CAPITAL

MARKET:
PRIMARY & SECONDARY
MARKET
PRIMARY MARKET
§ It deals with new securities being issued for the first time. The essential function of a
primary market is to facilitate the transfer of investible funds from savers to
entrepreneurs.
§ Examples of the investors in this market are banks, financial institutions, insurance
companies, mutual funds and individuals.
SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)
§ SEBI was established by the Government of India on 12 April 1988 as an interim
administrative body under Finance Ministry to promote orderly and healthy growth of
securities market and for investor protection.
§ The SEBI was given a statutory status on 30 January 1992. So, SEBI is both a statutory &
regulatory body. SEBI is a non-constitutional body.
§ Its headquarters is at the business district at the Bandra Kurla Complex in Mumbai, but it
also possesses Northern, Eastern, Southern and Western regional branch offices in the
cities of New Delhi, Kolkata, Chennai and Ahmedabad, respectively.
Management of SEBI:
The Board shall consist of the following members, namely:—
1. A Chairman nominated by Central Government.
2. Two members from amongst the officials of the Ministry of Finance.
3. One member from RBI.
4. Five other members of whom at least three shall be the whole-time members, to be
nominated by the Central Government.
Functions of SEBI:
Its functions are of three types or categories:
1. Quasi-Legislative Functions: These include drafting legislature with respect to the
capital
markets
2. Quasi-Executive Functions: The implementation of the legislation also falls to SEBI. And
when necessary they can conduct investigations as well about any wrongdoings.
3. Quasi-Legal Functions: The SEBI also has the authority to conduct hearings and pass
rulings and judgments.
Powers of SEBI
1. Registration of brokers and sub-brokers and other players in the market.
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2. Registration of Mutual Funds.
3. Regulation of Stock Bankers and portfolio exchanges, and merchant bankers.
4. Prohibition of fraudulent and unfair trade practices.
5. Calling for information by undertaking inspection, conducting enquiries and audits of
stock exchanges and intermediaries.
6. Levying fee or other charges for carrying out the purposes of the Act.
7. Investor education
8. Training of intermediaries
9. Promotion of fair practices and code of conduct of all SRO’s.
10. Conducting research and publishing information useful to all market participants.
INITIAL PUBLIC OFFERING (IPO)
§ It is the first sale of shares by the
company to public. When a
company makes an IPO the shares
of the company becomes widely
held. Companies offering an IPO
are sometimes new, young
companies, or companies which
have been around for many years
and have finally decided to go
public.
§ The money paid by investor goes directly to the company in contrast to the shares at stock
exchange where money passes between investors.
FRESH ISSUE OF SHARES
§ New shares are issued by the company to public investors. The issued share capital of the
company increases. The percentage holding of existing shareholders will come down due
to the issuance of new shares.
OFFER FOR SALE
§ Existing shareholders such as financial institutions offer a part of their holding to the
public investors. The share capital of the company does not change since the company is
not making a new issue of shares. The proceeds from the IPO go to the existing
shareholders who are selling the shares and not to the company.
FURTHER PUBLIC OFFER (FPO)
§ A follow-on public offer is made by an issuer that has already made an IPO in the past and
now makes a further issue of securities to the public.
UNDERWRITER:
§ Any company when decides to go public
generally prefers the IPO route, which it does
with the help of big investment bankers also
called underwriters.
§ These underwriters are responsible for
making the public issue successful and find
the buyers for company’s shares. They are
paid a certain amount of commission to do
this work.
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RIGHTS ISSUE
§ This is a privilege given to existing shareholders to subscribe to a new issue of shares
according to the terms and conditions of the company.
PRIVATE PLACEMENT
§ Private placement (or non-public offering) is a funding round of securities which are sold
not through a public offering, but rather through a private offering, mostly to a small
number of chosen investors like financial institutions and banks.
e-INITIAL PUBLIC OFFER (e-IPOs)
§ A company proposing to go public through the on-line system of the stock exchange has
to enter into an agreement with the stock exchange. This is called an e-Initial Public Offer
(e-IPO).

SECONDARY MARKET
§ It is a market for the purchase and sale of existing securities- shares, debentures, bonds.
§ A secondary offering is not dilutive to existing shareholders, since no new shares are
created. The proceeds from the sale of the securities do not benefit the issuing company.
STOCK EXCHANGES OF INDIA:
§ Indian secondary market consists of stock exchanges where securities issues by central
government, state government, public bodies and other companies are traded.
§ To trade in a stock exchange, the companies must be listed there. The exchange imposes
rules and regulations on the firms & brokers for efficient trading and provides the facility
for the issue and redemption of securities.
§ Those companies which are not listed on the stock exchanges are traded Over the Counter
(OTC). These are the smaller, riskier, and less liquid companies. Generally, they do not
meet the requirements of getting listed on the stock exchanges and hence trade over the
counter.
§ Timeline:
v Real beginning was with the Companies Act 1850 which generated interest in
corporate securities.
v BSE started in 1875.
v Stock Exchange in Ahmedabad, Kolkata & Madras followed.
v NSE was setup in 1992 and started operations from 1994.
§ Regulation:
v Stock Market in India is regulated by central government under Securities Contract
(Regulation) Act 1956.
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v Securities and Exchange Board of India (SEBI) Act 1992 established SEBI to protect
investors and promote securities market. They supervise the securities market.
SOME PROMINENT STOCK EXCHANGES IN INDIA
BOMBAY STOCK EXCHANGE (BSE)
§ Established in 1875, BSE (formerly known as Bombay Stock Exchange Ltd.), is Asia's first &
the fastest Stock Exchange in world with the speed of 6 micro seconds and one of India's
leading exchange groups.
§ In 1956, the government recognized BSE as the first national stock exchange under the
Securities Contracts (Regulation) Act.
§ BSE provides an efficient and transparent market for trading in equity, debt instruments,
derivatives, mutual funds. It also has a platform for trading in equities of small-andmedium
enterprises (SME).
§ Around 6000 companies are publicly listed on the BSE.
§ The BSE is the world’s 8th largest stock exchange (2021).
NATIONAL STOCK EXCHANGE (NSE)
§ The National Stock Exchange (NSE) is India's leading stock exchange covering various cities
and towns across India.
§ It was setup in 1992 and started operations from 1994.
§ Overtime, the NSE cornered almost the complete market share in equity derivatives
trading, putting BSE firmly into a distant second place.
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§ It was the first exchange in the country to provide a modern, fully automated screenbased
electronic trading system that offered an easy trading facility to the investors
spread across the length and breadth of the country.
§ NSE is the world’s 9th largest stock exchange as of 2021.
Allotment of Shares under IPO- New Rules wef. April 2022:
A. Companies with a profitability track record:
1. Retail Investors = 35%
2. Qualified institutional investors (QII)= 50% ( Anchor = upto 60% of 50 = 30%)
3. Non-Institutional Investors (NNI):
a. 5% of issuance is reserved for small size HNIs with application between ₹2 lakh
and ₹10 lakh
b. 10% is for HNIs who are putting above ₹10 lakh for an IPO.
B. Companies not meeting profitability track record:
1. Retail = 10%
2. QIB= 75% ( Anchor = upto 60% of 75 = 45%)
3. NII = 15%
Retail Investors:
§ SEBI has allowed individual investors applying
in IPOs and public offers to use Unified
Payment Interface (UPI) for applications up to
Rs 5 lakh, from the current limit of Rs 2 lakh per
application.
§ The new guidelines of enhanced limit for UPI
based applications for public issues will come into force from 1st May 2022.
Qualified Institutional Investor (QII):
QIBs are entities such as mutual funds, pension funds and foreign portfolio investors (FPIs)
registered with market regulator, the Securities and Exchange Board of India (Sebi).
Lock-in period for Anchor investors
Starting April 1, 2022, the lock-in period for anchor investors has been extended. 50% of
shares allotted to anchor investors would be subject to a 90-day lock-in.
Offer for Sale conditions
The shareholders who hold more than 20% of the pre-issue shareholding, can sell only up to
half of their shareholding when going public. If they own below 20%, the limit to sell is set
up
to 10% shareholding in IPO via OFS (Offer for Sale).
UPI is an instant payment system
developed by the National Payments
Corporation of India(NPCI). It allows
instant transfer of money between
any two individuals' bank accounts.