sapm - module i
TRANSCRIPT
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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$r% and !or*orate bonds e0!e*t t&at t&eir
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interest in!oe is e0e*t #ro #edera( in!oe ta0ation'
Cor*orate >onds : are t&e eans b% &i!& *rivate "rs borro one% dire!t(% #ro
*$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$re ar+et'
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Fi -1
E0!e*t derivative ar+et ea!& o# t&e above &as to !o*onents vi)' t&e *riar%
and se!ondar% ar+et' Mar+et &ere ne se!$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'
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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$ber o# s&ares 5or an% ot&er
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se!$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
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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 $ote-
drivers s%stes and an order- driven s%ste'
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Tradin and Sett(eent:
Tradin:
Ea!& sto!+ e0!&ane &as !ertain (isted se!$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$!& a
trans#oration so ra*id(%' T&e +ind o# s!reen based tradin s%ste ado*ted in India
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is re#erred to as t&e o*en E(e!troni! Liit Order >oo+ 5ELO>7 ar+et s%ste' T&e
+e% #eat$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'
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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
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*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:
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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$(ation #or t&ese interediaries &as been *res!ribed'
117 Redressa( o# investor rievan!es:
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Investor rievan!es &ave been on t&e rise, t&an+s to t&e ste*s ta+en b% SE>I'
1H7 Re$(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
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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$rae ar+et a+in b% 4obbers
!7 Provide (ines o# !redit to bro+erae "rs'
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Mar+et /b$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$str%
T&e "nan!ia( interediaries in India !an be traditiona((% !(assi"ed into to:
i' Ca*ita( ar+et interediaries
ii' Mone% ar+et interediaries
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T&e !a*ita( ar+et interediaries !onsist o# ter (endin instit$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'
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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
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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$it% *arti!i*ation'
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/ vent$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:
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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$a( insta((ents #or t&e reainin *eriod
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For ne !o*anies, !reation o# DRR i(( !oen!e #ro t&e %ear t&e !o*an%
earns *ro"t
In !ase o# PCDs, DRR s&o$(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$s s&a(( be "(ed it& SE>I b% t&e (ead er!&ant ban+er
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T&e iss$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