The primary issue market is that component of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock. In the case of a new stock issue, this sale is an initial public offering (IPO). Primary markets create long term instruments through which corporate entities borrow from capital market. Primary market provides opportunity to issuers of securities, government as well as corporate, to raise resources to meet their requirements of investments and/or discharge some obligation. Primary market also known as New Issue Market as it deals with new securities which are not previously available and are offered for the investment to the public for the first time. The primary market enjoys neither any tangible form nor any administrative organizational set-up and is not subject to any centralized control and administration for the execution of Continue reading
Indian Financial Market
Clearing and Settlement of Futures and Options
National Securities Clearing Corporation Limited (NSCCL) undertakes clearing and settlement of all trades executed on the futures and options (F&O) segment of the NSE. It also acts as legal counterparty to all trades on the F&O segment and guarantees their financial settlement. Clearing Entities Clearing and settlement activities in the F&O segment are undertaken by NSCCL with the help of the following entities: Clearing members: In the F&O segment, some members, called self clearing members, clear and settle their trades executed by them only either on their own account or on account of their clients. Some others called trading member–cum–clearing member, clear and settle their own trades as well as trades of other trading members (TMs). Besides, there is a special category of members, called professional clearing members (PCM) who clear and settle trades executed by TMs. The members clearing their own trades and trades of others, and the PCMs Continue reading
Financial Market Regulation: Meaning and Objectives
Financial Market Regulation The nature of securities markets is such that they are inherently susceptible to failures due to the existence of information asymmetries and existence of high transaction costs. It needs to be emphasized that when securities markets come into existence, the interest of the member brokers are taken care of through margin requirements, barriers to entry of membership, listing agreements. However the investors/clients who buy and sell via their brokers are not able to form an organization to safeguard their interests due to the cost of creation of such organizations and free rider problems. The distinctive nature of the market can be observed with reference to the commodity, its quality, the system of transactions and the participants in the market, as follows: (a) the commodity(the security)has a life to perpetuity. (b) while the outcome of the contract say the redemption of debt is certain, in the case of Continue reading
Some Facts about Over The Counter Exchange of India(OTCEI)
In 1992 , to provide improved services, the country’s first ring less, scrip less and electronic stock exchange Over The Counter Exchange of India(OTCEI) was created by some of the prominent financial institutions like UTI, ICICI, IDBI , SBI Capital Markets, IFCI, GIC, Canbank Financial Services. The trading at OTCEI is done over the centers across the country. The securities traded at OTCEI are classified into listed securities, permitted securities and initiated debentures. The feature of this exchange is that instead of share certificate, a counter receipt is generated out at the counter which substitutes the share certificate and the same is used for all transactions. Recommended Reading: Over The Counter Exchange of India(OTCEI) Trading on OTCEI Trading on Over The Counter Exchange of India(OTCEI) is the first of its kind in India. It is fully computerized set-up where trading takes place through a network of computers at the member/dealer Continue reading
Advantages of Rolling Settlement
Rolling settlement system replaced the badla system from July 2, 2001. On July 2, 2001, 215 scrips were brought under the riling systems, bringing the total to 414 scrips. By January 2, 2002 all scrips were brought under compulsory rolling mode. Internationally most developed countries follow a T+3 cycle and are aiming to move to a T+1 cycle (next day settlement) or a T+0 cycle where trades are settled on the day they are executed (same evening settlement). This is system of T+0 is prevalent in Switzerland and volumes are phenomenal when compared to the T+3 system. Indian stock markets moved to the T+3 system from April 2002, in line with the recommendations of the “Group of Thirty” which suggested it as minimum international standard. The rolling settlement has many advantages. One, it reduces speculation and arbitrage in scrips as settlement occurs on a daily basis. Thus, there would be Continue reading
Role of Stock Markets in an Economy
Financial market is one of the components of financial system. Financial market facilitates the efficient allocation of financial resources of the economy so as to achieve socially desirable and economically productive purposes. Existence of an efficient financial market is a pre requisite for promoting savings, investments and consequent economic growth. Financial markets are extremely important to the general health of an economy. The main function of financial system, viz. capital formation takes place practically in financial markets. Financial institutions work as financial intermediaries and establish link between suppliers and users of funds in financial market. Financial products, including the supply of credit, mortgages, company shares and insurance, are bought and sold in primary and secondary financial markets. Financial products and securities are first issued into primary financial markets, which is where all financial products originate and where contracts are first drawn up. Secondary markets exist to enable buyers and sellers Continue reading