Indian Financial System Overview

MACRO FINANCIAL SERVICES
MBAA04C32
Prof. John Pradeep Kumar
KJSOM

Objectives
• To provide a basic understanding of concept and
functioning of commercial banking industry in India.
• To familiarize types of banking system regulation and
control.
• To equip the students with the major changes,
developments and innovations in the Indian Financial
System.
• To familiarize students with various management and
operational aspects of capital and money markets.

Learning Outcomes
• Appraise the monetary and credit policy of
RBI.
• Evaluate the role of financial intermediaries
• Analyse the various forms of raising the capital

COURSE CONTENTS
Unit 1
Financial System and Capital Markets 12
Hours
Financial Markets – Function of the Indian Financial System; Structure.
Primary Market in India - Types of Scripts; Issue of Capital; Primary Market
Intermediaries. Secondary Market–Listing, Online trading; Stock exchange– NSE,
BSE, India INX; Stock Indices; Role of FPI; Insider Trading; Investor Protection;
SEBI-Regulations.
Unit 2 Money and Debt Market
05 Hours
Money Market-Repos, Reverse Repos, T-Bills, Commercial Bills, Commercial
Papers & Certificates of Deposit; Debt Market in India

Unit 3 Commercial Banking
10 Hours
Evolution of Banking Institutions in India- Nationalization, Role of Commercial Banks in
the economy, Types of Commercial Banks, Sources of income for banks, Commercial
Banking products, Banking reforms after 1990. Role of developmental banks in India,
Banking Systems, E-Banking, Payment system, settlement system; Concept of Green
Banking, Green funding
Unit 4 Credit Control and Regulation
11 Hours
RBI and its Role, monetary and credit policy, CRR, SLR in Banks, Banking system and
Banks in India, The Banking Regulation (Amendment) Act, 2020. IRAC Norms (i.e, Income
Recognition and Asset Classification norms), Non-performing Assets, Securitization Act. E-
Banking, Payment system, settlement system, BASEL I, II and III, CRAR and RBI Prudential
norms on New capital Adequacy and framework

Reference Books
• Khan, M, Y. (2019). Indian Financial System. Tata McGraw Hill, New Delhi. (11 ed.)
• Koch W, Timothy. & Scott S, Macdonald. (2015). Bank Management. Thomson
(South-Western), India (8 ed.)
• Srivastava, R. M. (2019). Management of Indian Financial Institutions. Himalaya
Publishing House. (Revised edition)
• Srinivasan, N.P. and Saravanavel, P. (2001). Development Banking in India and
Abroad. Kalyani Publications, Ludhiana
• Prasanna, Chandra. (2017). Investment Analysis and Portfolio Management.
McGraw-Hill. (5 ed.)
• Bhole, L.M. and Mahakud, Jitendra. (2009). Financial Institutions and Markets (5th
ed.). New Delhi: Tata McGraw Hill.
• Gomez, Cifford (2010). Financial Markets, Institutions and Financial Services. New
Delhi: PHI Learning.
• Gordon and Natrajan (2011). Financial Markets and Services (6th ed.). New Delhi:
HPI
• Khan, M. Y. (2017). Financial Services. New Delhi: Tata McGraw Hill. (9th ed.).
• Pandian, Punithavathy (2009). Financial Markets & Services. New Delhi: Vikas
Publishing House

Unit 1
Financial System and Capital
Markets

Financial System
• The word "system", in the term "financial system",
implies a set of complex and closely connected or
intermixed institutions, agents, practices, markets,
transactions, claims, and liabilities in the economy.
• The financial system is concerned about money, credit
and finance - the three terms are intimately related yet
are somewhat different from each other.
i. Money refers to the current medium of exchange or
means of payment.
ii. Credit or loan is a sum of money to be returned
normally with interest; it refers to a debt of economic
unit.
iii. Finance is monetary resources comprising debt and
ownership funds of the state, company or person.

Definition
• Van Horne defined the financial system as “the
purpose of financial markets to allocate savings
efficiently in an economy to ultimate users
either for investment in real assets or for
consumption.”
• Christy has opined that the objective of the
financial system is to "supply funds to various
sectors and activities of the economy in ways
that promote the fullest possible utilization of
resources without the destabilizing consequence
of price level changes or unnecessary
interference with individual desires."

INDIAN FINANCIAL SYSTEM
• The economic development of a nation is reflected
by the progress of the various economic units,
broadly classified into corporate sector, government
and household sector. While performing their
activities these units will be placed in a
surplus/deficit/balanced budgetary situations.
• There are areas or people with surplus funds and
there are those with a deficit.
• A financial system or financial sector functions as an
intermediary and facilitates the flow of funds from
the areas of surplus to the areas of deficit.

Functions of the Financial System
1. Pooling of Funds
• In a financial system, the Savings of people are
transferred from households to business
organizations. With these production increases
and better goods are manufactured, which
increases the standard of living of people.
2. Capital Formation
• Business require finance. These are made
available through banks, households and
different financial institutions. They mobilize
savings which leads to Capital Formation.

3. Facilitates Payment
• The financial system offers convenient modes of payment
for goods and services. New methods of payments like
credit cards, debit cards, cheques, net banking, mobile
banking etc., facilitates quick and easy transactions.
4. Provides Liquidity
• In financial system, liquidity means the ability to convert
into cash. The financial market provides the investors the
opportunity to liquidate their investments, which are in
instruments like shares, debentures, bonds, etc. Price is
determined on the daily basis according to the operations
of the market force of demand and supply.

5. Short and Long Term Needs
• The financial market takes into account the
various needs of different individuals and
organizations. This facilitates optimum use of
finances for productive purposes.
6. Risk Function
• The financial markets provide protection against
life, health and income risks. Risk Management is
an essential component of a growing economy.

7. Better Decisions
• Financial markets provide information about the
market and various financial assets. This helps the
investors to compare different investment options and
choose the best one. It helps in decision making in
choosing portfolio allocations of their wealth.
8. Finances Government Needs
• Government needs huge amount of money for the
development of defense infrastructure. It also requires
finance for social welfare activities, public health,
education, etc. This is supplied to them by financial
markets.

9. Economic Development
• India is a mixed economy. The Government
intervenes in the financial system to influence
macro-economic variables like interest rate or
inflation.
• Thus, credits can be made available to
corporate at a cheaper rate.
• This leads to economic development of the
nation.

Structure of Financial System
The financial system consists of
1. Financial Institutions
2. Financial Markets
3. Financial Instruments/Assets/Securities
4. Financial Services

Financial Institutions
1. Regulatory – SEBI, IRDA, RBI
2. Intermediaries
 Banking
 Non-banking
3. Non-intermediary (IDBI, IFC, and NABARD,
Govt. provides assistance for specified
purposes, sector, region)

Financial Institutions
• A financial intermediary is an institution
which connects the deficit and the surplus.
• The best example of an intermediary can be
a bank which transforms the bank deposits to
bank loans.
• The role of financial intermediary is to channel
funds from people who have extra inflow of
money i.e., the savers to those who do not
have enough money to fulfill the needs or to
carry out the business activities i.e. the
borrowers.

Functions of Financial Intermediaries
Functions of Financial Intermediary are basically classified
in three parts which are as follows:
• Maturity transformation – Deals with the conversion
of short-term liabilities or deposits to long term assets.
Different dates of maturity depends on the preference
of the savers.
• Risk transformation – Conversion of risky investments
into relatively risk-free ones (diversification of funds
into different kinds of risks & return).
• Convenience denomination – Way of making the
unmatched matching which is matching
small deposits with large loans and large deposits with
small loans (like mutual funds).
• Financial Intermediaries are classified into two types
namely, Depository and Non-Depository Institutions.

Financial Markets
Financial Market is a mechanism that allows people
to indulge themselves in the buying and selling i.e.
trade of financial securities (for example stocks and
bonds), commodities (for example precious metals)
at prices that reflect the market’s effectiveness.
Following are the verticals of financial market:
1. Capital Market – Market where business
enterprises or government entities raise fund for
long term using the weapon of securities or
debts. It includes the Stock market (equities)
and Bond Market (debt) for fund raising.

3. Commodity Market – Commodity is a good for which
there is a demand by the people thus commodity market
is the market where such goods are traded.
4. Money Market – Deals with the assets involved in short-
term borrowing and lending with original maturities
ranging from a period of one year or even lesser time
frames.
5. Derivative Market – The derivative market is the financial
market meant for derivatives. The financial
instruments like the futures contracts or options, which
are derived from other forms of assets, are traded in
these markets.
6. Insurance Market – Deals with the trading of insurance
policies.

3. Futures Market – A vertical in financial market where
people can trade standardized futures contracts which
is a contract to buy specific number of quantities of
a commodity or financial instrument at a specified
price with the delivery of the commodity or financial
instrument set at a specified time in the future.
4. Foreign Exchange Market – Also known as Forex is a
global, worldwide decentralized financial market
meant only for the trading of currencies.

Financial Instruments
• Financial Instrument is a trade-able asset
which can be in terms of cash, agreement,
evidence of an ownership in an entity; or a
contractual right which has the right to deliver
cash or any kind of asset.

The types of financial instrument used worldwide are in the form
deposits, stock, and debt.
• Deposits – Deposit in a layman’s term, means to save or
to keep safely. Deposits can be made either with banking
or non-banking firm. Time deposits and demand deposits.
• Stock – Stocks represents the ownership of the issuing
company. It is a form of corporate equity ownership
where in the total stock of the company is divided into
shares and the individuals has the provision to trade the
shares in the exchange.
• Debts – Unlike the stocks, financial assets which are in the
form of debts create an obligation on the borrower of the
fund to repay the amount borrowed. The debt
instrument, thus in a sense, is a contract entered into by
the borrower and the lender which specifies the amount
of fund borrowed, period of borrow, the rate of interest
that will be charged and the repayment methods. Bonds
and debentures and term loan.

Financial Services
As the name suggests financial services are the
services provided by the Financial Institutions.
These services generally include the banking
services, Foreign exchange services, investment
services, insurance services and few others.
Following is a very brief description of the services
1. Banking Services – Includes all the operations
provided by the banks including to the simple
deposit and withdrawal of money to the issue of
loans, credit cards etc.
2. Foreign Exchange services – this includes the
currency exchange, foreign exchange banking or
the wire transfer

3. Investment Services – It generally includes
the asset management, hedge fund
management and the custody services.
4. Insurance Services – It deals with the selling
of insurance policies, brokerages, insurance
underwriting or the reinsurance.
5. Some of the other services include the
advisory services, venture capital, angel
investment, etc.

Primary market
• Primary market is a market for new issues or
new financial claims.
• Hence, it is called New Issue Market
• It deals with those securities which are issued
to the public for the first time.
• In this market, borrowers exchange new
financial securities for long term funds.
• These claims may be in the form of equity
shares, preference shares, debentures, rights
issues, deposits, etc.
Prof. John Pradeep, KJSOM 37

Types of Scrip’s
Instruments of issue:
• Traditionally, equity shares and preference
shares are issued by companies as ownership
capital and debentures and bonds as debt
capital.
• Recently, new instruments to meet the varied
needs of investors in terms of security, rate of
return, marketability and appreciation in value
are being issued by the companies.

New instruments
1. Secured premium notes (SPNs)
2. Equity shares with detachable warrants
3. Preference shares with warrants
4. Non-convertible debenture with detachable
equity warrants
5. Fully convertible cumulative preference shares
6. Zero interest fully convertible debentures
(FCDs)
7. Fully convertible debentures (FCDs) with
interest

8. Zero interest partly convertible debentures
(PCDs) with detachable and separately
tradable warrants
9. Zero interest bonds
10.Deep discount bonds
11.Option bonds
12.Bonds with warrants
13.Indian depository receipt (IDR)
14.Inflation-indexed bonds (IIBs)

Warrants
• These are also referred to as sweeteners.
• It is a security which entitles the holders to
purchase a specified number of shares at a
stated price before a stated date/period.
• A derivative security that gives the holder
the right to purchase securities (usually
equity) from the issuer at a specific price
within a certain time frame.
• They are issued with either debentures or
equity shares.

New instruments and their
characteristics
1. Secured premium notes (SPNs): are financial
instruments which are issued with detachable
warrants and are redeemable after certain period.
• SPN is a kind of non-convertible debenture (NCD)
attached with warrant.
• It can be issued by the companies with the lock-
in-period of say four to seven years.
• SPN holders will get principal amount with
interest on installment basis after lock in period
of said period. However, during the lock in period
no interest is paid.

• Thus, SPNs are nothing but a share warrant
which are only issued by the listed companies
after getting the approval from the central
government.
• SPN is a hybrid security i.e. it combines both
features of equity and debt products.

Features of a SPN
• SPN instruments are issued with a detachable warrant.
• These instruments have lock-in-period for 4 to 7 years.
• No interest is paid during the lock in period.
• After the lock-in-period, the holder may sell back the
SPN to the company.
• The detachable warrants are convertible into equity
shares provided the secured premium notes are fully
paid.
• The conversion of detachable warrants into equity has
to be done within the specified time.
• After the lock-in-period, the holder has an option to
sell back the SPN to the company at par value. If the
holder exercises this option, no interest/premium is
paid on redemption.

• In case the holder keeps his investment further,
he is repaid the principal amount along with the
additional interest/premium on redemption in
installments.
• SPN were so formulated that the return on
investment was treated as capital gain and not
regular income.
• Consequently, the rate of tax applicable was
lower.
• TISCO (Tata Iron and Steel Company) took the
lead in July, 1992 by making a mega rights issue
of equity shares and secured premium notes
aggregating to Rs. 1,212 crore.

2. Equity shares with detachable
warrants
• In this instrument, along with fully paid-up
equity shares, detachable warrants are issued
which entitle the warrant holder to apply for a
specified number of shares at a determined
price.
• Detachable warrants are registered separately
with the stock exchange and traded
separately.

3. Preference shares with warrants
• This instrument shall carry a certain number
of warrants entitling the holder to apply for
equity shares at ‘premium’ at any time in one
or more stages between the third and fifth
year from the date of allotment.
• From the date of allotment, the preference
shares with warrants should not be
transferred or sold for a period of three years.

4. Non-convertible debenture with
detachable equity warrants
• The holder of the instrument is given an
option to buy a specified number of shares
from the company at a predetermined price
with a definite time-frame.
• There is a specific lock-in-period after which
the holder can exercise his option to apply for
equity shares.

5. Fully convertible cumulative
preference shares
• This instrument has two parts –A and B. Part A
is convertible into equity shares automatically
on the date of allotment without application
by the allottee.
• Part B will be redeemed at par/converted into
equity after a lock-in period, at the option of
the investors.

6. Zero interest fully convertible
debentures (FCDs)
• No interest will be paid to the holders of this
instrument till the lock-in period.
• After a notified period, this debenture will be
automatically and compulsorily converted into
shares.
• Before the conversion of FCDs into equity, if
the company issues rights, it would be
available to the holders in the proportion
decided by the company.

7. Fully convertible debentures (FCDs)
with interest
• They do not yield any interest for a short
period (say, six months) after which the holder
has an option to apply for equities at
premium, without paying for the premium.
• However, a specified rate of interest is payable
on FCDs from the date of first conversion to
the date of second/final conversion, in lieu of
which shares are issued.

8. Zero interest partly convertible
debentures (PCDs) with detachable
and separately tradable warrants
• Such debenture have two parts: A and B.
• Part A is convertible into shares at a fixed amount
on the date of allotment.
• Part B, however, is non-convertible and is
redeemed at par after a specified period from the
date of allotment.
• It carries a detachable and separately traded
warrant with entitlement to (option of) equity
shares at a price to be determined by the issuing
company. Prof. John Pradeep, KJSOM 52

9. Zero interest bonds
• A Zero Coupon Bond is a debt security that is
sold at a discount and does not pay any
interest payments to the bondholder.
• In India, zero interest convertible bonds are
issued by companies.
• These bonds do not carry any interest till the
date of conversion and are converted into
equity shares at par or premium on the expiry
of a fixed period.

10. Deep discount bonds
• Deep Discount Bond is technically called a Zero
Coupon Bond. This means the deposit does not
give any interest payouts.
• There was the Narmada bond, which on an
investment of Rs.3600 promised to give Rs.1.10
lakhs, 20 years after 1993 .
• The ICICI Children’s Bond promised Rs.1 lakh on
an investment of Rs.7,000/-, 18 years after 1995.
• These bonds were at very attractive interest rates
of 18% and 16% respectively.

11. Option bonds
• Option bonds are option contracts in which the
underlying asset is a bond.
• The holder of a bond option owns the right to
buy or sell the bond prior to the expiration of the
option.
• Other than the different characteristics of the
underlying assets, there is no significant
difference between stock and bond options.
• Just as with other options, a bond option allows
investors the ability to hedge the risk of their
bond portfolios or speculate on the direction of
bond prices with limited risk.

12. Bonds with warrants
• When the investor buy a bond with an
attached warrant, the warrant gives the
investor the right to buy a certain number of
fixed-price shares of the stock of the company
that issues the bond.
• The investor are not obligated to purchase the
stock, and the price specified on the warrant
may be different from the price at which the
stock is trading on the day you buy your
bonds.

13. Indian depository receipt (IDR)
• A foreign company which is listed in stock
exchange abroad can raise money from Indian
investors by selling (issuing)shares.
• These shares are held in trust by a foreign
custodian bank against which a domestic
custodian bank issues an instrument called Indian
depository receipts (IDR), denominated in Indian
Currency.
• IDR can be traded in stock exchange like any
other shares and the holder is entitled to rights of
ownership including receiving dividend, rights
issue, etc.

Indian depository receipt
• It is opposite of GDR (Global depository
Receipt).
• Tata steel raised $500 million through GDR
which was listed on the London stock
exchange.
• The Standard Chartered Bank is the first
company to make use of IDRs to raise capital
in India.

14. Inflation-indexed bonds (IIBs)
• An inflation-indexed or inflation-linked bond is an
instrument designed to protect the purchasing
power of an investor's savings by indexing
interest and principal payments to a chosen price
index.
• As prices go up, so, too, do the payments from an
indexed bond, thereby protecting the holders of
indexed bonds from inflation.
• The real rate of return on an IIB is known in
advance, and the nominal return varies with the
rate of inflation realized over the life of the bond.

Issue of Capital in Primary Market
• Following are the ways by which a company
may raise capital in a primary market.
1. Public issue – IPO & FPO
2. Rights issue
3. Private placement
4. Offer for Sale

1. PUBLIC ISSUE
• It involves sale of securities to the public at
large.
• Anybody can subscribe for the securities.
• The issue of securities is through a
prospectus.
• Cost depends upon the size of the issue (8% -
10%)

'Initial Public Offering – IPO’
• An initial public offering (IPO) is the first time that
the stock of a private company is offered to the
public.
• IPOs are often issued by smaller, younger companies
seeking capital to expand, but they can also be done
by large privately owned companies looking to
become publicly traded.
• In an IPO, the issuer obtains the assistance of
an underwriting firm, which helps determine what
type of security to issue, the best offering price, the
amount of shares to be issued and the time to bring
it to market.

Latest IPOs
Equity Issue price
Listed
Date Open Close
Listing Gains
(%ge)
Silver Pearl Ho 18.00 17th Jun 16.00 15.20 -15.56
Aether Ind 642.00 3rd Jun 784.00 776.75 20.99
eMudhra 256.00 1st Jun 255.00 258.85 1.11
Ethos 878.00 31st May 808.10 805.65 -8.24
Delhivery 487.00 24th May 541.00 537.25 10.32
Venus Pipes 326.00 24th May 352.00 351.75 7.9
Prudent Advisor 630.00 20th May 502.10 562.70 -10.68
LIC India 949.00 17th May 867.20 875.45 -7.75
Rainbow Child 542.00 10th May 506.00 450.10 -16.96
Campus Active 292.00 9th May 355.00 378.60 29.66
Fone4 Comm 10.00 6th May 9.03 9.50 -5
Nanavati Vent 50.00 6th May 50.00 -

‘Follow on Public Offering’ (FPO)
• An issue of shares to investors by a public
company that is already listed on an exchange.
• An FPO is essentially a stock issue of
supplementary shares made by a company
that is already publically listed and has gone
through the IPO process.
• FPO is issued for restructure the business, new
business, expand the existing business.
• FPO depends on the market value of the existing
company shares and the reason for raising funds.

Latest
• Ruchi Soya had come with its FPO, and the
window was opened on 24 March 2022.
• Agri-based FMCG company with Patanjali as
its parent company will come up with a follow
on public offer to aggregate Rs. 4350 crore.
The FPO is in line with the company's plan to
pare debt and for complying with the
minimum shareholding norm.

Press Trust of India | New Delhi
August 6, 2017 Last Updated at 16:38 IST
• Board of PNB has given approval for raising
equity capital to the tune of Rs 3,000 cr through
FPO.
• Allahabad Bank, Andhra Bank, Bank of India,
Central Bank of India, Dena Bank, IDBI Bank,
Indian Bank and Punjab National Bank (PNB) have
already got permission from the government to
raise capital from the market through QIP or FPO
or preferential allotment.

1. General Information
2. Capital structure of the company
3. Terms of the present issue
4. Particulars of the Issue
5. Company, Management and Project
6. Particulars regarding the other listed companies
7. Details of the outstanding litigations
8. Management perception of risk factors like
sensitivity to foreign exchange rate fluctuations
9. Justification of the issue premium
The salient features of the prospectus

10. Financial Information (Balance sheet data:
equity capital, reserves, Profit and loss data)
11. Statutory and other information
a. Minimum subscription
b. Details of the fee payable to Advisers, Registrar,
Managers, Trustees of the debenture holders and
underwriters.
c. Details regarding the previous issues if any.

2.Rights issue
 Rights issue involves selling of equity shares to
the existing shareholders of the company.
 They are offered in proportion to their existing
share ownership.
 New equity share must be issued first to existing
shareholders on a pro-rata basis.
 Shareholders can surrender their right through
special resolution.

Conditions to Issue Right shares
 Right shares must be offered to the equity shareholders in
proportion to the capital paid on those shares.
 A notice should be issued to specify the number of shares
issued.
 The time given to accept the right offer should not be less
than 15 days.
 The notice also should state the right of the shareholders
to renounce the offer in favour of others.
 After the expiry of the time given, the BOD can dispose
the unsubscribed shares in a beneficial manner to the
company.

3. Private Placement
• A private placement is an offering of securities
that is not registered with the SEBI.
• Private placement securities are sold to
accredited or sophisticated investors only.
• Financial Institutions, Mutual Funds, Banks, HNIs,
Venture Capitalist, and so on.
• Issue houses can sell these shares at a premium
to the public.

• Here, the promoter places his shares with an
investment banker (bought out dealer or
sponsor) who offer it to the public at a later date.
• The wholesaler is invariably a merchant banker or
some times just a company with surplus cash.
• The hold on period may be as low as 70 days or
more than a year.
• Boughs out dealer sheds the shares at a premium
to the public.
4. Bought out Deals (Offer for Sale)

'Initial Coin Offering (ICO)'
• DEFINITION of 'Initial Coin Offering (ICO)'
• An unregulated means by which funds are raised
for a new crypto currency venture. An Initial Coin
Offering (ICO) is used by startups to bypass the
rigorous and regulated capital-raising process
required by venture capitalists or banks.
• In an ICO campaign, a percentage of the crypto
currency is sold to early backers of the project in
exchange for legal tender or other crypto
currencies, but usually for Bitcoin.

1. Book Building Issue
2. Fixed Price Issue
Pricing of (public) issues

 A process of raising capital through public
offerings-both IPOs and FPOs to aid price and
demand discovery.
 Bids are collected from investors at various
prices, which are within the price band.
 Institutional and retail investors can apply.
 The issue price is determined after the bid
closure based on the demand generated in the
process.
Book Building

• In a Fixed Price Issue the company raising
funds decides the price at which it will sell
(issue) its shares to the public and the same is
printed in the Offer Document.
• This issue is kept open for 3‐10 working days.
Fixed Price Issue

Primary Market Intermediaries
Several intermediaries carry out activities of
different nature in the new issue market. The
intermediaries includes ,
 Merchant Bankers/Lead Managers
 Underwriters
 Bankers to the issue
 Registrars to the issue (Share transfer
agents)
 Debenture trustees
 Brokers

1. Merchant Bankers/Lead
Managers…
 Merchant banker means any person/ institution who is engaged
in the business of issue management.
 Either by making arrangements regarding selling, buying or
subscribing to securities as manager,
 consultant, advisor or rendering corporate advisory services in
relation to such issue management.
 This is the most important intermediary in primary market.
 Management of public issues is the most important function of
merchant banker.
(SEBI regulations 1992 prescribe that all the public issue should be
managed by at least one merchant banker function).

Roles and responsibilities…
Contract
Registration
Minimum underwriting.
‘Due diligence certificate’.
Documents submission.
Disclosure to SEBI.
Other duties.

2. Under Writers…
 Under writers are financial institutions who makes a firm
commitment that they will take up the shares up to a certain
amount of the public does not subscribe to it.
 This is an agreement with one or more institutions and guarantee
of the marketability of shares.
 Under writing is mandatory for the public issue.
 Under writers are appointed by company in consultation with the
managers to the issue.
 Financial institutions, bankers, members of stock exchanges,
Investment companies, trusts etc. can act as an under writer.
 Under writers charge a commission for their service which is
known as under writing commission.

Role and Responsibility…
Registration.
Agreement.
Code of conduct.
Compliance.
Termination of agreement.

3. Bankers to the Issue..
Bankers who are engaged in the function of
acceptance of applications for share and
debentures along with application money to
the respect of issue of securities and also
refund of application money to the applicant
to whom securities could not be allotted.

Role and Responsibilities…
Registration.
Fee to SEBI.
Contract.
Daily statement.
Information to SEBI.
Books and records.
Code of conduct.

4. Registrar to the Issue (Registrar &
Share transfer agent)
Registrar to an Issue means the person appointed by a body
corporate or any person or group of persons to carry on the
following
i. Collecting applications from investors in respect of an issue;
ii. Keeping a proper record of applications and monies
received from investors or paid to the seller of the
securities. And
iii. Assisting body corporate or person or group of persons in-
a) Determining the basis of allotment of securities in
consultation with the stock exchange;
b) Finalising of the list of persons entitled to allotment of
securities;
c) Processing and dispatching allotment letters, refund
orders or certificates and other related documents in
respect of the issue.

"Share Transfer Agent" means-
i. Any person, who on behalf of any body
corporate maintains the record of holders of
securities issued by such body corporate and
deals with all matters connected with the
transfer and redemption of its securities.
ii. A department or division (by whatever name
called) of a body corporate performing the
activities referred in sub-clause (i) if, at any time
the total number of the holders of securities
issued exceed one lakh.

Registrar and transfer agents are of two
categories such as
category 1 :- which carry on activities of
both registrars to an issue and also of
share transfer agent.
category 2 :- which carry on activities
either of a registrar to an issue or as a share
transfer agent.

Functions…
 Designing and drafting the format of application form
for the merchant bankers or lead managers.
 Identifying collection centers of application forms.
 Opening collection accounts with banks
 Collection application forms from bankers.
 Scrutinizing the application form.
 Informing the merchant bankers and the company of
the total subscriptions.
 Preparing allotment register.
 Finalizing the allotment as per the basis approved by
the stock exchanges.
 Ensuring that the corporate action for creating of
shares to the D- mat accounts of the applicants is done.
 Printing refund orders and letters of allotment.
 Submitting all statements to the company for their
final approval.
 Printing registrar of members.
 Helping the company in getting the shares listed.

5. Debenture Trustees…
 Trustees who are appointed to safeguard the
interests of the debenture holders are called
‘Debenture trustee’.
 They are to be appointed before issue of
debentures by a company.
 No persons can act as debenture trustee unless a
certificate of registrar has been obtained from
SEBI for the purpose.
Eligibility:
 A scheduled bank carrying on commercial
activities; or
 A public financial institutions within the meaning
of Sec 4-A of the companies Act,1956; or
 An insurance company; or
 A body corporate.

Registration fee to be paid by the
Debenture Trustee
Type Fees prescribed
in Debenture
Trustee
Regulations
Tenure (years)
Initial
Registration
₹ 20,00,000/- 5
Permanent
Registration
₹ 9,00,000/- After completion
of initial period
of 5 years.

Roles & Responsibilities…
Registration
Consent
Inspection
Possession
Protection of interest
Due diligence
Meeting
Code of conduct
Maintenance of books of accounts
Information to SEBI

6. Brokers to an Issue…
 Intermediaries that are responsible for
procuring the subscription to the issue
from the prospective investor are called
‘Broker to the issue’.
 They proving a vital connection link
between the prospective investors and the
issuer.
 They assist in the speedy subscription of
issue by the public.
 Appointment of broker is however not
compulsory, unless permitted by stock
exchanges.
 They helps the investors make a right
choice of the company for making
investment.

Functions…
• Seeks Best Deal
• Handling the Trade
• Paid on Commission
• Test and Registration
• Requirements
• Pay and Potential

SECONDARY MARKET
• Secondary Market refers to a market where
securities are traded after being initially
offered to the public in the primary market
and/or listed on the stock exchange.
• The stock exchanges along with a host of
other intermediaries provide the necessary
platform for trading in secondary market and
also for clearing and settlement.

• The securities are traded, cleared and settled
within the regulatory framework prescribed
by the Exchanges and the Securities and
Exchange Board of India (SEBI).
• With the increased application of information
technology, the trading platform of the stock
exchange is accessible from anywhere in the
country through its trading terminals.

Functions of Secondary Markets
• Provides regular information about the value of
security.
• Helps to observe prices of bonds and their interest
rates.
• Offers to investors liquidity for their assets.
• Secondary markets bring together many interested
parties.
• It keeps the cost of transactions low.

Stock Exchange

STOCK EXCHANGE
EASY WAY TO EARN MONEY,
EASY WAY TO LOOSE MONEY

STOCK EXCHANGE
• Definition of Stock Exchange : The Securities
Regulation Act of 1956 defined stock exchange
as “an association, organization, or a
individual which is established for the
purpose of assisting, regulating, and
controlling business in buying ,selling and
dealing in securities.”

Functions of Stock Exchange
1. Continuous and ready market for securities
2. Facilitates evaluation of securities
3. Encourages capital formation
4. Provides safety and security in dealings
5. Regulates company management
6. Facilitates public borrowing
7. Provides clearing house facility
8. Facilitates healthy speculation
9. Serves as Economic Barometer
10. Facilitates Bank Lending

Famous Secondary Markets worldwide
• New York Stock Exchange
• NASDAQ - National Association of Securities
Dealers Automated Quotations
• The London Stock Exchange
• The Tokyo Stock Exchange
• Shanghai Stock Exchange

India Stock Exchanges
• Bombay Commodity Exchange (erstwhile the Bombay Oilseeds and
Oils Exchange)
• Bombay Stock Exchange (BSE)
• Calcutta Stock Exchange (CSE)
• Cochin Stock Exchange
• Inter-Connected Stock Exchange of India (ISE)
• Multi Commodity Exchange of India (MCX)
• National Commodity & Derivatives Exchange (NCDEX)
• National Stock Exchange of India (NSE)
• OTC Exchange of India (Exchange for Technology and Growth
Stocks)
• Pune Stock Exchange (PSE)
• India International Exchange IFSC Limited (India INX)

BOMBAY STOCK EXCHANGE
It is oldest and first stock
exchange of India
established in the year
1875. First it was started
under baniyan tree
opposite to town hall of
Bombay over 22 stock
brokers initially known as
The Native Share and
Stockbrokers Association.

• BSE provides a host of other services to capital
market participants including risk management,
clearing, settlement, market data services and
education.
• BSE systems and processes are designed to
safeguard market integrity, drive the growth of
the Indian capital market and stimulate
innovation and competition across all market
segments.
• BSE is the first exchange in India and second in
the world to obtain an ISO 9001:2000
certification.

• It is also the first Exchange in the country and
second in the world to receive Information
Security Management System Standard BS 7799-
2-2002 certification for its On-Line trading
System (BOLT- BSE On-Line Trading).
• It operates one of the most respected capital
market educational institutes in the country (the
BSE Institute Ltd.).
• BSE also provides depository services through its
Central Depository Services Ltd. (CDSL) arm.

Facts
• The BSE is the world's 11th largest stock
exchange
• Overall market capitalization of more than $ 2
Trillion as of July, 2017
• More than 5500 companies are publicly listed on
the BSE.
• BSE offers trading in Equity, Debt Instruments,
Derivatives, Mutual Funds and SME Equity.
• The S&P BSE SENSEX is India's most widely
tracked stock market benchmark index.
• BSE Limited IPO Listing Date: February 3, 2017;
Issue Price: Rs 806 Per Equity Share, Face Value:
Rs 2 Per Equity Share; Listing At: NSE

NATIONAL STOCK EXCHANGE
OF INDIA(NSE OR NSEI)
The NSE of India is the leading stock exchange
of India, covering 370 cities and towns in the
country. It was established in1994 as a TAX
company. It was established by 21 leading
financial institutions and banks like the IDBI,
ICICI, IFCI, LIC, SBI, etc.
Features of NSEI
Nation wide coverage i.e., investors from all over country
Ringless i.e., it has no ring or trading floor
Screen-based trading i.e., trading in this stock exchange is done
electronically.
Transparency,i.e.,the use of computer screen for trading makes the
dealings in securities transparent.
Professionalization in trading, i.e., it brings professionalism in its functions

Products
Equity & Equity Linked Products
• Cash Market (Equities)
• Indices
• Mutual Funds
• Exchange Traded Funds
• Initial Public Offerings
• Offer for Sale
• Institutional Placement Program
• Security Lending and Borrowing Scheme
• Sovereign Gold Bonds Scheme
Derivatives
• Equity Derivatives
• Currency Derivatives
• NSE Bond Futures
Debt
• Debt Market
• Corporate Bonds
• Electronic Debt Bidding Platform (NSE-EBP)

Multi Commodity Exchange of
India Limited (MCX)
• The Multi Commodity Exchange of India
Limited (MCX), India’s first listed exchange, is a
state-of-the-art, commodity derivatives
exchange that facilitates online trading, and
clearing and settlement of commodity
derivatives transactions, thereby providing a
platform for risk management.
• The Exchange, which started operations in
November 2003

PRODUCTS
Bullion Base Metals Energy Agri Commodities
Gold Aluminium Crude Oil Black Pepper
Gold Mini Aluminium Mini Crude Oil Mini Cardamom
Gold Guinea Copper Natural Gas Castor Seed
Gold Petal Copper Mini Cotton
Silver Lead Crude Palm Oil
Silver Mini Lead Mini Mentha Oil
Silver Micro Nickel RBD Palmolein
Silver 1000 Nickel Mini
Zinc
Zinc Mini

India INX
• India International Exchange (IFSC) Limited (India
INX), the first international exchange at GIFT IFSC,
was inaugurated by the Hon’ble Prime Minister of
India, Shri Narendra Modi, on Jan 09, 2017 and
commenced its operations from Jan 16, 2017.
• The Exchange is regulated by the IFSC (International
Financial Services Centres ) Authority.
• It offers investors 22 hours trading in a range of
financial market products such as index and
single stock derivatives, commodity derivatives,
currency derivatives and debt securities.

• The Exchange, provides a state of the art
electronic platform to facilitate trading, clearing
and settlement of the widest range of global
benchmark products across all major asset
classes, including securities, equity derivatives,
precious metals, base metals, energy and bonds.
• India INX's technology is the base of its business
and a key contributor to the Exchange's
functioning and development with a response
time of 4 microseconds.

• India INX has also introduced the Global
Securities Market platform, which is a
pioneering concept in India, offering issuers
an efficient and transparent method to raise
capital.
• The platform offers a debt listing framework
at par with other global listing venues such as
London, Luxembourg, Singapore etc.

• INDIA INX GA acts as introducing broker for
facilitating sale / purchase of financial
instruments through multiple international
brokers.
• Investor is protected by Securities Investor
Protection Corporation (SIPC) with an
insurance of USD 500,000 (for investment in
US)

Listing of securities

Meaning
Listing refers to the admission of the
securities of a company on a recognised
stock exchange for trading.
Listing of securities is undertaken with
the primary objective of providing
marketability, liquidity and
transferability of shares.

Listing Regulations
• Comply with the Companies Act, Securities
Contracts (Regulation) Act, 1956, SEBI and rules &
regulations of the exchange.
• To be submitted along with the application for
listing:-
1. Memorandum of Associations, Articles of
Association, Prospectus, Directors’ report, Annual
Accounts, Agreement with Underwriters, etc.
2. Company’s activities, capital structure,
distribution of shares, dividends and bonus
shares issued, etc.

Objectives of Listing
Provide ready marketability, liquidity &
negotiability to securities;
Mobilize savings for economic development;
Ensure proper supervision and control of
dealing;
Protect interest of investors by ensuring full
disclosures.

Advantages of Listing
Provides Liquidity to securities.
Regular information
Easy Transferability
Income tax benefit
Transparency in dealing.
Helps the company to gain national
importance and widespread recognition.
Helps in rising additional capital.

Disadvantages
Listed companies are subjected to do various
regulatory measures of the stock exchange
and SEBI.
Essential information has to be submitted by
the listed companies to stock exchange.
Annual meeting and annual general report.

Listing Requirements
• For this purpose companies have been
classified into 2 groups:-
1. Large Cap Companies (minimum
issue size of Rs.10 crores and market
capitalization of not less than Rs.25 crores)
2. Small Cap Companies (minimum
issue size of Rs.3 crores and market
capitalization of not less than Rs.5 crores)

Steps in Listing
1.
• Submission of Letter of Application
along with the necessary documents.
2.
• Payment of Listing Fees.
3.
• Collection of Listing Fees.-HDFC Bank

Cont.
4.
• Trading Permission by SEBI.
5.
• Payment of 1% Security with
the designated SE.
6.
• Advertisement.

ONLINE TRADING

ONLINE TRADING
• Today our country has an advanced trading
system which is a fully automated screen
based trading system (SBTS).
• This system adopts the principle of an order
driven market as opposed to a quote driven
system.
i) NSE operates on the 'National Exchange for
Automated Trading' (NEAT) system.
ii) BSE operates on the “BSE’s Online Trading”
(BOLT) system

Order Management in Automated
Trading System:
• Orders are first numbered and time-stamped
on receipt and then immediately processed
for potential match.
• If a match is not found, then the orders are
stored in different 'books'.
• Orders are stored in price-time priority in
various books in the following sequence:
• Best Price, Within Price, by time priority.

Best Price, Within Price, by time
priority
• Price priority means that if two orders are
entered into the system, the order having the
best price gets the higher priority.
• Time priority means if two orders having the
same price are entered, the order that is
entered first gets the higher priority.

Order Matching Rules in Automated
trading system
• The best buy order is matched with the best
sell order.
• An order may match partially with another
order resulting in multiple trades.
• For order matching, the best buy order is the
one with the highest price and the best sell
order is the one with the lowest price.

Order Conditions in Automated
Trading System
• A Trading Member can enter various types of
orders depending upon his/her requirements.
These conditions are broadly classified into
three categories:
Time Related Condition
Price Related Condition
Quantity Related Condition

Time Related Condition
a) Day Order - is an order which is valid for the day
on which it is entered. If the order is not
matched during the day, the order gets
cancelled automatically at the end of the trading
day.
b) GTC Order - Good Till Cancelled (GTC) order is
an order that remains in the system until it is
cancelled by the Trading Member. The maximum
number of days a GTC order can remain in the
system is notified by the Exchange from time to
time.

c) GTD - A Good Till Days/Date (GTD) order
allows the Trading Member to specify the
days/date up to which the order should stay in
the system. At the end of this period the order
will get flushed from the system.
d) IOC - An Immediate or Cancel (IOC) order
allows a Trading Member to buy or sell a
security as soon as the order is released into the
market, failing which the order will be removed
from the market.

Price Related Condition
a) Limit Price/Order – An order that allows the price to
be specified while entering the order into the system.
b) Market Price/Order – An order to buy or sell securities
at the best price obtainable at the time of entering the
order.
c) Stop Loss (SL) Price/Order – The one that allows the
Trading Member to place an order which gets activated
only when the market price of the relevant security
reaches or crosses a threshold price. Until then the order
does not enter the market.

• A sell order in the Stop Loss book gets triggered
when the last traded price in the normal market
reaches or falls below the trigger price of the
order. A buy order in the Stop Loss book gets
triggered when the last traded price in the
normal market reaches or exceeds the trigger
price of the order.
• E.g. If for stop loss buy order, the trigger is 93.00,
the limit price is 95.00 and the market (last
traded) price is 90.00, then this order is released
into the system once the market price reaches or
exceeds 93.00. This order is added to the regular
lot book with time of triggering as the time
stamp, as a limit order of 95.00

Quantity Related Condition
a) Disclosed Quantity (DQ)- An order with a DQ
condition allows the Trading Member to
disclose only a part of the order quantity to
the market.
• For example, an order of 1000 with a disclosed
quantity condition of 200 will mean that 200 is
displayed to the market at a time. After this is
traded, another 200 is automatically released
and so on till the full order is executed.

b) MF - Minimum Fill (MF) orders allow the
Trading Member to specify the minimum
quantity by which an order should be filled.
• For example, an order of 1000 units with
minimum fill 200 will require that each trade be
for at least 200 units. In other words there will be
a maximum of 5 trades of 200 each or a single
trade of 1000.
c) AON - All or None orders allow a Trading
Member to impose the condition that only the
full order should be matched against. This may
be by way of multiple trades. If the full order is
not matched it will stay in the books till matched
or cancelled.

• Stock Market Indicators are the
barometers of the stock market.
• They reflect the behaviour of the
stock market.
STOCK MARKET INDICATORS

• A stock market index is created by selecting a
group of stocks that are representative of the
whole market or a specified sector or segment of
the market.
• An Index is used to give information about the
price movements of products in the financial,
commodities or any other markets.
• Financial indexes are constructed to measure
price movements of stocks, bonds, T-bills and
other forms of investments.
• Stock market indexes are meant to capture the
overall behaviour of equity markets.
Stock Market Indicators

• Price-weighted index
• Equal-weighted index
• Value-weighted index
Types of stock market Indices

• Broad Market Indices
1. CNX Nifty (50)
2. CNX Nifty Junior (100 most liquid stocks)
3. LIX 15 (15 stocks liquid stocks)
4. CNX 100 (100 stock index accounting for 38 sectors)
5. CNX 200 (the top 200 companies)
6. CNX 500 (500 companies, 71 industry indices, 95.76% free
float mcap)
7. CNX Midcap*(midcap segment of the market)
8. Nifty Midcap 50 (50 medium capitalized segment)
9. CNX Smallcap Index (100 tradable, small capitalised
segment)
10. CNX Midcap 200 ** (midcap segment of the market, 72%)
11. India Vix (volatility index based on the NIFTY Index Option
prices)
Indices of NSE

• The CNX Auto Index
• CNX Bank Index
• CNX Energy Index
• CNX Finance Index
• CNX FMCG Index
• CNX IT Index
• CNX Media Index
• CNX Metal Index
• CNX Pharma Index
Sectoral Indices

• CNX Commodities Index
• CNX Consumption Index
• CNX Infrastructure Index
• CNX MNC Index
Thematic Indices

• The CNX Nifty is a well diversified 50 stock index
accounting for 22 sectors of the economy.
• CNX Nifty is owned and managed by India Index
Services and Products Ltd. (IISL), which is a joint
venture between NSE and CRISIL.
• IISL has a marketing and licensing agreement
with Standard & Poor's for co-branding equity indices.
'CNX' in its name stands for 'CRISIL NSE Index'.
• The base period for the CNX Nifty index is November 3,
1995,
• Free Float Market Capitalisation weighted method
CNX Nifty

CNX Nifty
Company Name Industry
ACC Ltd. CEMENT & CEMENT PRODUCTS
Adani Ports and Special Economic Zone Ltd. SERVICES
Ambuja Cements Ltd. CEMENT & CEMENT PRODUCTS
Asian Paints Ltd. CONSUMER GOODS
Aurobindo Pharma Ltd. PHARMA
Axis Bank Ltd. FINANCIAL SERVICES
Bajaj Auto Ltd. AUTOMOBILE
Bank of Baroda FINANCIAL SERVICES
Bharat Petroleum Corporation Ltd. ENERGY
Bharti Airtel Ltd. TELECOM
Bharti Infratel Ltd. TELECOM
Bosch Ltd. AUTOMOBILE
Cipla Ltd. PHARMA
Coal India Ltd. METALS
Dr. Reddy's Laboratories Ltd. PHARMA
Eicher Motors Ltd. AUTOMOBILE
GAIL (India) Ltd. ENERGY
HCL Technologies Ltd. IT
HDFC Bank Ltd. FINANCIAL SERVICES
Hero MotoCorp Ltd. AUTOMOBILE
Hindalco Industries Ltd. METALS
Hindustan Unilever Ltd. CONSUMER GOODS
Housing Development Finance Corporation Ltd. FINANCIAL SERVICES
I T C Ltd. CONSUMER GOODS

ICICI Bank Ltd. FINANCIAL SERVICES
Indiabulls Housing Finance Ltd. FINANCIAL SERVICES
Indian Oil Corporation Ltd. ENERGY
IndusInd Bank Ltd. FINANCIAL SERVICES
Infosys Ltd. IT
Kotak Mahindra Bank Ltd. FINANCIAL SERVICES
Larsen & Toubro Ltd. CONSTRUCTION
Lupin Ltd. PHARMA
Mahindra & Mahindra Ltd. AUTOMOBILE
Maruti Suzuki India Ltd. AUTOMOBILE
NTPC Ltd. ENERGY
Oil & Natural Gas Corporation Ltd. ENERGY
Power Grid Corporation of India Ltd. ENERGY
Reliance Industries Ltd. ENERGY
State Bank of India FINANCIAL SERVICES
Sun Pharmaceutical Industries Ltd. PHARMA
Tata Consultancy Services Ltd. IT
Tata Motors Ltd DVR AUTOMOBILE
Tata Motors Ltd. AUTOMOBILE
Tata Power Co. Ltd. ENERGY
Tata Steel Ltd. METALS
Tech Mahindra Ltd. IT
UltraTech Cement Ltd. CEMENT & CEMENT PRODUCTS
Vedanta Ltd. METALS
Wipro Ltd. IT
Yes Bank Ltd. FINANCIAL SERVICES
Zee Entertainment Enterprises Ltd. MEDIA & ENTERTAINMENT

• The S&P BSE SENSEX is India’s most tracked
bellwether index.
• It is designed to measure the performance of the
30 largest, most liquid and financially sound
companies across key sectors of the Indian
economy that are listed at BSE Ltd.
• The index is designed to serve as both a
benchmark and an investable index
• It is the oldest index in the country.
SENSEX

BSE SENSEX Constituents
Scrip Code COMPANY
532921 Adani Ports and Special Economic Zone
500820 Asian Paints Ltd
532215 Axis Bank Ltd
532977 Bajaj Auto Ltd
532454 Bharti Airtel Ltd
500087 Cipla Ltd/India
533278 Coal India Ltd
500124 Dr Reddy's Laboratories Ltd
500180 HDFC Bank Ltd
500182 Hero MotoCorp Ltd
500696 Hindustan Unilever Ltd
500010 Housing Development Finance Corp
532174 ICICI Bank Ltd
500209 Infosys Ltd
500875 ITC Ltd Prof. John Pradeep, KJSOM 149

500247 Kotak Mahindra Bank Ltd
500510 Larsen & Toubro Ltd
500257 Lupin Ltd
500520 Mahindra & Mahindra Ltd
532500 Maruti Suzuki India Ltd
532555 NTPC Ltd
500312 Oil & Natural Gas Corp Ltd
532898 Power Grid Corp of India Ltd
500325 Reliance Industries Ltd
500112 State Bank of India
524715 Sun Pharmaceutical Industries Ltd
532540 Tata Consultancy Services Ltd
500570 Tata Motors Ltd
570001 Tata Motors Ltd DVR
500470 Tata Steel Ltd
507685 Wipro LtdProf. John Pradeep, KJSOM 150

S&P BSE SENSEX Sector wise Market Capitalisation
Sl. No. SENSEX/Sectors
Free Float Market
Capitalisation %
S&P BSE SENSEX 100
1 Finance 37.06
2 Information Technology 11.34
3 Transport Equipments 11.29
4 FMCG 10.63
5 Oil & Gas 10.36
6 Capital Goods 4.84
7 Healthcare 4.27
8 Power 2.92
9 Metal,Metal Products & Mining 2.54
10 Chemical & Petrochemical 1.85
11 Telecom 1.75
12 Transport Services 1.13

Broad-based
Broad-based. The Broad-based indices act as
reliable market indicators for the Indian stock
market, covering large-cap, mid-cap, and small-cap
companies.
• S&P BSE 100: 100 largest and most liquid Indian
companies within the S&P BSE Large MidCap.
• S&P BSE SENSEX 50: 50 largest and most liquid
companies within S&P BSE 100.
• S&P BSE SENSEX Next 50: 50 companies within
S&P BSE 100 that are not members of the S&P
BSE SENSEX 50.

• S&P BSE 200 :200 of the largest and most
well-established companies in India.
• S&P BSE 500 :The index is designed to be a
broad representation of the Indian capital
market.

Thematics: Thematic indices include the
following:
• S&P BSE PSU: India’s Public Sector
Undertakings (PSUs) listed on the BSE Ltd. and
includes all PSUs in the S&P BSE 500.
• S&P BSE CPSE: India’s Central Public Sector
Enterprises (CPSEs) listed on the BSE Ltd. and
includes all CPSEs listed on the BSE Ltd.
• S&P BSE Bharat 22 Index: select companies
disinvested by the Central Government of
India according to the disinvestment program.

Investment Strategy
• S&P BSE IPO. The index is designed to track the
current primary market conditions in the Indian
capital market and measure the growth in
investor wealth within a period of one year after
the listing of a company subsequent to the
successful completion of an initial public offering
(IPO).
• S&P BSE SME IPO: Small and Medium Enterprises
(SMEs) listed via IPOs on BSE’s SME Platform,
over a one-year period from its listing date.
• S&P BSE DOLLEX Indices: The indices are
designed for use by overseas investors seeking to
measure real returns after accounting for
exchange rate fluctuations.

• S&P BSE SENSEX Futures Index: The index is designed to
model the returns realized through an investment in the
near-month futures contract on the S&P BSE SENSEX.
• S&P BSE SENSEX 2X Leverage Daily Index: The index is
designed to generate a multiple of the underlying index
return, minus the cost of borrowing capital to generate
excess index exposure. The S&P BSE SENSEX 2X Leverage
Daily Index reflects 200% of the return of the S&P BSE
SENSEX, including dividends and price movements.
• S&P BSE SENSEX Inverse Daily Indices: The indices are
designed to assist investors who are seeking a short
position on Indian equities.
o The S&P BSE SENSEX 1X Inverse Daily Index provides inverse
returns of the S&P BSE SENSEX by taking a short position in
the index.
o The S&P BSE SENSEX 2X Inverse Daily Index provides two
times the inverse performance of the S&P BSE SENSEX.

Sectors
• S&P BSE AUTO
• S&P BSE CAPITAL GOODS
• S&P BSE OIL & GAS
• S&P BSE CONSUMER DURABLES
• S&P BSE METAL
• S&P BSE REALTY
• S&P BSE BANKEX
• S&P BSE TECK
• S&P BSE POWER

ROLE OF Foreign Portfolio Investment
(FPI)
• A foreign portfolio investment is an investment
activity that involves the purchase of stocks,
bonds, commodities, or money market
instruments that are based in a different country.
• The Foreign Exchange Management Act 2000
describes Foreign Portfolio Investment as buying
and selling of shares, convertible debentures of
Indian companies, and units of domestic mutual
funds at any of the Indian stock exchanges.

• It is the reflexive holding of securities such as
foreign stocks, bonds, or other financial
assets, none of which entails active
management or control of the securities issues
by the investor.
Factors affecting Portfolio:
• Tax rates on interest or dividends
• Interest rates
• Exchange rates

Benefits of Foreign Portfolio Investment
• Foreign portfolio investment augments the liquidity of domestic capital
markets, and can help develop market efficiency as well. As markets
become more liquid, as they become deeper and array of investments
can be financed. New enterprises, for example, have a greater
opportunities of receiving start-up financing.
• Foreign portfolio investment can also bring discipline and knowledge into
the domestic capital markets.
• Foreign portfolio investment assist to promote development of equity
markets and the shareholders' voice in corporate governance.
• FPI can bring about speedy development, assisting an emerging economy
move quickly to take advantage of economic opportunity, creating many
numerous jobs and significant wealth.
• However, when a country's economic situation takes a downturn
sometimes just by failing to meet the expectations of international
investors the large flow of money into a country can turn into a
stampede away from it.

INSIDER TRADING

What is Insider Trading
• Insider trading is trading or dealing in securities
based on unpublished price sensitive
information.
• Insiders may have access to unpublished price
sensitive information.
• Insider trading against interests of shareholder
who are not privy to unpublished price sensitive
information.
• It gives traders an unfair advantage over others
• SEBI (Prohibition of Insider Trading
Regulations),2015 notified on Jan 15, 2015

What is Unpublished price sensitive
information
• "unpublished price sensitive information" means any information,
relating to a company or its securities, directly or indirectly, that is
not generally available which upon becoming generally available, is
likely to materially affect the price of the securities and shall,
ordinarily including but not restricted to, information relating to the
following: –
– (i) financial results;
– (ii) dividends;
– (iii) change in capital structure;
– (iv) mergers, de-mergers, acquisitions, delisting, disposals and
expansion of business
– and such other transactions;
– (v) changes in key managerial personnel; and
– (vi) material events in accordance with the listing agreement.

Material events in accordance with the
listing agreement
• Change in General Character of Business
• Disruption of operations due to natural calamity
• Disruption of operations of any one or more units or division or
subsidiary of the listed entity due to events such as strikes, lockouts
etc.
• Commencement or closure of commencement operations
• Litigation/dispute/regulatory action with a material impact:
• Pricing/realization/profitability arising out of change in the
regulatory framework
• Where the Company, its Promoter or Key Managerial Personnel
becoming a party to Litigation/dispose/regulatory activities, the
outcome of which, can reasonably be expected to have a material
impact.
• Revision in Ratings

Forms of Insider Trading
1. Members of an organization purchasing a
security
2. Professionals who do business with the
corporation (Bankers, lawyers, paralegals,
and brokers)
3. Friends, family, and acquaintances of
corporate employees.
4. Government officials (through the execution
of their duties)
5. Hackers, corporate spies, and other thieves

Significance
• Insider trading invokes severe civil and criminal penalties
not only on the insider but also on Company in certain
circumstances under the Securities and Exchange Board of
India (SEBI) Act, 1992.
• SEBI can impose fines, severe penalties
• Maximum penalty of Rs. 25 Crores or 3 times of profits
made (Sec 15G)
• Punishable with imprisonment up to 10 years ( Sec 24 of
SEBI Act)
• Reputation risk to Insider and Company
• Board is responsible to report on effective systems and on
Compliance of all laws ( Sec 134 of Companies Act, 1956)
• Insider who are employees who are not in compliance may
face disciplinary actions from Company
• Compliance officer shall report to Board about violation of
rules Prof. John Pradeep, KJSOM 167

Insider Trading Example
• Martha Stewart. Martha Stewart is possibly one of the
most classic cases of insider trading over the past decade.
• She had a tendency to know when the FDA would make a
particular decision regarding a drug.
• Later, it was discovered that she received some information
from Peter Baconovic, who was her broker at the time.
• She could see that a new drug offered by ImClone would be
rejected by the FDA and sold her shares before the stock
dropped.
• When it was discovered she had a preexisting sell order, she
was indicted and convicted of securities fraud.
• She spent five months in a federal prison and two years of
supervised release.

Other examples
• Case of insider trading Hindustan Lever
Limited (HLL) – Brooke Bond Lipton India
Limited(BBLIL)
• Case Study on Raj Rajaratnam Insider Trading
At Galleon Group

Investor Protection
• Investors are the backbone of the securities market.
• They not only determine the level of activity in the
securities market but also the level of activity in the
economy.
• The growth in the numbers of investors in India is
encouraging.
• The trends reveal that in addition to FIIs and
Institutional Investors, small investors were also
gradually beginning to regain the confidence in the
capital markets that had been shaken consequent to
the stock market scams during the past decade.

Need for investors’ protection
i. To instill confidence in investors’ minds
ii. To create a conducive atmosphere for
investment
iii. To ensure transparency in dealing
iv. To create a vibrant capital market
v. To regulate the market on sound lines
vi. To create discipline in the market
vii. To create accountability among market players
viii.To create awareness among investors

Factors affecting investors’ interest
• Price rigging
• Insider trading
• Excessive speculation
• Lack of transparency
• Short selling
• Restricted trading
• Restricted trading hours and trading days
• Dominance of few stock exchanges
• Dominance of institutional and foreign institutional investors
• Excessive volatility
• Grievances against listed companies
• Grievance against members of stock exchanges
• Miscellaneous grievances

Regulation to Govern Investor’s
Interest
• There are mainly five regulations or legislation
framed in India to regulate the interest of
investors in Corporate Sector. They are –
i. SEBI Act 1992
ii. Companies Act 2013
iii. Securities Contract (Regulation Act) 1956
iv. The Depositories Act 1996
v. The Prevention of Money Laundering Act 2002.

Investors’ protection measures
• Measures taken by stock exchanges
• Measures taken by the company law board
• Measures taken by SEBI
• Measures taken by the court
• Measures taken by the central government
• Measures taken by the department of
company affairs (DCA)

List of All SEBI Regulations
2021 Notification repealing Securities and Exchange Board of India (Central Database of
Market Participants) Regulations, 2003
2021 Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2021
[Last amended on August 3, 2021]
2021 Securities and Exchange Board of India (Issue and Listing of Non-Convertible
Securities) Regulations, 2021 [Last amended on April 11, 2022]
2021 Securities and Exchange Board of India (Share Based Employee Benefits and Sweat
Equity) Regulations, 2021
2021 Securities and Exchange Board of India (Underwriters) (Repeal) Regulations, 2021
2021 Securities and Exchange Board of India (Vault Managers) Regulations, 2021
2020 Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020 [Last
amended on November 09, 2021]
2019 Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019
[Last amended on January 14, 2022]
2018 Securities and Exchange Board of India (Appointment of Administrator and Procedure
for Refunding to the Investors) Regulations, 2018
2018 Securities and Exchange Board of India (Buy-back of Securities) Regulations 2018

2018 Securities and Exchange Board of India (Depositories and Participants)
Regulations, 2018 [Last amended on February 23, 2022]
2018 Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations 2018 [Last amended on April 27, 2022]
2018 Securities and Exchange Board of India (Settlement Proceedings) Regulations,
2018 [Last amended on January 14, 2022]
2018 Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations)
Regulations, 2018 [Last amended on August 13, 2021]
2015 SEBI (Procedure for Search and Seizure) Repeal Regulations, 2015
2015 Securities and Exchange Board of India (Issue and Listing of Municipal Debt
Securities) Regulations, 2015 [Last amendment on August 03, 2021]
2015 Securities and Exchange Board of India (Listing Obligations and Disclosure
Requirements) Regulations, 2015 [Last amended on April 25, 2022]
2015 Securities and Exchange Board of India (Prohibition of Insider Trading)
2014 Securities and Exchange Board of India (Infrastructure Investment Trusts)
Regulations, 2014 [Last amended on May 04, 2022]
2014 Securities and Exchange Board of India (Real Estate Investment Trusts)

2014 Securities and Exchange Board of India (Research Analysts) Regulations,
2014 [Last amended on August 03, 2021]
2013 Securities and Exchange Board of India (Investment Advisers) Regulations,
2013 [Last amended on August 03, 2021]
2013 Securities and Exchange Board of India (Issue and Listing of Non-Convertible
Redeemable Preference Shares) Regulations, 2013 [Last amended on August
03, 2021]
2012 Securities and Exchange Board of India (Alternative Investment Funds)
Regulations, 2012 [Last amended on March 16, 2022]
2011 Securities and Exchange Board of India (Substantial Acquisition of Shares
and Takeovers) Regulations, 2011 [Last amended on December 06, 2021]
2011 Securities and Exchange Board of India {KYC (Know Your Client) Registration
Agency} Regulations, 2011 [Last amended on January 28, 2022]
2009 SEBI (Investor Protection and Education Fund) Regulations, 2009 [Last
amended on March 6, 2017]
2009 SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (Last
amended on February 12, 2018)
2008 Securities and Exchange Board of India (Intermediaries) Regulations, 2008
[Last amended on November 17, 2021]

2008 Securities and Exchange Board of India (Issue and Listing of Debt Securities)
Regulations, 2008 [Last amended on October 08, 2020]
2008 Securities and Exchange Board of India (Issue and Listing of Securitised Debt
Instruments and Security Receipts) Regulations, 2008 [Last amended on August 03,
2020]
2007 SEBI (Certification of Associated Persons in the Securities Markets) Regulations,
2007 [Last amended on February 07, 2014]
2006 SEBI (Regulatory Fee on Stock Exchanges) Regulations, 2006 [Last amended on
March 22, 2019]
2004 SEBI (Self Regulatory Organisations) Regulations, 2004 [last amended on March 6,
2017]
2003 SEBI (Ombudsman) Regulations, 2003 [Last Amended on Nov 09, 2006]
2003 SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities
Market) Regulations, 2003 [Last amended on January 25, 2022]
2001 SEBI (Procedure for Board Meetings) Regulations, 2001
2001 Securities and Exchange Board of India (Employees' Service) Regulations, 2001
[Last amended on June 22, 2022]
2000 Securities and Exchange Board of India (Foreign Venture Capital Investor)

1999 Securities and Exchange Board of India (Collective Investment Scheme)
Regulations, 1999 [Last amended on May 10, 2022]
1999 Securities and Exchange Board of India (Credit Rating Agencies) Regulations,
1999 [Last amended on January 24, 2022]
1998 SEBI (Buy Back Of Securities) Regulations, 1998 [Last amended on on March 6,
2017]
1996 Securities and Exchange Board of India (Custodian) Regulations, 1996 [Last
amendment on April 25, 2022]
1996 Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 [Last
amended on January 25, 2022]
1994 Securities and Exchange Board of India (Bankers to an Issue) Regulations, 1994
1993 Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993
[Last amended on April 11, 2022]
1993 Securities and Exchange Board of India (Registrars to an Issue and Share
Transfer Agents) Regulations, 1993 - [Last amended on August 03, 2021]
1992 Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992
1992 Securities and Exchange Board of India (Stock Brokers) Regulations, 1992 [Last
amended on February 23, 2022]

SEBI URL
• https://www.sebi.gov.in/sebiweb/home/Hom
eAction.do?doListing=yes&sid=1&ssid=3&smi
d=0

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