&an t&at o# !o$ntr% in

&i!& it is iss$ed #or e0a*(e a do((ar denoinated bond so(d in >ritain o$(d be!a((ed a E$ro do((ar bond' Sii(ar(% investors i&t s*ea+ o# E$ro-en >onds, en

denoinated bonds so(d o$tside @a*an' Sin!e t&e ne E$ro*ean !$rren!% is !a((ed

t&e e$ro t&e ter E$ro >ond a% be !on#$sin' It is best to t&in+ o# t&e as

internationa( bonds'

M$ni!i*a( >onds in t&e U'S' : in t&e U'S' t&e bonds are iss$ed b% state and t&e (o!a(

overnent &i!& are sii(ar to treas$r% and !or*orate bonds e0!e*t t&at t&eir


8/27

interest in!oe is e0e*t #ro #edera( in!oe ta0ation'

Cor*orate >onds : are t&e eans b% &i!& *rivate "rs borro one% dire!t(% #ro

*$b(i! t&e% are sii(ar to treas$r% iss$es ' T&e% *a% sei ann$a( !o$*ons over t&eir

(ives and ret$rn t&e #a!e va($e to t&e bond &o(der d$rin at$rit%' T&e% diJer ost

i*ortant(% #ro treas$r% bonds in deree o# ris+' Mortae and ortaaedba!+ed se!$rities enera((% &oe (oan is 19- %ears tie et!'

E$it% Se!$rities : Coon sto!+s or oners&i* s&ares !oon sto!+s a(so +non

as e$it% se!$rities or e$ities re*resent oners&i* s&ares in a !or*oration' Ea!&

s&are o# !oon sto!+ entit(es its oner to one vote' C&ara!teristi! o# !oon

sto!+ as an investent is resid$a( !(ai and (iited (iabi(it%' Pre#erred sto!+ it &as a

#eat$re sii(ar to bot& e$it% and debt' Li+e bond it *roises to *a% a "0ed ao$nt

o# in!oe ea!& %ear' In t&is sense *re#erred sto!+ is sii(ar to an in "nite at$rit%

bond t&at is a *er*et$it%'

Derivative Mar+et: are t&e ost sini"!ant deve(o*ents in t&e "nan!ia( ar+et' In

t&e re!ent %ears t&ere &as been rot& o# #$t$res, o*tions, and re(ated derivatives

ar+et' T&ese instr$ents *rovide *a%-oJs t&at de*end on t&e va($e o# t&e ot&er

assets s$!& as !oodit% *ri!es, bond and sto!+ *ri!es, or ar+et inde0 va($es'

T&e !a(( o*tion ives it &o(der t&e ri&t to *$r!&ase an asset to a s*e!i"ed *ri!e

!a((ed t&e e0er!ise or stri+e *ri!e on or be#ore a s*e!i"ed e0*iration date' P$t o*tion

ives its &o(der t&e ri&t to se(( an asset #or a s*e!i"ed e0er!ise *ri!e on or be#ore a

s*e!i"ed e0*iration date'

F$t$res !ontra!t !a((s #or de(iver% o# an asset 5in soe !ases its !as& va($e7 at a

s*e!i"ed de(iver% or at$rit% date #or an areed $*on *ri!e !a((ed #$t$re *ri!e to be

*aid at !ontra!t at$rit%' T&e (on *osition is &e(d b% t&e traders &o !oits*$r!&asin t&e asset on t&e de(iver% date' T&e trader &o ta+es t&e s&ort *osition

!oits to de(iver t&e asset at !ontra!t at$rit%'

S/PM 5MODULE-7

Finan!ia( ar+ets: *riar% and se!ondar% ar+ets

Se!$rities ar+et is t&e ar+et #or e$it%, debt ? derivatives' T&e debt ar+et a%be devided into t&ree *arts vi)' ovt' se!$rities ar+et, !or*orate debt ar+et and

one% ar+et' T&e derivatives !an be divided into to *arts vi)' o*tions ar+et

and #$t$re ar+et'


9/27

Fi -1

E0!e*t derivative ar+et ea!& o# t&e above &as to !o*onents vi)' t&e *riar%

and se!ondar% ar+et' Mar+et &ere ne se!$rities are iss$ed is !a((ed *riar%

ar+et and &ere o$tstandin se!$rities are traded is !a((ed t&e se!ondar% ar+et'

Ma4or *(a%ers and instr$ents in se!ondar% ar+et:

T&e Indian se!$rities ar+et &as #o((oin *arti!i*ants:

Re$(ators: T&e +e% aen!ies t&at &ave a sini"!ant re$(ator% inQ$en!e, dire!t andindire!t one o# se!$rities ar+et are:

1' T&e !o*an% (a board 5CL>7 res*onsib(e #or t&e adinistration o# t&e

Co*anies /!t 189'

H' T&e R>I res*onsib(e #or t&e s$*ervision o# t&e ban+s, one% ar+et and ovt'

se!$rities ar+et'

' T&e se!$rities and E0!&ane >oard o# India 5SE>I7 res*onsib(e #or re$(ation o#

t&e !a*ita( ar+et'

' T&e De*t' o# E!onoi! /Jairs 5DE/7 a ovt' ar, !on!erned it& order(%

#$n!tionin o# t&e "nan!ia( ar+ets as a &o(e'

9' T&e De*t' o# Co*an% /Jairs 5DC/7 a ovt' ar res*onsib(e #or t&eadinistration o# !or*orate bodies'

Sto!+ e0!&anes:

/ sto!+ e0!&ane is an instit$tion &ere se!$rities t&at &ave a(read% been iss$ed

are bro$&t and so(d' Present(% t&ere are H sto!+ e0!&anes in India' I*ortant

ones are NSE and >SE'


10/27

Listed se!$rities:

Se!$rities (isted on vario$s sto!+ e0!&anes and &en!e bein e(iib(e #or tradin are

!a((ed (isted se!$rities' Present(% 1, se!$rities are (isted on a(( t&e sto!+

e0!&anes in India *$t toet&er'

De*ositories:/ de*ositor% is an instit$tion &i!& deateria(i)e *&%si!a( !erti"!ates and eJe!ts

trans#er o# oners&i* e(e!troni! boo+ entries' Present(% t&ere are to de*ositories in

India vi)' Nationa( Se!$rities De*ositor% Liited and t&e Centra( Se!$rities

De*ositor% Liited'

>ro+ers:

>ro+ers are reistered ebers o# t&e sto!+ e0!&anes t&ro$& &o investors

transa!t' T&ere are abo$t 1, bro+ers in India'

Forein instit$tiona( investors:

Instit$tiona( investors #ro abroad &o are reistered it& SE>I to o*erate in Indian

!a*ita( ar+et are !a((ed #orein instit$tiona( investors' T&ere are abo$t 9 o# t&e

and t&e% &ave eered as a a4or #or!e in t&e Indian ar+et'

Mer!&ant ban+ers:

Firs t&at s*e!ia(i)es in anain t&e iss$e o# se!$rities are !a((ed er!&ant

ban+ers t&e% &ave to be reistered it& SE>I'

Priar% dea(ers:

/**ointed b% t&e R>I, *riar% dea(ers serve as $nderriters in t&e *riar% ar+et

and as t&e ar+et a+ers in t&e se!ondar% ar+et #or ovt' se!$rities'

M$t$a( #$nds:

/ $t$a( #$nd is a ve&i!(e #or !o((e!tive investent' It *oo(s and anaes t&e #$nds

#or investors' T&ere are abo$t $t$a( #$nds in India'

C$stodians:

/ !$stodian (oo+s a#ter t&e investent ba!+ o2!e o# a $t$a( #$nd' It re!eives and

de(ivers se!$rities, !o((e!ts in!oe, distrib$tor dividends and sereates t&e asset

beteen s!&ees'

Reistrar:

/(so +non as a trans#er aent, a reistrar is e*(o%ed b% a !o*an% or a $t$a(

#$nd to &and(e a(( investors re(ated servi!es'

Underriters:

/n $nderriter aree to s$bs!ribe to a iven n$ber o# s&ares 5or an% ot&er


11/27

se!$rit%7 in t&e event t&e *$b(i! s$bs!ri*tion is inade$ate' T&e $nderriter in

essen!e, stands $arantee #or t&e *$b(i! s$bs!ri*tion'

>an+ers to an iss$e:

T&e ban+ers to an iss$e !o((e!t one% on be&a(# o# t&e !o*an% #ro t&e

a**(i!ants'

Debent$re tr$stees:

;&en debent$res are iss$ed b% a !o*an%, a debent$re tr$stee &as to be

a**ointed to ens$re t&at t&e borroin "rs #$("(( its !ontra!t$a( ob(iations'

Vent$re !a*ita( #$nds:

/ vent$re !a*ita( #$nd is a *oo( o# !a*ita( &i!& is essentia((% invested is e$it%

s&ares or e$it% (in+ed instr$ents o# $n(isted !o*anies'

Credit ratin aen!ies:

It assins ratins *riari(% to debt se!$rities'

FUNCTIONIN OF STOCG EC3/NES:

T&e ost i*ortant deve(o*ent in t&e Indian sto!+ ar+et as t&e estab(is&ent

o# t&e Nationa( Sto!+ E0!&ane 5NSE7 in 188, it& is a s&ort *eriod it eered on

t&e (arest sto!+ e0!&ane is t&e !o$ntries s$rin a&ead o# t&e >oba% Sto!+

E0!&ane5>SE7 &i!& as &istori!a((% t&e doinant sto!+ e0!&ane in India' T&e

NSE &as !ast its s&ado over t&e ost o# reiona( sto!+ e0!&anes, 4eo*ardi)in

t&eir ver% e0isten!e' In a bid to servi!e t&e reiona( sto!+ e0!&anes &ave set $*

s$bsidiaries &i!& in t$rn &ave be!oe instit$tiona( eber o# NSE as e(( as >SE'For e0a*(e >ana(ore Sto!+ E0!&ane &as set $* a s$bsidiar% !a((ed t&e >SE

Finan!ia( Servi!e Liited &i!& is an instit$tiona( eber o# NSE as e(( as >SE'

Mebers o# t&e >ana(ore Sto!+ E0!&ane !an trade as NSE as e(( as >SE t&ro$&

>SE Finan!ia( Servi!es Liited'

N/TION/L STOCG EC3/NE:

Ina$$rated in 188, t&e NSE see+s to,

a7 Estab(is& a nationide tradin #a!i(it% #or e$ities, debt and &%brids'

b7 Fa!i(itate e$a( a!!ess to investors a!ross t&e !o$ntr%!7 I*art #airness, e2!ien!% ? trans*aren!% to se!$rities

d7 S&orter sett(eent !%!(e

e7 Meet internationa( se!$rities ar+et standard' T&e distin!tive #eat$res o# NSE

#$n!tions are as #o((os,

17 t&e NSE is a rin(ess, nationa(, !o*$teri)ed e0!&ane

H7 NSE &as to seents: t&e !a*ita( ar+et seent and t&e &o(esa(e debt


12/27

ar+et seent' T&e !a*ita( ar+et seent !overs e$ities, !onvertib(e

debent$res, and retai( trade in non !onvertib(e debent$res' T&e &o(esa(e debt

ar+et is a ar+et #or &i& va($e transa!tions in ovt' se!$rities, PSU bonds,

!oer!ia( *a*ers and ot&er debt instr$ents'

7 T&e tradin ebers in t&e !a*ita( ar+et seent are !onne!ted to t&e !entra(

!o*$ter in M$bai t&ro$& a sate((ite (in+ $*, $sin VS/Ts 5ver% sa(( a*ert$reterina(s7' T&e tradin ebers in t&e &o(esa(e debt ar+et seent are (in+ed

t&ro$& dedi!ated &i& s*eed (ines to t&e !entra( !o*$ter at M$bai'

7 T&e NSE &as o*ted #or an order driven s%stes' ;&en an order is *(a!ed b% a

tradin eber t&e !o*$ter a$toati!a((% enerates a $ni$e order n$ber and

t&e eber !an ta+e a *rint o# order !on"ration s(i* !ontainin t&is n$ber'

97 ;&en a trade ta+es *(a!e, a trade !on"ration s(i* is *rinted at t&e tradin

ebers or+station' It ives detai( (i+e $antit%, *ri!e, !ode n$ber o# !o$nter

*art% and so on'

7 T&e identit% o# tradin eber is not revea(ed to ot&ers &en &e *(a!es an order

or &en &is *endin orders are dis*(a%ed' 3en!e (are orders !an be *(a!ed on t&e

NSE'

A7 Mebers are re$ired to de(iver se!$rities and !as& b% !ertain da%' T&e *a%ent

da% is t&e #o((oin da%'

B7 /(( trader on NSE are $aranteed b% t&e nationa( se!$rities !(earin !or*oration

5NSCC7' T&is eans t&at &en / b$%s #ro >, NSCC be!oes t&e !o$nter *art% to

bot& (es o# t&e transa!tion' In eJe!t, NSCC be!oes t&e se((er to / and t&e b$%er

#ro >' T&is e(iinates !o$nter *art% ris+'

T&e >oba% Sto!+ E0!&ane 5>SE7:

Estab(is&ed in 1BA9, >SE is one o# t&e o(dest orani)ed e0!&ane is t&e or(d it&

(on, !o(or#$( and !&e$ered &istor%' Its distin!tive #eat$res are as #o((os,

1' t&e >SE sit!&ed #ro t&e o*en o$t!r% s%ste to s!reen based s%stes in 1889'

It a!!e(erated its !o*$teri)ation *rorae in res*onse to t&e t&reat #ro t&e

NSE'

H' @obbers *(a% an i*ortant ro(e on t&e >SE' / 4obber is a bro+er &o trades &is

a!!o$nt and &en!e oJers a to a% $ote or a bid-as+ $ote' T&e bid *ri!e reQe!ts

t&e *ri!e at &i!& t&e 4obber is i((in to b$% and t&e as+ *ri!e re*resents t&e *ri!eat &i!& t&e 4obber is i((in to se(('

' Investors &ave to transa!t via' a 4obber= bro+er' T&e 4obber= bro+er #eeds &is b$%=

se(( $otes in &is !o*$ter terina(, &i!& is (in+ed to t&e ain server at t&e >SE'

Sin!e bot& 4obber and bro+ers #eed t&eir orders, t&e >SE &as ado*ted a $ote-

drivers s%stes and an order- driven s%ste'


13/27

Tradin and Sett(eent:

Tradin:

Ea!& sto!+ e0!&ane &as !ertain (isted se!$rities and *eritted se!$rities &i!& are

traded on it' Mebers o# t&e e0!&ane a(one are entit(ed to t&e tradin *rivi(ees'Investors interested in b$%in or se((in s&o$(d *(a!e t&eir orders it& t&e ebers

5a(so !a((ed bro+ers7 o# t&e e0!&ane' T&ere are to a%s o# orani)in t&e tradin

a!tivit%' T&e o*en o$t!r% s%ste and t&e s!reen based s%ste'

O*en o$t!r% s%ste:

Under t&e o*en !r% s%ste, traders s&o$(d s&o$t and resort to sina(s or tradin

Qoor o# t&e e0!&ane &i!& !onsists o# severa( nationa( tradin *osts #or diJerent

se!$rities' / eber or &is re*resentative is&in to b$% or se(( a !ertain se!$rit%

rea!&es t&e tradin *ost &ere se!$rit% is traded' 3ere &e !oes in !onta!t it&

ot&ers interested in transa!tin in t&at se!$rit%' >$%ers a+e t&eir bids and se((ers

a+e t&eir oJers and barains are !(osed at $t$a((% areed $*on *ri!es' In sto!+s

&ere 4obbin is done, t&e 4obber *(a%s an i*ortant ro(e' 3e stands read% to b$% or

se(( on &is a!!o$nt' 3e $otes &is bid 5b$%in7 and as+ 5se((in7 *ri!es' 3e *rovides

soe and !ontin$it% to t&e ar+et'

S!reen based s%ste:

In t&e s!reen based s%ste, t&e tradin rin is re*(a!ed b% t&e !o*$ter s!reen and

distant *arti!i*ants !an trade it& ea!& ot&er t&ro$& t&e !o*$ter- netor+' /

(are n$ber o# *arti!i*ants, eora*&i!a((% se*arated !an trade si$(taneo$s(% at&i& s*eeds' T&e s!reen based tradin s%ste:

a7 En&an!es t&e in#orationa( e2!ien!% o# t&e ar+et as ore *arti!i*ants trade at

a #aster s*eed'

b7 Perits t&e ar+et *arti!i*ants to et #$(( vie o# t&e ar+et &i!& in!reases

t&eir !on"den!e in t&e ar+et'

!7 Estab(is&es trans*arent a$dit trai(s' ;&i(e !o*$terised tradin is ore e2!ient,

it de!ided(% (a!+s t&e vibran!% and vita(it% o# t&e traditiona( Qoor tradin'

Te!&no(o% sees to &ave its on a% o# *$s&in !o(or#$( traditions and *o(i!ies

into obvio$s'

Ti(( 188 tradin in t&e sto!+ ar+et in India as based on t&e o*en o$t!r% s%ste'

;it& estab(is&ent o# Nationa( Sto!+ E0!&ane in 188, India entered t&e era o#

s!reen based tradin' ;it& in a s&ort s*an o# tie, s!reen based tradin &as

s$**(anted t&e o*en o$t!r% s%ste on a(( t&e sto!+ e0!&anes in t&e !o$ntr%,

t&an+s to t&e SE>Is initiative in t&is res*e!t ' No !o$ntr% &as a!&ieved s$!& a

trans#oration so ra*id(%' T&e +ind o# s!reen based tradin s%ste ado*ted in India


14/27

is re#erred to as t&e o*en E(e!troni! Liit Order >oo+ 5ELO>7 ar+et s%ste' T&e

+e% #eat$res o# t&is s%ste are as #o((os:

1' >$%ers and se((ers *(a!e and t&eir orders on t&e !o*$ter, t&ese orders a% be

(iited orders or ar+et orders' / (iit order *re s*e!i"es t&e *ri!e (iit' For e0' /

(iit order to b$% at a *ri!e o# Rs' 8 eans t&at t&e trader ants to b$% at a *ri!e

not reater t&an Rs' 8' Li+eise a (iit order to se(( at a *ri!e o# Rs' 89 eans t&att&e trader ants to se(( at a *ri!e not (ess t&an Rs' 89' / ar+et order is an order

to b$% or se(( at t&e best *revai(in *ri!e' / ar+et order to se(( i(( be e0e!$ted at

t&e &i&est bid *ri!e &ereas a ar+et order to b$% i(( be e0e!$ted as t&e (oest

as+ *ri!e'

H' T&e !o*$ter !onstant(% tries to at!& $t$a((% !o*atiab(e orders' T&e

at!&in is done on a *ri!e tie *riorit%, i*(%in t&at *ri!e is iven *re#eren!e

overtie in t&e *ro!ess o# at!&in'

/ b$% order at a &i&er (iit *ri!e is a!!orded *re!eden!e over a b$% order at a

(oer (iit *ri!e' >% t&e sae to+en a se(( order at a (oer (iit *ri!e is iven

*riorit% over a se(( order at a &i&er (iit *ri!e' >eteen to (iit orders *(a!ed at

t&e sae *ri!e, t&e (iit order *(a!ed ear(ier is a!!orded *riorit% over t&e (iit order

*(a!ed (ater'

' T&e (iit order boo+ ie' t&e (ist o# $nat!&ed (iit orders is dis*(a%ed on t&e

s!reen' P$t diJerent(% it is o*en #or ins*e!tion to a(( traders'

Fi H

Sett(eent

Traditiona((%, trades in India ere sett(ed b% *&%si!a( de(iver%' T&is eans t&at t&e

se!$rities &ad to *&%si!a((% ove #ro se((er to se((ers bro+er, #ro t&e se((ers

bro+er to t&e b$%ers bro+er 5t&ro$& t&e !(earin &o$se o# t&e e0!&ane or dire!t(%7

and #ro b$%ers bro+er to t&e b$%er' F$rt&er t&e b$%er &ad to (ode t&e se!$rities

it& t&e trans#er aents o# t&e !o*an% and t&e *ro!ess o# trans#er too+ on to t&ree

ont&s' T&is (ed &i& *a*eror+ !ost and !reated bad *a*er ris+' To itiate t&e

!ost and ris+s asso!iated it& *&%si!a( de(iver%, se!$rit% transa!tions, in deve(o*ed

ar+ets are sett(ed ain(% t&ro$& e(e!troni! de(iver% #a!i(itated b% de*ositories' /de*ositor% is an instit$tion &i!& deateria(i)es *&%si!a( !erti"!ates and eJe!ts

trans#er o# oners&i* b% e(e!troni! boo+ entries'

To enab(e t&e !reation o# de*ositories, to #a!i(itate deateria(i)ed tradin in India,

t&e !entra( overnent *ro$(ated t&e De*ositor% Ordinan!e 1889 &i!& as

#o((oed b% De*ositories /!t 188' T&e &i& (i&ts o# t&e de*ositories a!t are as

#o((os'

17 ever% de*ositor% i(( be re$ired to be reistered it& t&e SE>I'


15/27

H7 Investors i(( &ave t&e !&oi!e o# !ontin$in it& t&e e$it% s&are !erti"!ates or

o*t #or t&e de*ositor% ode'

7 Investors o*tin to 4oin t&e de*ositor% ode are re$ired to reister it& t&e

aents #or t&e de*ositories' T&ese i(( be !$stodia( aen!ies (i+e ban+s, "nan!ia(

instit$tions and (are bro+erae "rs'

7 ;&i(e t&e de*ositor% i(( be reistered oner in t&e reister o# t&e !o*an%, t&einvestors i(( en4o% t&e e!onoi! bene"ts as e(( as t&e votin ri&ts or t&e s&ares

!on!erned'

97 S&ares in t&e de*ositor% ode i(( be #$nib(e' T&is eans t&at t&e% i(( !ease to

&ave distin!tive nos'

7 Investors &avin entered t&e de*ositor% ode !an (eave t&e s%stes and et

s&are !erti"!ates #ro t&e !o*an% as reistered oners in t&e boo+s o# t&e

!o*an%'

A7 Oners&i* !&anes in t&e de*ositor% s%ste i(( be ade a$toati!a((% on t&e

basis o# de(iver% aainst *a%ent' F$rt&er t&ere i(( be no sta* d$t% on trans#er o#

oners&i*'

B7 /n% (oss !a$sed to t&e bene"!ia( oners d$e to t&e ne(ien!e o# t&e de*ositor%

or t&e *arti!i*ant i(( be indeni"ed b% t&e de*ositor%'

T&e Nationa( Se!$rities De*ositor% Liited 5NSDL7 Indias "rst de*ositor%, as set

$* in 188'It as #o((oed b% t&e Centra( Se!$rities De*ositor% Liited 5CSDL7' >ot&

t&e de*ositories, t&e NSDL in *arti!$(ar &ave re!orded a sini"!ant rot& in t&eir

o*erations'

SE>I &as ade deateria(i)ed tradin !o*$(sor% #or a(( t&e sto!+ e0!&anes in t&e

!o$ntr%' T&is eans t&at i# %o$ ant to b$% or se(( s&ares in an% e0!&ane %o$ &ave

to do it on(% in t&at deateria(i)ed #or, o# !o$rse t&e to *arties !an enae in anoJ-ar+et s*ot transa!tion t&at !an be sett(ed t&ro$& t&e de(iver% o# s&ares in

*&%si!a( #or' T&ere is a trans#er d$t% o# '9 on *&%si!a( trans#er'

S&i#t to ro((in sett(eent:

Ti(( re!ent(% s&are transa!tion in India as sett(ed on t&e basis o# a ee+(% *eriod

5on t&e >oba% Sto!+ E0!&ane t&e a!!o$nt *eriod as Monda% to Frida% and on

t&e NSE t&e a!!o$nt *eriod as ;ednesda% to T$esda%7' T&is eant t&at *$r!&ases

and sa(es d$rin an a!!o$nt *eriod !o$(d be s$ared $* and, at t&e end o# t&e

a!!o$nt *eriod, transa!tions !o$(d be sett(ed on a net basis' For e0a*(e i# %o$bo$&t 1 s&ares o# In#os%s on >SE on Monda% at Rs 9 a s&are and so(d 89

s&ares o# In#os%s at Rs 99 on Frida% o# t&at ee+, %o$ are re$ired to ta+e

de(iver% #or on(% 9 s&ares b% *a%in Rs HH9=- 5*$r!&ase !onsideration Rs' 9

- sa(e !onsideration o# Rs' A8A97 at t&e end o# a!!o$nt *eriod'

T&e ee+(% sett(eent s%ste a(on it& bad(a s%ste o# !arr%in #orard

transa!tions #ro one a!!o$nt *eriod to t&e ne0t, a!!ordin to an% in#ored

observers o# t&e Indian sto!+ ar+et, (ed to $nbrid(ed s*e!$(ative a!tivit% and


16/27

*eriodi! ar+et !risis' So, SE>I de!ided to introd$!e ro((in sett(eent in a *&ased

anner #ro HH' Under t&e !o*$(sor% ro((in s%ste no in vo$e, ever% da%

re*resents a ne sett(eent *eriod' T&is eans %o$ &ave to s$are an o*en

*osition t&e sae da%, ot&erise %o$ &ave to ta+e de(iver% or ive de(iver%

de*endin on %o$r *osition'

SE>I and #$t$re !&a((enes:

>e#ore t&e estab(is&ent o# SE>I t&e *rin!i*a( (eis(ators overnin se!$rities

ar+et in India ere t&e Ca*ita( Iss$e Conto( /!t 189 5overnin *riar% ar+et7

and t&e Se!$rities Contra!ts 5Re$(ations7 /!t 189 5overnin se!ondar% ar+et7'

T&e re$(ator% *oers ere vested it& t&e Contro((er o# t&e Ca*ita( Iss$es 5#or t&e

*riar% ar+et7 and Sto!+ E0!&ane Division 5#or t&e se!ondar% ar+et7 in t&e

Ministr% o# Finan!e, OI'

In 18B8 SE>I as !reated b% an adinistrative "at o# t&e Ministr% o# Finan!e' Sin!e,

t&en SE>I &as been rad$a((% been ranted ore and ore *oers' ;it& t&e re*ea(

o# t&e Ca*ita( Iss$es Contro( /!t and t&e ena!tent o# t&e SE>I a!t in 188H, t&e

re$(ation o# t&e *riar% ar+et &as be!oe t&e *reserve o# SE>I' F$rt&er t&e

inistr% o# "nan!e, OI &as trans#erred ost o# t&e *oers $nder Se!$rities

Contra!ts 5Re$(ations7 /!t 189 to SE>I'

SE>Is *rin!i*a( tas+s are to:

1' Re$(ate t&e b$siness in t&e sto!+ e0!&anes and an% ot&er se!$rities ar+et'

H' Reister and re$(ate t&e or+in o# !a*ita( ar+et interediaries 5bro+er,

er!&ant ban+ers, *ort#o(io anaers and so on7'

' Reister and re$(ate t&e or+in o# $t$a( #$nds'

' Proote and re$(ate se(# re$(ator% orani)ations'9' Pro&ibit #ra$d$(ent and $n#air trade *ra!ti!es in se!$rities ar+et'

' Proote investors ed$!ation and trainin o# interediaries o# se!$rities ar+ets'

A' Pro&ibit insiders tradin in se!$rities'

B' Re$(ate s$bstantia( a!$isition o# s&ares and ta+eovers o# !o*anies'

8' Per#or s$!& ot&er #$n!tions as a% be *res!ribed'

INITI/TIVE OF SE>I:

It &as !overed t&e entire a$t o# !a*ita( ar+et a!tivities t&ro$& near(%

(eis(ations' I*ortant ones are:-

17 Freedo in desinin and *ri!in instr$ents:

Co*anies no en4o% s$bstantia( #reedo in desinin t&e instr$ents o# "nan!in

a (on as t&e% #$((% dis!(ose t&e !&ara!ter o# t&e sae' More i*ortant t&e% en4o%

!onsiderab(e (atit$de in *ri!in t&e sae'

H7 Introd$!tion o# sto!+ invest:


17/27

To save investors #ro t&e (oss o# interest on t&e s$bs!ri*tion one% (o!ated it&

t&e !o*an%, SE>I &as introd$!ed t&e sto!+ invest s!&ee as an additiona( #a!i(it%

to t&e investors'

7 >an o# bad(a:

T&e "nan!ia( re$(ations o# 188H&i& (i&ted t&e de"!ien!ies o# t&e bad(a s%ste&i!& *eritted e0!essive (everain' To re!ti#% t&e de#e!ts in tradin *ra!ti!es t&e

bad(a s%ste &as been banned'

7 S!reen based tradin:

T&an+s to t&e !o*etition *osed b% t&e NSE and t&e insisten!e or *roddin done b%

SE>I, a(( t&e e0!&anes &ave sit!&ed to s!reen based tradin'

97 E(e!troni! trans#er:

T&e traditiona( et&od o# trans#er b% endorseent on se!$rit% and reistration b%

iss$er &as been s$**(anted b% e(e!troni! trans#er in boo+ entr% #or b%

de*ositories'

7 Ris+ anaeent:

/ !o*re&ensive ris+ anaeent s%ste t&at !overs !a*ita( ade$a!%, (iits on

e0*os$re and t$rnover, arins based on V/R 5va($e at ris+7 (eve(, ross arinin

and on(ine onitorin o# *ositions &as been introd$!ed'

A7 Ro((in sett(eent:

T&e tradin !%!(e, &i!& as *revio$s(% one ee+, &as been red$!ed to one da%

and t&e s%stes ro((in sett(eent &as been introd$!ed'

B7 Cor*orate overnan!e !ode:/ ne !ode o# !or*orate overnan!e, based on t&e re!oendations o#

G$araana(a >ir(a !oittee re*ort, &as been de"ned' It &as been

o*erationa(ised b% insertin a ne !(a$se 5!(a$se 87 in t&e (istins areeent- T&e

areeent t&at a (isted !o*an% enters t&e sto!+ e0!&ane &ere its se!$rities are

(isted' 5e0a $estion7

87 C&ane in anaeent str$!t$re:

sto!+ e0!&anes ear(ier ere bro+er doinated' SE>I no re$ires 9 non bro+er

Dire!tors' F$rt&er it &as andated t&at a non-bro+er *ro#essiona( be a**ointed as

t&e E0e!$tive Dire!tor'

17 Reistration and re$(ation o# interediaries:

!a*ita( ar+et interediaries s$!& as er!&ant bro+ers, $nderriters, ban+ers to

t&e iss$e, reistrar, trans#er aents bro+ers and s$b bro+ers are re$ired to be

reistered it& SE>I' Re$(ation #or t&ese interediaries &as been *res!ribed'

117 Redressa( o# investor rievan!es:


18/27

Investor rievan!es &ave been on t&e rise, t&an+s to t&e ste*s ta+en b% SE>I'

1H7 Re$(ation o# $t$a( #$nds:

M$t$a( #$nds &ave been bro$&t $nder t&e *$rvie o# SE>I and SE>I &as iss$ed t&e

re$(ator% $ide(ines #or t&is *$r*ose'

17 Re$(ation o# #orein *ort#o(io investent: T&e ovt' e(!oes #orein *ort#o(io

investent in t&e Indian !a*ita( ar+et' SE>I &as #or$(ated $ide(ines to *erit

t&is investent t&ro$& board based #$nds 5s$!& as $t$a( #$nds, *ension #$nds,

and !o$ntr% #$nds7 re#erred to as #orein instit$tiona( investors'

17 Deve(o*ent o# a !ode #or ta+eover:

Ta+eovers are ainin i*ortan!e in India' SE>I &as deve(o*ed a !ode #or re$(atin

t&e'

197 Introd$!tion o# e$it% derivatives:

SE>I &as a((oed t&e introd$!tion o# e$it% derivatives (i+e sto!+ inde0 #$t$res,

sto!+ inde0 o*tions, individ$a( sto!+ o*tions, and individ$a( sto!+ #$t$res'

T&r$st o# SE>Is re$(ation

Priar% ar+et

/!!ess Restri!ted

Instr$ents M$(ti*(ied

Pri!in Re(a0ed

Dis!(os$re Nors Ti&tened

Res*onsibi(it% o# er!&ant ban+er En&an!ed

Met&od >oo+ b$i(din

Se!ondar% Mar+et


19/27

Tradin Co*$teri)ed

Sett(eent E(e!troni! ode(

Transa!tion !osts Loered

Trans*aren!% En&an!ed

Mar+ets Interated(oba(i)ation En!o$raed

Ris+ anaeent Strent&ened

E0!&ane anaeent I*roved

F$t$re C&a((enes:

;&i(e SE>I &as done a reat dea(, it &as a (on a% to o in a!!o*(is&in its

ission' It &as to address severa( !&a((enes s$!& as t&e #o((oin:

Pre*ondan!e o# s*e!$(ative tradin and s+eed distrib$tion o# t$rnover:

T&ere is a *redoinan!e o# s*e!$(ative tradin &ere t&e *riar% otive is to

derive bene"t #ro s&ort ter Q$!t$ations' On(% a sa(( #ra!tion o# traders res$(ts in

de(iver%' Ear(ier &en t&e a!!o$nt *eriod as one ee+ and t&e #a!i(it% o# bad(a as

a((oed, near(% 8 o# t&e trades ere s$ared it& in t&e a!!o$nt *eriod or

!arried #orard' /#ter t&e introd$!tion o# ro((in sett(eent intra da% s$arein &as

be!oe !oon' /#ter t&e ban o# bad(a, individ$a( sto!+ #$t$res , &i!& are !as&

sett(ed, &ave be!oe ver% *o*$(ar' /n a((ied *rob(e is t&at t&e distrib$tion o#

tradin is &i&(% s+eed' /bo$t 1 s!ri*s a!!o$nt #or near(% B o# t&e t$rnover on

t&e sto!+ ar+et' T&an+s to s$!& s+eed distrib$tion o# tradin, ost s&ares aretraded in#re$ent(% and &en!e (a!+ (i$idit%'

L'C' $*ta ar$es t&at t&e over s*e!$(ation !&arter o# t&e Indian ar+et is evident

#ro t&e #o((oin:

17 T&ere is an e0tree(% &i& !on!entration o# tradin in a sa(( no' o# s&ares to t&e

ne(e!t o# t&e reainin s&ares'

H7 T&e tradin ve(o!it% is abs$rd(% &i& #or s*e!$(ation !o$nters' T&e tradin

ve(o!it% o# s&are is de"ned as: Tota( tradin vo($e in t&e s&are d$rin a %ear

divided b% its ar+et !a*ita(i)ation'

7 3ard(% 1-19 o# t&e transa!tions are en$ine investent transa!tion, t&e

ba(an!e bein s*e!$(ative transa!tion'To itiate e0!essive s*e!$(ation is t&e !as& ar+et and *roote (i$idit% a!ross

t&e board, t&e #o((oin ste*s a% be ta+en'

a7 Introd$!e arin tradin &erein investors *$t $* a !ertain ao$nt #or *$r!&ase

se!$rities' T&e ba(an!e bein (ent b% bro+erae "rs'

b7 en!o$rae ar+et a+in b% 4obbers

!7 Provide (ines o# !redit to bro+erae "rs'


20/27

Mar+et /b$ses:

Insider tradin, ar+et ani*$(ation, and *ri!e riin, !ontin$e to i*air t&e

$a(it% o# t&e ar+et' Insiders &o are *riv% to *ri!e sensitive in#oration, $se s$!&

in#oration to t&eir advantae' O#ten !o*anies iss$in se!$rities in doesti!ar+et or internationa( !a*ita( ar+et arti"!ia((% ri $* *ri!es' Carte(s o# *oer#$(

bro+ers tend to *(a% ani*$(ation aes on t&e ar+et'

It is virt$a((% i*ossib(e to e(iinate ar+et ab$ses be!a$se o# t&e inen$it% o#

ani*$(ators ani#ests itse(# in $nanti!i*ated a%s' Nevert&e(ess a vii(ant

re$(ator% bod%, e((-anaed e0!&anes, and severe *ena(ties !an o a (on a%

in itiatin ar+et ab$ses' T&o$& soe *roress &as been ade in t&at

dire!tions a (ot ore &as to be done'

Finan!ia( Servi!es

Meanin:

/(( t%*es o# a!tivities &i!& are o# a "nan!ia( nat$re !o$(d be bro$&t $nder t&e

ter "nan!ia( servi!es'

T&e ter Finan!ia( Servi!es in a broad sense eans obi(i)in and a((o!atin

savins' T&$s, it in!($des a(( a!tivities invo(ved in t&e trans#oration o# savin into

investent'

T&e "nan!ia( servi!e !an a(so be !a((ed "nan!ia( interediation'

Finan!ia( interediation is a *ro!ess b% &i!& #$nds are obi(i)ed #ro a (are

n$ber o# savers and a+e t&e avai(ab(e to a(( t&ose &o are in need o# it and

*arti!$(ar(% to !or*orate !$stoers'

/ e(( deve(o*ed "nan!ia( servi!es ind$str% is abso($te(% ne!essar% to obi(i)e t&e

savins and to a((o!ate t&e to vario$s investab(e !&anne(s and t&ereb% to *roote

ind$stria( deve(o*ent in a !o$ntr%'

C(assi"!ation o# "nan!ia( servi!es ind$str%

T&e "nan!ia( interediaries in India !an be traditiona((% !(assi"ed into to:

i' Ca*ita( ar+et interediaries

ii' Mone% ar+et interediaries


21/27

T&e !a*ita( ar+et interediaries !onsist o# ter (endin instit$tions and investin

instit$tions &i!& ain(% *rovide (on ter #$nds'

On t&e ot&er &and, one% ar+et !onsists o# !oer!ia( ban+s, !o-o*erative ban+s

and ot&er aen!ies &i!& s$**(% on(% s&ort ter #$nds'

S!o*e o# "nan!ia( servi!es

Finan!ia( servi!es !over a ide rane o# a!tivities' T&e% !an be broad(% !(assi"ed

into to nae(%:

i' Traditiona( a!tivities

ii' Modern a!tivities

Traditiona( a!tivities

Traditiona((%, t&e "nan!ia( interediaries &ave been renderin a ide rane o#

servi!es en!o*assin bot& !a*ita( and one% ar+et a!tivities' T&e% !an be

ro$*ed $nder to &eads vi)

i' F$nd based a!tivities and

ii' Non-#$nd based a!tivities

F$nd based a!tivities

T&e traditiona( servi!es &i!& !oe $nder #$nd based a!tivities are t&e #o((oin:

i' Underritin o# or investent in s&ares, debent$res, bonds et!' o# ne iss$es

5*riar% ar+et a!tivities7

ii' Dea(in in se!ondar% ar+et a!tivities

iii' Parti!i*atin in one% ar+et instr$ents (i+e !oer!ia( *a*ers, !erti"!ate o#

de*osits, treas$r% bi((s, dis!o$ntin o# bi((s et!'iv' Invo(vin in e$i*ent (easin, &ire *$r!&ase, vent$re !a*ita(, seed !a*ita( et!'

v' Dea(in in #orein e0!&ane ar+et a!tivities'

Non-#$nd based a!tivities

Finan!ia( interediaries *rovide servi!es on t&e basis o# non-#$nd a!tivities a(so'

T&is !an a(so be !a((ed #ee based a!tivit%' / ide variet% o# servi!es, are bein

*rovided $nder t&is &ead' T&e% in!($de t&e #o((oin:

i' Manain t&e !a*ita( iss$es, i'e', anaeent o# *re-iss$e and *ost-iss$e

a!tivities re(atin to t&e !a*ita( iss$e in a!!ordan!e it& t&e SE>I $ide(ines andt&$s enab(in t&e *rooters to ar+et t&eir iss$es'

ii' Ma+in arraneents #or t&e *(a!eent o# !a*ita( and debt instr$ents it&

investent instit$tions'

iii' /rraneent o# #$nds #ro "nan!ia( instit$tions #or t&e !(ients *ro4e!t !ost or &is

or+in !a*ita( re$ireents'

iv' /ssistin in t&e *ro!ess o# ettin a(( overnent and ot&er !(earan!es'


22/27

Modern a!tivities

>esides t&e above traditiona( servi!es, t&e "nan!ia( interediaries render

inn$erab(e servi!es in re!ent ties' Most o# t&e are in t&e nat$re o# non-#$nd

based a!tivit%'

i' Renderin *ro4e!t advisor% servi!es ri&t #ro t&e *re*aration o# t&e *ro4e!tre*ort ti(( t&e raisin o# #$nds #or startin t&e *ro4e!t it& ne!essar% overnent

a**rova('

ii' P(annin #or erers and a!$isitions and assistin #or t&eir soot& !arr% o$t'

iii' $idin !or*orate !$stoers in !a*ita( restr$!t$rin'

iv' /!tin as Tr$stees to t&e debent$re &o(ders

v' Str$!t$rin t&e "nan!ia( !o((aboration=4oint vent$res b% identi#%in s$itab(e 4oint

vent$re *artner and *re*arin 4oint vent$re areeent'

vi' Re&abi(itatin and re!onstr$!tin si!+ !o*anies t&ro$& a**ro*riate s!&ee o#

re!onstr$!tion and #a!i(itatin t&e i*(eentation o# t&e s!&ee'

vii' 3edin ris+s d$e to e0!&ane rate ris+, interest rate ris+, e!onoi! ris+ and

*o(iti!a( ris+ b% $sin sa*s and ot&er derivative *rod$!ts'

viii' Manain t&e *ort#o(io o# (are *$b(i! se!tor !or*orations'

i0' Underta+in ris+ anaeent servi!es (i+e ins$ran!e servi!es, b$% ba!+ o*tions,

!a*ita( ar+et et!'

0' Prootin !redit ratin aen!ies #or t&e *$r*ose o# ratin !o*anies &i!& ant

to o *$b(i! b% t&e iss$e o# debt instr$ents'

Finan!ia( *rod$!ts and servi!es

Toda%, t&e i*ortan!e o# "nan!ia( servi!es is ainin oent$ a(( over t&e

or(d'

In t&ese da%s o# !o*(e0 "nan!e, *eo*(e e0*e!t a "nan!ia( servi!e !o*an% to

*(a% a ver% d%nai! ro(e not on(% as *rovider o# "nan!e b$t a(so as a de*artenta(

store o# "nan!e'

/s a res$(t, t&e !(ients bot& !or*orates and individ$a(s are e0*osed to t&e

*&enoena o# vo(ati(it% and $n!ertaint% and &en!e t&e% e0*e!t t&e "nan!ia( servi!e

!o*an% to innovate ne *rod$!ts and servi!es so as to eet t&eir varied

re$ireents'

1' Mer!&ant >an+in:

/ er!&ant ban+er is a "nan!ia( interediar% &o &e(*s to trans#er !a*ita( #ro

t&ose &o *ossess it to t&ose &o need it' Mer!&ant ban+in in!($des a ide rane

o# a!tivities s$!& as anaeent o# !$stoers se!$rities, *ort#o(io anaeent,

*ro4e!t !o$nse(in and a**raisa(, $nderritin o# s&ares and debent$res, (oan

s%ndi!ation, a!tin as ban+er #or t&e re#$nd orders, &and(in interest and dividend

arrants et!' T&$s er!&ant ban+er renders a &ost o# servi!es to !or*orates and


23/27

t&$s *rootes ind$stria( deve(o*ent in t&e !o$ntr%'

H' Loan S%ndi!ation

T&is is ore or (ess sii(ar to !onsorti$ "nan!in' >$t, t&is or+ is ta+en $* b%

t&e er!&ant ban+er as a (ead anaer' It re#ers to a (oan arraned b% a ban+

!a((ed (ead anaer #or a borroer &o is $s$a((% a (are !or*orate !$stoer or aovernent de*artent' T&e ot&er ban+s &o are i((in to (end !an *arti!i*ate in

t&e (oan b% !ontrib$tin a ao$nt s$itab(e to t&eir on (endin *o(i!ies' Sin!e a

sin(e ban+ !annot *rovide s$!& a &$e s$ as (oan, a n$ber o# ban+s 4oin

toet&er and #or a s%ndi!ate' It a(so enab(es t&e ebers o# t&e s%ndi!ate to

s&are t&e !redit ris+ asso!iated it& a *arti!$(ar (oan aon t&ese(ves'

' Leasin

/ (ease is an areeent $nder &i!& a !o*an% or a "r, a!$ires a ri&t to a+e

$se o# a !a*ita( asset (i+e a!&iner%, on a!$ire an% oners&i* to t&e asset, b$t &e

!an $se it and &ave #$(( !ontro( over it' 3e is e0*e!ted to *a% #or a(( aintenan!e

!&ares and re*airin and o*eratin !osts'

' M$t$a( F$nds

/ $t$a( #$nd re#ers to a #$nd raised b% a "nan!ia( servi!es !o*an% b% *oo(in t&e

savins o# t&e *$b(i!' It is invested in a diversi"ed *ort#o(io it& a vie to s*readin

and inii)in ris+' T&e #$nd *rovides Investent /ven$e #or sa(( investors &o

!annot *arti!i*ate in t&e e$ities o# bi !o*anies' It ens$res (o ris+s, stead%

ret$rns, &i& (i$idit% and better !a*ita( a**re!iation t&e (on r$n'

9' Fa!torin

Fa!torin re#ers to t&e *ro!ess o# anain t&e sa(es (eder o# a !(ient b% a "nan!ia(

servi!e !o*an%' In ot&er ords, it is an arraneent $nder &i!& a "nan!ia(interediar% ass$es t&e !redit ris+ in t&e !o((e!tion o# boo+ debts #or its !(ients'

T&e entire res*onsibi(it% o# !o((e!tin t&e boo+ debts *asses on to t&e #a!tor' 3is

servi!es !an be !o*ared to a de( !redre aent &o $nderta+es to !o((e!t debts'

>$t, a #a!tor *rovides !redit in#oration, !o((e!ts debts, onitors t&e sa(es (eder

and *rovides "nan!e aainst debts' T&$s, &e *rovides a n$ber o# servi!es a*art

#ro "nan!in'

' For#aitin

For#aitin is a te!&ni$e b% &i!& a #or#aitor 5"nan!in aen!%7 dis!o$nts an e0*ortbi(( and *a% read% !as& to t&e e0*orter &o !an !on!entrate on t&e e0*ort #ront

it&o$t bot&erin abo$t !o((e!tion o# e0*ort bi((s' T&e #or#eiter does so it&o$t an%

re!o$rse to t&e e0*orter and t&e e0*orter is *rote!ted aainst t&e ris+ o# non-

*a%ent o# debts b% t&e i*orters'

A' Vent$re !a*ita(

/ vent$re !a*ita( is anot&er et&od o# "nan!in in t&e #or o# e$it% *arti!i*ation'


24/27

/ vent$re !a*ita(ist "nan!es a *ro4e!t based on t&e *otentia(ities o# a ne

innovative *ro4e!t' It is in !ontrast to t&e !onventiona( se!$rit% based "nan!in'

M$!& t&r$st is iven to ne ideas or te!&no(oi!a( innovations' Finan!e is bein

*rovided not on(% #or start-$* !a*ita( b$t a(so #or deve(o*ent !a*ita( b% t&e

"nan!ia( interediar%'

B' C$stodia( servi!es

It is %et anot&er (ine o# a!tivit% &i!& &as ained i*ortan!e, o# (ate' Under t&is, a

"nan!ia( interediar% ain(% *rovides servi!es to !(ients, *arti!$(ar(% to #orein

investors, #or a *res!ribed #ee' C$stodia( servi!es *rovide aen!% servi!es (i+e sa#e

+ee*in o# s&ares and debent$res, !o((e!tion o# interest and dividend and re*ortin

o# atters on !or*orate deve(o*ents and !or*orate se!$rities to #orein investors'

8' Cor*orate advisor% servi!es

Finan!ia( interediaries *arti!$(ar(% ban+s &ave set $* !or*orate advisor% servi!es

bran!&es to render servi!es e0!($sive(% to t&eir !or*orate !$stoers' For instan!e,

soe ban+s &ave e0tended !o*$ter terina(s to t&eir !or*orate !$stoers so t&at

t&e% !an transa!t soe o# t&eir i*ortant ban+in transa!tions b% sittin in t&eir

on o2!e' /s ne aven$es o# "nan!e (i+e E$ro (oans, DRs et!' are avai(ab(e to

!or*orate !$stoers t&is servi!e is iense &e(* to t&e !$stoers'

1' Se!$riti)ation

Se!$riti)ation is a te!&ni$e &ereb% a "nan!ia( !o*an% !onverts its i((-(i$id, non-

neotiab(e and &i& va($e "nan!ia( assets into se!$rities o# sa(( va($e &i!& are

ade tradab(e and trans#erab(e' / "nan!ia( instit$tion i&t &ave a (ot o# its assets

b(o!+ed $* in assets (i+e rea( estate, a!&iner% et!', &i!& are (on ter in nat$re

and &i!& are non-neotiab(eW In s$!& !ases, se!$riti)ation o$(d &e(* t&e "nan!ia(instit$tion to raise !as& aainst s$!& assets b% eans o# iss$in se!$rities o# sa((

va($es to t&e *$b(i!' Li+e an% ot&er se!$rit%, t&e% !an be traded in t&e ar+et'

11' Derivative se!$rit%

/ derivative se!$rit% is a se!$rit% &ose va($e de*ends $*on t&e va($es o# ot&er

basi! variab(es ba!+in t&e se!$rit%' In ost !ases, t&ese variab(es are not&in b$t

t&e *ri!es o# traded se!$rities' / derivative se!$rit% is basi!a((% $sed as a ris+

anaeent too( and it is restored to !over t&e ris+s d$e to *ri!e Q$!t$ations b%

t&e investents anaer' Derivative &e(*s to brea+ t&e ris+ into vario$s

!o*onents s$!& as !redit ris+, interest rate ris+, e0!&ane rates ris+ and so on' Itenab(es t&e vario$s ris+ !o*onents to be identi"ed *re!ise(% and *ri!ed t&e and

even traded t&e i# ne!essar%'

1H' Ne *rod$!ts in #ore0 ar+et

Ne *rod$!ts &ave a(so eered in t&e #ore0 ar+ets o# deve(o*ed !o$ntries' Soe

o# t&ese *rod$!ts are %et to a+e #$(( entr% in Indian ar+ets' /on t&e t&e

#o((oin are t&e i*ortant ones:


25/27

a7 Forard !ontra!ts

b7 O*tions

!7 Sa*s

1' Letter o# !redit 5LOC7

LOC is an arraneent o# a "nan!in instit$tion=ban+ o# one !o$ntr% it& anot&erinstit$tions = ban+ = aent to s$**ort t&e e0*ort o# oods and servi!es so as to

enab(e t&e i*orters to i*ort no de#erred *a%ent ters' T&is a% be ba!+ed b%

a $arantee #$rnis&ed b% t&e instit$tion = ban+ in t&e i*ortin !o$ntr%' T&e LOC

&e(*s t&e e0*orters to et *a%ent iediate(% as soon as t&e oods are s&i**ed'

T&e reatest advantae is t&at it saves a (ot o# tie and one% on $t$a(

veri"!ation o# bona"des, so$r!e o# "nan!e et!' It serves as a so$r!e o# #ore0'

SE>I $ide(ines

Debent$re iss$e

T&e ao$nt o# or+in !a*ita( debent$re s&o$(d e0!eed H o# t&e ross !$rrent

assets'

Rate o# interest s&o$(d be de!ided b% t&e !o*an%

Credit ratin is !o*$(sor% #or a(( debent$res e0!e*tin debent$res iss$ed b%

*$b(i! se!tor !o*anies, *rivate *(a!eent o# NCD it& "nan!ia( instit$tions and

ban+s'

Debent$res are redeeed a#ter t&e e0*ir% o# seven %ears #ro t&e date o#a((otent' NCD is *eritted to be redeeed X 9 *rei$'

FCD= PCD= NCD iss$ed #or a *eriod o# ore t&an 1B ont&s are to be !o*$(sori(%

!redit rated

Converted debent$res are treated as e$it% 51B7

FCDs &avin ore t&an ont&s o# !onversion i(( not be *eritted

Iss$e s&o$(d be stated in t&e *ros*e!t$s ? interest rate s&o$(d be deterined b%

t&e iss$er

Conversion a#ter 1B ont&s #ro t&e date o# a((otent b$t be#ore ont&s i((

be o*tiona( X t&e &and o# debent$re &o(ders

$ide(ines #or t&e *rote!tion o# debent$re &o(ders

Servi!in o# debent$res

DRR s&a(( be !reated b% t&e !o*anies iss$in debent$res on t&e #o((oin

E0istin !o*anies need !reate DRR $* to t&e date o# !oer!ia( *rod$!tion' It

s&a(( be !reated in e$a( insta((ents #or t&e reainin *eriod


26/27

For ne !o*anies, !reation o# DRR i(( !oen!e #ro t&e %ear t&e !o*an%

earns *ro"t

In !ase o# PCDs, DRR s&o$(d be !reated on(% #or NCD *ortion

DRR s&o$(d be !reated $*to 9 o# t&e ao$nt be#ore rede*tion !oen!es

;it&draa( i(( be *eritted on(% a#ter 1 (iabi(it% a!t$a((% redeeed

DRR s&o$(d be treated as a *art o# enera( reserve #or t&e *$r*ose o# bon$s iss$e In !ase o# ne !o*anies, distrib$tion o# dividend s&a(( re$ire a**rova( o#

tr$stees to t&e debent$re iss$e and t&e (ead instit$tion, i# an%

In !ase o# e0istin !o*anies, *rior *erission o# t&e (ead instit$tion #or de!(arin

dividend e0!eedin H or as *er t&e (oan !ovenants is ne!essar% i# t&e !o*an%

does not !o*(% it& instit$tiona( !onditions reardin interest and debt servi!e

!overae ratio

Prote!tion o# interest o# debent$re &o(ders

Tr$stees to t&e debent$re iss$e s&a(( be vested it& t&e re$isite *oers #or

*rote!tin t&e interest o# debent$re &o(ders

Lead= investent instit$tions i(( onitor t&e *roress in res*e!t o# debent$res

#or *ro4e!t "nan!e, odernisation, diversi"!ation et!' t&e (ead ban+ i(( onitor t&e

debent$re raised #or or+in !a*ita( o# t&e !o*an%'

Co*an% s&a(( "(e it& SE>I, a !erti"!ate #ro t&eir ban+ers t&at t&e assets on

&i!& se!$rit% is to be !reated are #ree #ro en!$bran!es and ne!essar%

*erissions

Se!$rit% s&o$(d be !reated it&in ont&s #ro date t&e iss$e o# debent$res'

Can be !reated it&in 1H ont&s *rovided H *ena( interest is *aid to debent$re

&o(ders I# se!$rit% is not !reated even a#ter 1B ont&, a eetin s&a(( be !a((ed it&inH1

da%s to e0*(ain t&e reasons t&ereo# ? t&e date b% &i!& it s&o$(d be !reated

Tr$stees o# t&e debent$re &o(ders i(( s$*ervise t&e i*(eentation o# t&e

!onditions reardin !reation o# se!$rit% #or t&e debent$re ? DRR

Tr$stees ? instit$tiona( debent$res s&o$(d obtain t&e !erti"!ate #ro t&e

!o*an%s a$ditors

SE>I $ide(ines on >oo+ >$i(din

T&e o*tion o# 1 boo+ b$i(din s&a(( be avai(ab(e on(% to iss$er !o*anies

&i!& *ro*ose to a+e an iss$e o# !a*ita( o# above Rs'1 !rores

>oo+-b$i(din s&a(( be #or t&e *ortion ot&er t&an t&e *rooters ? to *eranent

e*(o%ees o# iss$er !o*an% ? s&are &o(ders o# *rootin !o*anies in !ase ne

!o*an%? s&are&o(ders o# ro$* !o*anies in !ase o# e0istin !o*anies

T&e dra#t *ros*e!t$s s&a(( be "(ed it& SE>I b% t&e (ead er!&ant ban+er


27/27

T&e iss$er !o*an% a#ter re!eivin "na( observations, i# an%, on t&e oJer

do!$ent #ro SE>I a+e an advertiseent in nes*a*er'

>oo+ r$nners ? t&e !o*an% s&a(( deterine t&e iss$e *ri!e based on t&e bids

re!eived t&ro$& s%ndi!ate ebers

On!e *ri!e is "0ed a(( t&ose bidders &ose bids &ave #o$nd to be s$!!ess#$( s&a((

entit(ed #or a((otent o# se!$rities On t&is basis t&e in#oration reardin sae i(( be intiated iediate(% to t&e

investors

sapm - module i

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