CU -BBA Sem VI- investment management

Standard settlement instruction - The agreements between two financial institutions known as Standard Settlement Instructions (SSIs) specify the receiving agents for each counterparty in typical deals of a certain kind. Since the time needed to settle the receiving agents is reduced by these agreements, the related counterparties are able to complete activities more quickly. Each subject being limited to an SSI further reduces the possibility of deception. Financial firms employ SSIs to provide quick and precise cross-border payments. Regulation - Due to their crucial role in helping economies expand the money supply through fractional-reserve banking, financial institutions are highly regulated in the majority of nations where they operate. Although regulatory frameworks vary by nation, they often include prudential control, consumer protection, and market stability. While some nations have distinct agencies for different types of institutions like banks, insurance companies, and brokers, others have a single body that oversees all financial organisations. In the United States, the Federal Financial Institutions Examination Council (FFIEC), the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation (FDIC), State \"non-member\" banks, the National Credit Union Administration (NCUA), credit unions, the Federal Reserve (Fed), \"member\" banks, the Office of Thrift Supervision - National Savings & Loan Association, and state governments are the major governing bodies. Merits: The following are benefits of funding through financial institutions: 1. Long-term financing is offered by financial institutions, not by commercial banks; 2. Even in times of depression, when other financial sources are unavailable, the monies are made available; 3. Loans from financial institutions improve a borrower's reputation in the capital market. As a result, such a business can readily raise money from other sources as well; 4. In addition to funding, several of these institutions offer business firms financial, managerial, and technical support and consulting; 5. Since the loan can be repaid in manageable instalments, the pressure on the company is not too great. 101 CU IDOL SELF LEARNING MATERIAL (SLM)

8.3 PRIMARY AND SECONDARY MARKET Although the word \"market\" can refer to a wide range of concepts, it is most frequently used as a blanket term to describe both the main market and the secondary market. The terms \"primary market\" and \"secondary market\" are actually two separate concepts; the former refers to the market where securities are created, whilst the latter is the marketplace where investors trade securities. Grasp how stocks, bonds, and other securities trade requires an understanding of both the primary and secondary markets. Without them, navigating and profiting from the capital markets would be considerably more difficult. We'll explain how these markets function and how they affect individual investors to you. The Primary Market Securities are created in the primary market. Firms first offer new stocks and bonds to the public (float them) on this market. One illustration of a primary market is an initial public offering, or IPO. Investors have the chance to purchase securities from the bank that handled the first underwriting for a certain stock through these deals. When a private firm first sells stock to the public, it conducts an initial public offering (IPO). As an illustration, ABCWXYZ Inc. contracts with five underwriting companies to determine the IPO's financials. The underwriters specify that the shares will be issued at a price of $15. Investors can then purchase the IPO from the issuing business at this price. This is the first chance that investors have to invest money in a company by purchasing its stock. The money made from the sale of stock on the primary market makes up a company's equity capital. After stocks have already entered the secondary market, a rights offering (issue) enables businesses to obtain additional shares through the primary market. Prorated rights are offered to current shareholders based on the number of shares they currently possess, and new investors may purchase newly issued shares. Other primary market stock offers include preferential allotments and private placements. Private placement enables businesses to sell directly to bigger investors like hedge funds and banks without disclosing their stock to the general public. While preferential allotment distributes shares at a premium price that isn't available to the general public to a small group of investors (often hedge funds, banks, and mutual funds). Similar to corporations, governments can decide to issue new short- and long-term bonds on the primary market in order to raise debt money. The coupon rates for newly issued bonds are determined by the current interest rates at the time of issuance, which may be greater or lower than the coupon rates for previously issued bonds. 102 CU IDOL SELF LEARNING MATERIAL (SLM)

Primary Capital markets The principal capital markets deal in new stock or securities that they issue in an initial public offering to interested parties or businesses (IPO). The seller employs securities brokers, finance groups, or investment bankers to examine the securities, their pricing, and other crucial information. The Securities and Exchange Commission (SEC) and other securities regulators have the authority to regulate and approve securities transactions in the primary capital market. The key markets experience price volatility. Companies that issue securities in this market always want to sell them quickly, so they target big investors who can purchase many of securities at once. Price volatility in main markets is to blame for this. Concept Companies, governments, or public sector organisations can raise money in a primary market by issuing bonds, and corporations can do the same by selling new stock in an IPO (IPO). A financing syndicate of securities dealers, investment bank, or underwriter is frequently used for this. Underwriting is the process of offering fresh shares to investors. The commission paid to dealers is often included in the cost of the security offering, however it is also disclosed in the prospectus. Not all new securities are issued in IPOs. A primary issuance of debt or stock, which includes a firm issuing its own debt or new stock directly to buyers like pension funds or to individual investors and shareholders, is a way for publicly traded companies to issue additional shares. The corporation receives the money and issues new security certificates to the buyers because the securities are issued directly by the company to its buyers. The vital role that the primary market plays in promoting capital development in the economy cannot be overstated. The primary market for securities allows for the issuance of securities at face value, premium value, or par value. Corporate companies can raise capital from the capital market by using long-term instruments that are created by primary markets. The New Issue Market is another name for it (NIM). Secondary Market The secondary capital market, commonly known as the stock market, is where investors trade already-owned equities. The secondary market is where investors exchange the securities they already possess, as opposed to the main capital market where buyers acquire directly from sellers. IPOS does not impose restrictions on secondary capital markets, where any investor may trade or buy securities. Examples of secondary markets include Nasdaq, the London Stock Exchange, and the New York Stock Exchange (NYSE). Contrary to the primary market, where corporations need to quickly sell their securities to achieve the required volume, the amount of securities exchanged in the secondary market is based on the ebb and flow of supply and demand, which also influences security prices. 103 CU IDOL SELF LEARNING MATERIAL (SLM)

A secondary market is a model for the capital market where investors can purchase treasury bills, commercial papers, options, bonds, current shares, and other securities issued by companies. The secondary market can be an auction when bonds are sold through a dealer market or the stock exchange, which is commonly referred to as over the counter. The financial market where previously issued financial instruments like stock, bonds, options, and futures are bought and sold is known as the secondary market, also known as the aftermarket and follow on public offering. The primary market is the initial sale of the security by the issuer to a buyer who then pays the issuer the proceeds. [1] The secondary market comprises all transactions that occur after the security's initial sale. [2] The term \"secondary market\" refers to the market generated by the subsequent trading of such securities, as opposed to \"primary market,\" which refers to the market for fresh issues of securities and \"[a] market is primary if the proceeds of sales go to the issuer of the securities sold.\" In the case of initial public offerings (IPOs) and private placements of financial instruments, such as shares of firms, an underwriter frequently purchases the securities directly from the issuers (the primary market). Then, in what is known as the secondary market or aftermarket, the underwriter resells the securities to additional bidders (or a buyer in contrast may buy directly from the federal government, in the case of a government issuing treasuries). Forms of secondary market: The secondary market can be used for a wide range of assets, from equities to loans, from decentralised to centralised, and from scarce to abundantly liquid. The most well-known examples of thriving secondary markets, in this case for equities of publicly traded corporations, are the main stock exchanges. Investors looking to purchase or sell equities that trade on those exchanges have access to centralised, liquid secondary markets through exchanges like the New York Stock Exchange, London Stock Exchange, and Nasdaq Stock Market. The majority of bonds and structured products are traded \"over the counter\" or by calling one's broker-bond dealer's desk. Online loan exchanges are sometimes used to swap loans. The term \"secondary market\" may also be used to describe loans that a mortgage bank sells to buyers like Fannie Mae and Freddie Mac. The market for any used products or assets, or a different application for an existing product or asset when the target market is the secondary market, are also referred to as the \"secondary market\" (for example, corn has been traditionally used primarily for food production and feedstock, but a \"second\" or \"third\" market has developed for use in ethanol production) 104 CU IDOL SELF LEARNING MATERIAL (SLM)

Functions Securities are sold by sellers and transferred from one buyer to another in the secondary market. The secondary market must therefore be extremely liquid. Originally, the only way to achieve this liquidity was for investors and speculators to frequently gather at a set location; this is how stock exchanges came to be (see History of the Stock Exchange). Generally speaking, the more investors who participate in a given market and the more centralised that market is, the more liquid that market is. When financing new projects through a new primary market offering, an accurate share price allots scarce capital more effectively. However, accuracy in the secondary market may also be important because: 1) price accuracy can lower agency costs of management, making hostile takeovers a less risky proposition and putting capital in the hands of better managers; and 2) accurate share price helps the efficient allocation of debt finance whether debt offerings or institution lending. Related usage The phrase could be used to describe marketplaces for valuable items other than stocks. For instance, the ability to acquire and sell intellectual property is regarded as a secondary market since it enables the owner to freely resell property entitlements granted by the government, such as patents or rights to musical compositions. [8] In some situations involving real estate, it is also possible to say that secondary markets exist (e.g., ownership shares of time-share vacation homes are bought and sold outside of the official exchange set up by the timeshare issuers). These perform speculative activities, provide liquidity, and provide funding through securitization, which are very similar to the secondary stock and bond markets' roles. This makes the long-term instrument more liquid and marketable. Additionally, it offers immediate securities valuation. Private secondary markets: The buying and selling of pre-existing investor commitments to private equity funds is referred to as the private equity secondary market. Private equity investors sell both their remaining unfunded commitments to the funds as well as their interests in the fund. [10] The Sarbanes-Oxley Act of 2002, which tightened the compliance and reporting requirements on U.S. public company boards of directors, management, and public accounting firms, led to the emergence of private secondary markets like SecondMarket and SecondaryLink. These markets, which provide trading of unregistered and private business shares, are typically only accessible to institutional or accredited investors. 105 CU IDOL SELF LEARNING MATERIAL (SLM)

8.4 UNOUTHORIZED FINANCIAL SYSTEM The majority of the money market's unorganised sector is made up of domestic bankers, money lenders, merchants, commission agents, etc. Some of these individuals also engage in other types of business. The organised sector of the Indian money market is, generally speaking, made up of institutions that directly or indirectly fall under the wide restrictions of the Reserve Bank, while the unorganised sector is made up of institutions that are wholly exempt from the central bank's regulations. Commercial banks, cooperative banks, discount houses, acceptance houses, and land mortgage banks make up the majority of the organised sector. The unorganised sector has a lack of standardisation in its business activities and is mostly outside the Central Bank's purview. Native Indian bankers, money lenders, and traders make up a significant portion of the unorganised money market in India. First off, one of the key features of the Indian money market is that credit demand is largely seasonal and follows the cycle of the agricultural seasons. The implication is that commercial banks must borrow money from the RBI during the busy season, while the amount of such borrowings decreases during the lean period. This gives the RBI a very useful tool for regulating the amount of credit. Second, there are organized and unorganized sectors in the Indian money market. The RBI, commercial banks, cooperative banks, and land mortgage banks make up the organized sector, as was already mentioned. Because of people's propensity for hoarding, the country's banking system is woefully unable to meet the demands of trade and industry, especially given its contin-uous nature. Thirdly, new institutions have been founded and consolidated to either lend on a long-term basis or regulate credit in a pre-scribed manner with a view to improving India's organised money market. IFC (1948), NIDC (1954), ICIC (1955), SFC (1951), NSIC (1955), UTI (1964), and the IDBI are the new institutions that were established following independence (1964). Fourth, the unorganized sector dominates the Indian money market. They do this through cooperative credit societies in rural areas. Nevertheless, a few credit societies are governed by money lenders. It appears that an increasing number of fictitious cooperative societies have been established specifically to allow these payday lenders to benefit from the discounts they provide. These commercial banks serve as the conduit through which indigenous bankers conduct their business. Short-term financial securities that mature in less than a year are traded in the money market. The money market satisfies the working capital needs of business, trade, and commerce. Money market tools do not satisfy the long-term needs of industries. 106 CU IDOL SELF LEARNING MATERIAL (SLM)

The central bank holds a crucial place in the money market. It is revered as the \"presiding deity\" of the financial sector. It serves not only as a monetary system watchdog but also as a banker for promotion and growth. The capital market, on the other hand, is a marketplace where long-term funds are supplied by lenders or investors in exchange for the financial assets that holders and borrowers are willing to offer. The main objective of the capital market is to channel savings into long-term investments. The difference in the term of the financial assets is the basis for the differentiation between the money market and the capital market. Despite the fact that the phrases money market and capital market are sometimes used interchangeably, they have some key differences. The main purpose of the money market is to adjust liquidity. However, the primary role of a capital market is to act as a bridge between long-term investors and long-term debtors. 8.5 SUMMARY  A stock market, also known as an equity market or share market, is the collection of individuals who buy and sell stocks, also known as shares, which represent ownership stakes in corporations.  Government securities trading was first done by Venetian bankers in the middle of the 13th century.  There are 60 stock exchanges in the world as of 2016. 16 of these exchanges, which together make up 87% of the world's market capitalisation, have a market value of $1 trillion or more.  A financial institution can offer a wide range of deposit, lending, and investment products to people, businesses, or both in the current financial services industry.  The term \"secondary market\" may also be used to describe loans that a mortgage bank sells to buyers like Fannie Mae and Freddie Mac. 8.6 KEYWORD  Financial institutions ― It's critical to comprehend the distinctions between the various sorts of institutions and the functions they fulfil in order to determine which financial organisation is most suited to meet a certain need.  Primary and secondary market - Securities are created in the primary market. Firms first offer new stocks and bonds to the public (float them) on this market. One illustration of a primary market is an initial public offering, or IPO. The secondary 107 CU IDOL SELF LEARNING MATERIAL (SLM)

market is where investors exchange the securities they already possess, as opposed to the main capital market where buyers acquire directly from sellers.  Concept - The corporation receives the money and issues new security certificates to the buyers because the securities are issued directly by the company to its buyers. The vital role that the primary market plays in promoting capital development in the economy cannot be overstated.  Securities are created on the primary market, and investors trade those securities on the secondary market.  The New York Stock Exchange, the Nasdaq, and other international exchanges are referred to together as the secondary market, which is essentially the stock market. 8.7LEARNING ACTIVITY 1. Define Financial Institutions 2. State the concept of financial institutions 8.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is a Primary Market? 2. What is a Secondary Market? 3. Define Unauthorized Financial System? 4. What are the Financial Institutions? 5. Types of primary offering? Long Questions 1. What are the functions of secondary market? 2. Explain the Primary market 3. Describe Capital Market and its functions? 4. What are the major 9 financial institutions? 5. Explain the stock market? 108 CU IDOL SELF LEARNING MATERIAL (SLM)

B. Multiple Choice Questions 1. Which of the following does not fall under the three-pillar migration to new capital adequacy framework? a. Minimum capital requirement b. Supervisory review c. Market discipline d. Boom keeping 2. The refinancing of loans made to industrial units by banks is available from a. DICGC b. NABARD c. ECGC d. IDBI 3. Currently, the majority of Indian banks are classified as a. Chain banking system b. Unit banking system c. Branch banking d. None of the above 4. The concept of scientific management is developed by a. Taylor b. Fayol c. Marx d. None of these 109 CU IDOL SELF LEARNING MATERIAL (SLM)

Answers 1-a, 2-d, 3-c. 4-a 8.9 REFERENCES References books  Market value of publicly traded domestic enterprises (in US dollars) Global Bank.  Larry Neal (2005). \"Venture Shares of the Dutch East India Company,\" Goetzmann and Rouwenhorst (eds. ), Oxford University Press, 2005, pp. 165–175  UBS and Goldman withdraw from trading on the NYSE and Nasdaq. December 6, 2006, The Economic Times.  Financial Times, September 15, 2014. \"Financial authorities look at dark pools.\"  Making Economic Sense, 2nd edition, Murray Rothbard (Ludwig von Mises Institute, 2006), p. 426 Textbooks  Stock market manipulations, trendocracy, and Sergey Perminov (2008, ISBN 978-1- 4357-5244-3).  K. Alexander; R. Dhumale; and J. Eatwell (2006). The international regulation of systemic risk is a component of global financial system governance. ISBN 978-0-19- 516698-9: Oxford University Press.  Bank-Based or Market-Based Financial Systems: Which Is Better?, by Ross Levine, Journal of Financial Intermediation, vol. 11, no. 4, p. 398-428, 2002 Website  https://www.insightsonindia.com/unorganised-money-market/  https://www.yourarticlelibrary.com/india-2/indian-money-market-organised-and- unorganised-sectors/75920  https://www.yourarticlelibrary.com/india-2/indian-money-market-organised-and- unorganised-sectors/75920 110 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT - 9 CAPITAL MARKET STRUCTURE 9.0 Learning Objectives 9.1 Introduction 9.2 Meaning and Structure 9.3 Institution 9.3.1 Stock exchange 9.3.2 Clearing corporation 9.3.3 Merchant bankers 9.3.4 Investment bankers 9.4 Structure of market 9.5 Summary 9.6 Keywords 9.7 Learning Activity 9.8 Unit End Questions 9.9 References 9.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Understand the structure of the market  Know about Investment bankers  Study about Institutions  Competition Conditions In a perfectly competitive market  Differences between perfect and monopolistic competition 9.1 INTRODUCTION In contrast to a money market, where short-term debt is purchased and sold, a capital market is a financial market where long-term debt (over a year) or equity-backed securities are bought 111 CU IDOL SELF LEARNING MATERIAL (SLM)

and sold. Capital markets direct savers' wealth to organisations or governments that can invest it long-term for long-term, productive use. Among other things, financial regulators like the U.S. Securities and Exchange Commission (SEC), Bank of England (BoE), and Securities and Exchange Board of India (SEBI) regulate capital markets to safeguard investors against fraud. Although certain transactions on capital markets can be viewed directly by the public, most are managed by organisations in the financial industry or the treasury departments of governments and businesses. For instance, anyone with internet access in the US can open an account with Treasury Direct and use it to purchase bonds in the main market, even though individual bond sales account for a very small portion of total bond sales. Many private businesses offer browser-based services that let people purchase shares and occasionally even bonds in the secondary markets. There are tens of thousands of these systems, the majority of which only serve a small portion of the global financial markets. The systems are hosted by government agencies, investment banks, and stock exchanges. Although the systems are physically located all over the world, they are primarily located in financial hubs like London, New York, and Hong Kong. Definition Either a primary market or a secondary market might constitute a capital market. New stock or bond issues are sold to investors in a main market, frequently via a process called underwriting. Governments (which may be municipal, local, or national) and business firms are the principal entities looking to raise long-term funding on the primary capital markets (companies). Governments solely issue bonds, although corporations frequently issue both bonds and equity. Pension funds, hedge funds, sovereign wealth funds, as well as less frequently affluent individuals and investment banks trading on their own account, are the main organisations that buy the bonds or stocks. Existing securities are bought and sold by investors or traders in the secondary market, typically over-the-counter, on an exchange, or somewhere else. Versus money markets The money markets are used to raise short-term capital, occasionally for loans with a one-day grace period for repayment. The \"capital markets\" on the other hand, are used to raise long- term money for things like the purchase of shares or equity or loans that won't be fully repaid for at least a year. Money is often borrowed from money markets to cover short-term liquidity needs such as regular operating expenses. For instance, a business may have incoming payments from clients that haven't cleared yet, but it needs quick cash to pay its staff. When a business takes out a loan from the main capital markets, it's frequently done so that it can purchase more tangible assets that will help it generate more revenue. Long-term financing is used because it may take 112 CU IDOL SELF LEARNING MATERIAL (SLM)

several months or years before an investment generates a sufficient return to cover its initial cost. The financial markets, as the term is used in this context, are made up of money markets and capital markets combined. Long-term financing is an issue of the capital market. It encompasses a number of avenues by which the community's savings are made available to commercial and industrial businesses as well as government agencies. Capital market versus bank loans Even when loans are extended for a duration greater than a year, routine bank lending is typically not categorised as a capital market transaction. First off, standard bank loans are not bundled (i.e. they do not take the form of a resaleable security like a share or bond that can be traded on the markets). Second, lending from banks is subject to stricter regulations than lending from capital markets. Third, compared to investors in the capital markets, bank depositors are typically more risk averse. These three variations together serve to restrict institutional lending as a source of funding. The fact that banks are more accessible to small and medium-sized businesses and have the capability of making money as they lend are two more differences that benefit bank lending. In the 20th century, bank loans were the primary source of firm financing, with the exception of share issuance. However, a disintermediation trend has been present since around 1980, when major, creditworthy corporations discovered they would effectively pay less interest if they borrowed directly from capital markets as opposed to banks. In the United States, there has been a particularly strong propensity for businesses to borrow through capital markets rather than banks. 9.2 MEANING AND STRUCTURE What is meant by capital market? Capital market is a place where buyers and sellers indulge in trade (buying/selling) of financial securities like bonds, stocks, etc. The trading is undertaken by participants such as individuals and institutions. Capital market trades mostly in long-term securities. 113 CU IDOL SELF LEARNING MATERIAL (SLM)

Even if, from a larger standpoint, capital markets are seen as a market of financial assets with lengthy or indefinite maturities, they actually play a crucial role in mobilising resources and allocating them to beneficial channels. Therefore, it may be claimed that the Capital Markets promote a nation's process of economic progress. Below is a discussion of the markets' significant roles and functions. 1. Economic Growth: Capital Markets contribute to an acceleration of the economic growth process. It depicts how the economy is doing generally. The capital market aids in the efficient distribution of resources from those with excess capital to those in need of capital. Thus, it promotes trade and industrial growth in both the public and private sectors, which results in balanced economic growth for the nation. 2. Encourages Saving Habits: Following the growth of Capital Markets, the taxation system and banking institutions give investors the means and incentives to save more. In the absence of capital markets, they might have spent excessively or invested in non-productive assets like land or gold. 3. Stable and systematic security prices: In addition to facilitating the flow of capital, capital markets contribute to stock price stability. The stability of security prices is facilitated by a reduction in speculative activity and the provision of money to borrowers at a lower interest rate. 4. Money availability: Continuous investments are made in the capital markets. Through an internet platform, buyers and sellers communicate and exchange money and assets. This is made possible by the platforms offered by stock exchanges like NSE and BSE, which makes transactions in the capital market simple. Fig 9.1 Indian Capital Market 114 CU IDOL SELF LEARNING MATERIAL (SLM)

9.3 INSTITUTIONS 1. Stock exchange - An exchange where stockbrokers and traders can purchase and sell assets, such as shares of stock, bonds, and other financial instruments, is known as a stock exchange, securities exchange, or bourse. The creation and redemption of such securities and instruments as well as capital events, such as the payment of income and dividends, may be accommodated by stock exchanges. Stock issued by listed firms, unit trusts, derivatives, pooled investment products, and bonds are examples of securities traded on a stock exchange. Buyers and sellers complete deals at a central place, such as the exchange floor, or by using an electronic trading platform, which is how stock exchanges sometimes operate as \"continuous auction\" markets. 2. Clearing corporation - The Clearing Corporation (TCC, formerly CCorp) is \"a Delaware corporation owned by 17 stockholders, many of whom represent the global derivatives marketplace participants and market makers, including the banks Goldman Sachs, Deutsche Bank, and Morgan Stanley, as well as inter-dealer brokers ICAP and GFI Group and German derivatives exchange Eurex. A public clearing facility for credit default swaps (CDS) that will be connected to DTCC's Trade Information Warehouse was announced in 2008 by the Clearing Corporation and the Depository Trust & Clearing Corporation (DTCC). CCorp confirmed on September 29, 2008, that the CDS clearing counterparty will go live by year's end. 3. Merchant Bankers - Combining banking with consulting services is known as merchant banking. For its clients' financial, marketing, management, and legal needs, it offers consulting services. To consult implies to give counsel, direction, or assistance. Starting a business is made easier by this. It aids in money collection. It aids in the business's growth and modernization. It aids in company reorganisation. It aids struggling business divisions. Additionally, it aids businesses with stock exchange registration, acquisition, and trading. 4. Investment bankers - Investment banking refers to particular business operations of a financial services firm or corporate division that involve advisory-based financial transactions on behalf of private persons, public companies, and public authorities. Such a bank, which is more commonly linked with corporate finance, might help raise money by underwriting or serving as the client's agent in the issue of debt or equity instruments. An investment bank may also offer support services to businesses engaged in mergers and acquisitions (M&A), such as market-making, equities and derivatives trading, FICC services (fixed income instruments, currencies, and commodities), or research (macroeconomic, credit or equity research). Along with their businesses for investment research, the majority of investment banks continue to run prime brokerage and asset management divisions. The Bulge Bracket (highest tier), 115 CU IDOL SELF LEARNING MATERIAL (SLM)

Middle Market (mid-level businesses), and Boutique Market categories make up the industry (specialized businesses). 5. Depository - Depository refers to a location where something is placed for safekeeping or protection, as well as a business like a bank or savings association that accepts customer money deposits. A depository is any company, bank, or institution that keeps securities and facilitates their trading. A depository offers a funds transfer service, invests in other assets, lends out money put for safekeeping to others, and provides security and liquidity in the market. Upon request, a depository must deliver the deposit back in its original state. For the general public, depositories have many uses. They start by removing the danger associated with keeping physical assets for the owner. For instance, users can deposit funds into time and demand deposit accounts at banks and other financial institutions. A demand deposit account, like a checking or savings account, stores money until it has to be withdrawn, whereas a time deposit, like a certificate of deposit (CD), pays interest and has a set maturity date. Securities like stocks or bonds may also be used as deposits. When these assets are deposited, the institution holds the securities in dematerialized or paper format, such as a physical certificate, or in computerised form, also known as book-entry form. These groups contribute to the market's expansion of liquidity as well. Customers believe that when they give their money to a financial institution, it will be held there and returned to them when they ask for it. These organisations take deposits from customers and over time, pay interest on those deposits. Institutions borrow money from customers and lend it to others in the form of personal or company loans, earning more interest than is given to customers. 9.4 STRUCTURE OF MARKET In economics, market structure illustrates how businesses are classified and categorised according to the kinds of items they sell (homogeneous/heterogeneous), as well as how factors and forces from outside the business affect their operations. It is simpler to comprehend the peculiarities of various marketplaces when there is a clear market structure. Suppliers and demanders make up the bulk of the market. Both parties are necessary and equal. The market's price formation strategy is determined by the market structure. In order to create an equilibrium quantity, suppliers and demanders (sellers and buyers) will search for a price that both parties can accept. 116 CU IDOL SELF LEARNING MATERIAL (SLM)

For regulators dealing with changes in market structure, market definition is a crucial issue that needs to be resolved. Three circumstances make up the relationship between buyers and sellers, which is the core of the market: the relationship between buyers and sellers, the relationship between buyers and sellers, and the relationship between buyers and sellers. the interaction between market buyers and sellers and buyers and sellers who are new to the market. These connections are how monopoly and market competition are portrayed in economics. History Many economists, including Adam Smith and Karl Marx, who have sharply divergent views on how the market functions in the context of governmental interference, have discussed market structure. Karl Marx discussed how the market functions in the presence of a controlled economy, which is sometimes referred to as a command economy in the literature. Adam Smith emphasised the significance of laissez-faire principles outlining the operation of the market in the absence of dominant political mechanisms of control. The twentieth and twenty-first centuries have both seen historical examples of both types of market structures. Due to its inherent influence on markets, market structure has been seen throughout history. This can be attributed to the various contributing variables that give rise to each form of market structure. Types: Perfect competition describes a market type with numerous customers and sellers, free entry barriers, dealing with uniform goods with no distinction, and where the price is set by the market. Since the industry as a whole sets the price, individual businesses are price takers[3]. An illustration would be the sale of agricultural products, which have a large number of buyers and sellers and are homogenous goods, where the price is determined by the market's supply and demand rather than by specific businesses. Markets with imperfect competition are those where the requirements for perfect competition are not met (such as no barriers for entry and exit, homogeneous products and many buyers and sellers). Imperfect competition includes all other forms of competition. Monopolistic competition is a sort of imperfect competition in which a large number of vendors compete to sell goods that are similar yet distinct from one another (for instance, product quality may vary), making them imperfect substitutes. When there are numerous sellers who make an effort to stand out from one another, this market structure is present. Examples are toothpaste, soft drinks, and clothing since they are all similar goods with lots of customers 117 CU IDOL SELF LEARNING MATERIAL (SLM)

and sellers and minimal entry barriers, but they differ from one another in terms of quality, flavour, and branding. Companies have some power over the pricing because they are neither price makers nor price takers (as a result of their distinct offerings) (as there are many buyers and sellers) Monopoly is a situation in which there is only one seller of a good or service that cannot be replaced. Due to their dominance over the sector, the company sets the prices. High entry barriers make it necessary for an incumbent to employ entry-deterring tactics in order to keep out competitors who could increase profitability for the business. Monopoly power is \"the ability to behave in an unrestricted way,\" such as increasing price or diminishing quality, according to noted antitrust economist Frank Fisher. For instance, Standard Oil (1870–1911) Natural monopoly refers to a situation in which economies of scale cause efficiency to continuously rise as a function of business size. If a company can meet all market demands at a lower cost than any combination of two or more smaller, more specialised enterprises, it is considered to have a natural monopoly. Features of market structures: Realistic market conditions, where certain monopolistic competitors, monopolists, oligopolists, and duopolies exist and control the market conditions, are remarkably similar to the imperfectly competitive structure. The number and quantity of sellers, entry and exit restrictions, the nature of the product, price, and selling costs are all components of market structure. The new external elements, such as technology, customer tastes, and new competitors, might cause changes in the market structure. Therefore, while the fundamental components of market structure never change, their relative importance may, thereby increasing their impact on the existing structure. Competition is beneficial because it discloses the true level of customer demand and encourages suppliers to meet customers' expectations for service quality and pricing, usually subject to the supplier's requirement to recoup its costs. In other words, competition can make the seller disclose his genuine costs and other sensitive facts and can bring his interests into line with those of the buyer. In the absence of perfect competition, there are three main strategies that can be used to address issues with the control of market power and an information and objective asymmetry between the government and the operator: (a) putting the operator under competitive pressure; (b) gathering information about the operator and the market; and (c) using incentive regulation. 118 CU IDOL SELF LEARNING MATERIAL (SLM)

9.5 SUMMARY  Capital market Even when loans are extended for a duration greater than a year, routine bank lending is typically not categorised as a capital market transaction. First off, standard bank loans are not bundled (i.e. they do not take the form of a resaleable security like a share or bond that can be traded on the markets). Second, lending from banks is subject to stricter regulations than lending from capital markets.  Forecasting and analyses It takes a lot of effort to analyse capital markets and forecast their future moves. This includes research conducted in academic settings, work done by professionals in the financial sector to increase profits and lower risks, as well as work done by governments and multilateral organisations to regulate the financial sector and comprehend how the capital markets affect the overall economy. The gut instincts of seasoned traders, different types of stochastic calculus, and algorithms like the Stratonovich-Kalman-Bucy filtering algorithm are some examples of methods.  Stock exchange - An exchange where stockbrokers and traders can purchase and sell assets, such as shares of stock, bonds, and other financial instruments, is known as a stock exchange, securities exchange, or bourse. The creation and redemption of such securities and instruments as well as capital events, such as the payment of income and dividends, may be accommodated by stock exchanges.  Measures of market structure - N-firm concentration ratio is a popular metric for assessing market structure. This information provides the market share total of the N biggest companies. [7] For instance, if the 5-firm concentration ratio for the US smart phone market is about.8, this means that the total market share of the country's top five smart phone vendors is over 80%. 9.6 KEYWORDS  Monopolistic Competition - There are many businesses, no limits on entering or leaving the market, they all sell different products of the same type, and businesses have some degree of pricing control. [11] Due to the high entry barriers and little threat of new competitors, monopolies have complete market dominance and are able to set prices as they see fit.  Monopoly – There is only one business, access is limited or barred entirely, and the goods produced and sold are distinctive and cannot be substituted by other goods. The firm has considerable control and sway over the market's price.  Imperfect competition – Markets with imperfect competition fall short of the requirements for perfect competition (such as no barriers for entry and exit, 119 CU IDOL SELF LEARNING MATERIAL (SLM)

homogeneous products and many buyers and sellers). Imperfect competition includes all other forms of competition.  Stock trading – The book described a market that was sophisticated but also prone to excesses, and de la Vega gave advice to his readers on subjects like the unpredictable nature of market shifts and the value of patience in investing. It took the form of a dialogue between a merchant, a shareholder, and a philosopher. 9.7 LEARNING ACTIVITY 1. Define Stock exchange ___________________________________________________________________________ ___________________________________________________________________________ 2. Name two types of capital market ___________________________________________________________________________ ___________________________________________________________________________ 9.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is a convertible bond? 2. What is the formula of calculating working capital? 3. What is money laundering? 4. What is an FX forward? Long Questions 1. What function does underwriting serve in this sector? 2. What do you believe a typical day might entail for an investment analyst? 3. What are some of the most significant distinctions between commercial and investment banking? 4. Outline the procedure for determining the worth of a corporation. 120 CU IDOL SELF LEARNING MATERIAL (SLM)

B. Multiple Choice Questions 1. The secondary market is a platform in which? a. Only earlier allotted securities are being traded among investors. b. Investors trade in new securities c. Individually cannot participate d. None of these 2. What are the best-known capital markets? a. The stock market b. The bonmd market c. A depository account with any of the depositories in India. d. Both a and b 3. What is Net Present Value? a. Net present value is, which displays the cash flow. b. Value for both outflow and inflow. c. Net Present Value is the sum of the available values of cash flow d. None of the above 4. What is a cross-border exchange? a. Trading of foreign currency in India. b. The trading of the Indian rupee in exchange for other currencies/ goods. c. Hawala transactions in Indian rupee. d. Unauthorised remittance of the Indian rupee. 121 CU IDOL SELF LEARNING MATERIAL (SLM)

Answers 1-a, 2-d, 3-c, 4-b 9.9 REFERENCES Reference books  What does 'capital markets union' mean? Commission Europe - Commission Europe. The 2018-03-07 retrived.  Lauren Tett (September 28, 2014). Bill Gross missed the major shift after a lifetime of trend-spotting.  Jeremy Ford (2012-08-24). \"The hedge funds are engaged in a losing strategy.\" Financial Times the 2012-09-06 retrieved  Benjamin Curry and Kat Tretina (9 April 2021). What Is The New York Stock Exchange?, according to Forbes. obtained on July 25, 2022.  YouTube. \"The History of the Bombay Stock Exchange.\" On October 30, 2021, the original version was archived. Textbooks  Soft Dollars and Other Trading Activities, Lemke and Lins, 2:25–2:30 (Thomson West, 2013-2014 ed.)  Venture Capital and the Structure of Capital Markets: Banks Versus Stock Markets, by Ronald J. Gilson and Bernard S. Black, 1998  strategic economics. Besanko David (6. ed., internat. student version ed.). Wiley, 2013; Hoboken, NJ; OCLC 835302276; ISBN 978-1-118-31918-5. Website  https://en.wikipedia.org/wiki/Stock exchange  https://en.wikipedia.org/wiki/Market structure#:~:text=Market%20structure%2C%20in%20economics%2C% 20depicts,by%20external%20factors%20and%20elements.  https://investortonight.com/blog/capital-markets/ 122 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT - 10 PLAYERS IN THE MARKET STRUCTURE 10.0 Learning Objectives 10.1 Introduction 10.2 Stock market Intermediaries 10.3 Instruments of Issue /Trading-New Instruments 10.4 Summary 10.5 Keywords 10.6 Learning Activity 10.7 Unit End Questions 10.8 References 10.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  The financial intermediary’s role  Portfolio managers  Sustainable consumption level:  Stock broker  Debt vs Equity 10.1 INTRODUCTION Hedgers, speculators, and arbitrageurs are the three main kinds of market players, in addition to brokers and the exchange administration. Brokers will act as an intermediary, helping speculators and hedgers. Hedgers The main players in the futures markets are hedgers. Any person or business that purchases or sells the real physical commodity is a hedger. Changes in commodity prices, exchange values, 123 CU IDOL SELF LEARNING MATERIAL (SLM)

and interest rates have an impact on many hedgers who are producers, wholesalers, retailers, or manufacturers. When a company sells its products, changes to any of these factors may have an effect on its bottom line. Hedgers will use futures contracts to lessen the effects of these changes. Hedgers utilise the futures markets to manage and offset risk, as opposed to speculators who take on market risk in order to make money. The commodities markets employ a variety of hedgers: Concerned about escalating commodities prices are buy-side hedgers. Concerned about declining commodity prices are sell-side hedgers. Merchandisers: They both purchase and sell goods. Their risk is distinct from the directional risk associated with a conventional buyer and seller of hedges. Their profitability is based on the spread, or difference, between the purchasing and selling prices. The risk management capabilities of futures contracts are being utilised by numerous businesses for a range of assets. The price of building supplies has an impact on a construction company's profitability. The company can lock in a price at which it buys steel by investing in a steel futures contract. In contrast, steel mills can sell steel futures contracts to hedge against price fluctuation if they are concerned about a downturn in building demand and the price of steel. Crude oil futures are increasingly being used by airlines as a hedge against rising fuel prices. Additionally, by using futures contracts for precious metals, jewellery producers can protect themselves against changes in the price of gold and silver. Speculators: In the world of finance, speculating is the act of buying a product (a commodity, a good, or real estate) in the anticipation that its value will increase soon. (It also applies to short sells if the speculator anticipates a drop in value.) Many speculators pay little attention to a security's underlying value and instead concentrate solely on price changes. [Reference needed] Speculation can, in theory, encompass any tradable asset or financial instrument. In the markets for stocks, bonds, futures contracts on commodities, currencies, fine art, collectibles, real estate, and derivatives, speculators are particularly prevalent. 124 CU IDOL SELF LEARNING MATERIAL (SLM)

In addition to hedgers, who execute transactions to offset some other existing risk, arbitrageurs, who seek to profit from instances where fungible instruments trade at different prices in different market segments, and investors, who seek to profit through long-term ownership of an instrument's underlying characteristics, speculators play one of four key roles in the financial markets. Sustainable consumption level: Nicholas Kaldor has long acknowledged the importance of speculators in maintaining prices because they have \"better than average foresight,\" which tends to smooth out \"price- fluctuations owing to changes in the conditions of demand or supply.\" Victor Niederhoffer, a trader, later reiterated this viewpoint in \"The Speculator as Hero,\" where he lists the advantages of speculation. Bearing risks Speculators assume risks in a way that can be advantageous to society as a whole. For instance, a farmer might be thinking about growing corn on some uncultivated ground. He might not want to do it though since he is worried that the price would drop too much come harvest. He can now hedge the price risk and plant the corn by selling his harvest in advance to a speculator at a fixed price. Therefore, by taking on risk, speculators can actually raise production (not at the loss of profit). Arbitrageurs In economics and finance, arbitrage is the technique of capitalising on price differences between two or more markets by putting together a number of matching trades. The profit is the spread between the market prices at which the unit is traded. Academics define an arbitrage as a transaction that has a positive cash flow in at least one state and no negative cash flow in any probabilistic or temporal condition; to put it another way, it is the potential for a risk-free profit after transaction costs. When it is possible to instantly buy something for a cheap price and sell it for a higher price, for instance, there is an arbitrage opportunity. An arbitrage is risk-free in theory and in academic contexts; however, in everyday usage, such as in statistical arbitrage, it may refer to expected profit, even though losses may occur. In reality, there are always risks associated with arbitrage, some minor (such as price fluctuations reducing profit margins), some major (such as devaluation of a currency or derivative). In academic contexts, engaging in an arbitrage entails taking advantage of price variations for a 125 CU IDOL SELF LEARNING MATERIAL (SLM)

single asset or identical cash flows; however, in everyday usage, the term is also used to describe price variations for similar assets (also known as relative value or convergence trades), as in merger arbitrage. 10.2 STOCK MARKET INTERMEDIARIES The middleman in any transaction between two parties are known as intermediaries. These intermediaries serve as a link between them and facilitate information exchange in order to achieve a shared objective. These middlemen serve as the points of contact in any traditional marketplace, whether it is a stock market, a business, or another one. They make it easier for those parties to engage in intermediary activity or transactions. Understanding the different sorts of intermediaries is necessary to comprehend their roles in the market and their contribution to giving the participants a common platform. Their roles are likewise predetermined and depend on the sort of middleman. Additionally, you should be aware that intermediaries can appear at different points throughout a supply or distribution chain. Therefore, these levels may be a factor in determining an intermediary's functions. Who are the intermediaries in the Stock market? Underwriter Underwriters are, as their name suggests, entities that are formally connected to a business or organisation. Their main responsibility is to manage people and interact with them regarding participation in various schemes or the like. For instance, an insurance business can work as an underwriter in India. If you meet certain requirements, it will provide you with insurance services for a set rate. Merchant bankers These are organisations that give money to a business instead of loans and share ownership of that specific business. As a result, individuals are granted the ability to participate in the corporate affairs of the company in which they have invested. As a result, merchant bankers serve as a conduit between huge corporations and outside markets. For instance, some merchant bankers in India are State Bank of India, ICICI Bank, and Punjab National Bank. 126 CU IDOL SELF LEARNING MATERIAL (SLM)

Portfolio managers A person, a group of persons, or even an entity that manages money that is exchanged on the stock market can fall under this category. These middlemen go over the complete investment strategy with their group or organisation before engaging in market trading of stocks or securities. These intermediaries also invest in bonds, derivatives, mutual funds, etc. to increase the return on their capital. Debenture trustees These individuals operate in accordance with the regulations listed in SEBI Guidelines, 1993, and are registered with the Securities and Exchange Board of India (or SEBI). The SEBI keeps an eye on these employees' performance in providing security, resolving complaints, paying interest, and redeeming debentures. They serve as the intermediaries between holders of debentures and the institution or business whose debentures the holders have acquired. Sub Broker Although a sub-broker is a proxy member with the knowledge to act on behalf of the trading member, he or she is not directly connected to the stock exchanges. In regards to dealing in securities, he can help both investors and trading members. Stock broker Due to their participation in the trading of securities, these brokers are a component of the stock market. For enabling such trading, they demand a specified cost, but their work is more successful than others'. Their understanding of the stock market is one of the most plausible explanations for such efficiency. Due to a lack of such expertise, a trader is more likely to purchase or sell stocks at a price that is higher than it ought to be. An intermediary can assist in properly connecting stock exchanges and traders in such circumstances. What are the types of Intermediaries? The intermediaries are grouped into distinct categories according to the roles and areas in which they carry out their duties, which are detailed below. 127 CU IDOL SELF LEARNING MATERIAL (SLM)

Agents and broker These are employees who have a direct connection to the company or stock exchanges. They serve as a conduit between buyers and vendors. The essential documentation is also taken care of by agents and brokers. Distributers They serve as a bridge between the wholesalers and the manufacturing company and are chosen by the latter directly. For instance, businesspeople might buy products from the company and give them to wholesalers to resell. Retailers These are the connection points that wholesalers and consumers use. Their responsibility is to buy products from wholesalers and resell them to final consumers. Resellers and wholesalers Distributors supply the goods to wholesalers, who then sell them to numerous retailers. They purchase products in bulk and later sell them to other companies or stores. Agents and brokers are the first of their sort among the several intermediary kinds, and most people believe that they are the only middlemen. You can follow our online learning programmes for further details on the stock market and what intermediaries entail. These come with useful study materials that our distinguished and knowledgeable faculty members have produced. You can gain immediate access to top-notch study materials and revision notes that will help you prepare for exams. So, without further ado, get your study materials and get started on the correct track with your preparation. The financial intermediary’s role The reason financial intermediaries are so prevalent is because of how unique they are, like banks and insurance businesses. Banks frequently serve as \"intermediaries\" between those who have resources and those who are looking for them, as was previously mentioned. Depending on the type of service they offer and the type of customer they serve, financial intermediaries like banks may be asset-based or fee-based. Asset-based financial intermediaries include 128 CU IDOL SELF LEARNING MATERIAL (SLM)

organisations like banks and insurance companies, whereas fee-based financial intermediaries levy a fee. Services for portfolio management and syndication are offered through middlemen. Recent Development Recent developments in the development of financial intermediaries, particularly in the developing world, have shown that these organizations can be crucial to programmers aimed at reducing poverty and other forms of debt. The economic well-being of traditionally marginalized sectors of the population has improved as a result of some policies, such as providing microcredit to the populace. Banks and other financial intermediaries are developing into \"financial hyper marts,\" or umbrella organizations, that can meet the needs of both investors and borrowers completely. In today's interconnected global economy, financial intermediaries are crucial. They serve as the \"lubricants\" necessary for the economy to run. Financial intermediaries continuously have to reinvent themselves in order to meet changing needs as a result of the complexity of financial transactions. the various portfolios and requirements of the investors Financial intermediaries are heavily accountable to both lenders and borrowers. The term \"intermediary\" suggests that these organisations are crucial to the functioning of the economy and that they, along with the monetary authorities, must make sure that credit reaches the underprivileged while protecting the interests of investors. One of the biggest problems they deal with is this. 10.3 INSTRUMENTS OF ISSUE /TRADING - NEW INSTRUMENTS What is Trading? Trading is the speculative buying and selling of financial products (stocks, bonds, futures, options, currencies, etc.) with the goal of making money from a shift in price. Trading tactics involve speculation. Unlike an investor, who purchases financial instruments with the intention of selling them once their value has increased (typically over the course of a year), a trader can profit whether the value of the instrument increases or decreases, and does so over a much shorter time frame than an investor. Financial instruments can be thought of as packets of capital that can be traded or as assets that can be traded. The majority of financial instrument types enable effective money flow and transfer among investors worldwide. These assets may consist of money, a legal right to deliver or receive money or another kind of financial instrument, or proof of ownership of a legal company. 129 CU IDOL SELF LEARNING MATERIAL (SLM)

Financial instruments can be physical or digital papers that represent a contract involving any amount of money. Financial instruments with an equity component represent asset ownership. Financial instruments that are based on debt simulate loans that investors make to asset owners. A third distinct category of financial instruments is made up of foreign exchange instruments. Each form of instrument has various subcategories, such as preferred share equity and common share equity. In the world of finance, a trade is the exchange of a security (stocks, bonds, commodities, currencies, derivatives, or any other valuable financial instrument) for \"cash,\" which is often a short-term promise to pay in the local currency of the location of the 'exchange'. The supply and demand for a particular financial instrument influence the price at which it is exchanged. Depending on whether they are equity-based (representing ownership of the issuing business) or debt-based, financial instruments can be divided into different \"asset classes\" (reflecting a loan the investor has made to the issuing entity). If the instrument is debt, it can also be divided into long-term (more than one year) and short-term (less than one year). Since foreign exchange instruments and transactions are neither based on debt nor equity, they should be classified separately. Types of instruments Cash instruments and derivative instruments are the two main categories of financial instruments. The markets immediately affect and determine the values of cash instruments. These may be easily transferable securities. Deposits and loans that have been agreed upon by lenders and borrowers also qualify as cash instruments. Derivative Instruments Derivative instruments' values and properties are determined by the underlying elements of the vehicle, such as assets, interest rates, or indexes. For instance, an equity options contract is a derivative because the underlying stock serves as the basis for its value. The option grants the right to buy or sell the shares at a predetermined price and by a predetermined date, but not the duty to do so. The value of the option fluctuates together with the price of the stock, though not always by the same percentage. Derivatives may be traded on an exchange or over-the-counter (OTC). Securities that are not listed on official exchanges are priced and traded on the over-the-counter (OTC) market or process. 130 CU IDOL SELF LEARNING MATERIAL (SLM)

Debt-Based Financial Instruments Financial instruments with a short maturity of one year or less are based on debt. T-bills and commercial paper are the securities of this type. These funds may be in the form of certificates of deposit or deposits (CDs). Short-term interest rate futures are within the category of exchange-traded derivatives for short- term, debt-based financial instruments. Forward rate agreements are OTC derivatives. Financial instruments based on long-term debt can last for several years. These are bonds, which fall under securities. Loans are cash equivalents. Bond futures and options on bond futures are exchange-traded derivatives. Interest rate swaps, interest rate floors and ceilings, interest rate options, and exotic derivatives are all examples of OTC derivatives. Equity-Based Financial Instruments Stocks are considered securities for equity-based financial products. Stock options and equity futures fall under this category of exchange-traded derivatives. Stock options and exotic derivatives are OTC derivatives. Special Consideration Under foreign exchange, there are no securities. Equivalents to cash are available in spot foreign currency, which is the going rate. Currency futures are exchange-traded derivatives for foreign exchange. Foreign exchange options, outright forwards, and foreign exchange swaps are the three types of OTC derivatives. Exchange trade funds A collection of assets that is traded on the stock exchange is known as an exchange-traded fund (ETF). ETFs monitor the overall value of the assets they own. ETFs come in a variety of forms, including those for metals, technology stocks, and more. Future contracts Futures contracts are standardised contracts that serve as a binding legal commitment to purchase a specific item at a specific price in the future (i.e., fixed quantity, price, and delivery location). Futures contracts are most frequently used to trade commodities including soybeans, cocoa, crude oil, and more. 131 CU IDOL SELF LEARNING MATERIAL (SLM)

Forward contracts Forward contracts differ differently from futures contracts in that they can be customised as opposed to standardised futures contracts. They are frequently used to balance risk from other assets and lessen it. Options Options contracts allow the buyer the option to purchase or sell a certain asset at a predetermined price and date. In contrast to put options, which offer the option to sell, call options offer the opportunity to buy. An options contract does not obligate the buyer to buy or sell, in contrast to a futures contract. Currency derivatives Futures, forward, and option contracts that deal in a specific currency are referred to as currency derivatives. They are frequently employed by forex traders who base their trades on changes in exchange rates. Metals Metals like gold, silver, and copper are used as trading instruments as well as assets for futures contracts. Physical metal dealing is quite frequent, especially for precious metals like gold and silver. Contract for differences An agreement between two parties to exchange financial assets based on the difference between the entering price and closing price is known as a contract for difference (CFD). 10.3.1 Trading Tools Trading capital referred to as a \"margin deposit\" or a \"trading position\" in some circumstances. All of the trader's transactions are secured by the capital he or she has deposited with the brokerage. The trader is said to have \"blown up\" the account and is thus \"out of business\" until they deposit a new trading stake if the capital is completely exhausted or is below the level at which they can construct a lawful position. Traders with accounts that are five to six figures in value frequently pursue a full-time trading career. This money must be \"risk capital,\" or money that can be 132 CU IDOL SELF LEARNING MATERIAL (SLM)

completely lost without negatively affecting a trader's financial situation. Therefore, it is strongly advised against using borrowed money. Brokerage account The trader can enter the market through the brokerage if that is what they want to do. Whether a trade is lucrative or not, the broker receives a commission for every transaction. The broker also gives the trader access to data feeds, trading software, and margin, which is money that may be borrowed to boost prospective earnings (but it can also serve to boost losses as well). Computer with internet connection Nowadays, almost all brokerages conduct their business online. In the event that their computer breaks down while they are in the middle of a deal, many traders have a backup internet connection or utilise a cell phone. To keep track of various charts and news stories more easily, many traders choose to have two or more monitors. Charting software Although there are other platforms that can be used, brokerages frequently offer this software for studying price movements. Key takeaways 1. A financial instrument is a physical or digital document that represents a contract involving money of any type. 2. Cash instruments and derivative instruments are the two main categories of financial instruments. 3. Depending on whether they are debt- or equity-based, financial instruments can also be categorised based on an asset class. 4. A third distinct category of financial instruments is made up of foreign exchange instruments. 10.4 SUMMARY  Financial instruments are agreements between parties to exchange money. They can be made, exchanged, changed, and resolved. They could be money (currency), proof of ownership in a company, a legal right to receive or send money (forex), debt 133 CU IDOL SELF LEARNING MATERIAL (SLM)

instruments (bonds, loans), equity instruments (shares), or derivatives (options, futures, forwards).  Financial instruments with a short maturity of one year or less are based on debt. T- bills and commercial paper are the securities of this type. These funds may be in the form of certificates of deposit or deposits (CDs).  Trading is the speculative buying and selling of financial products (stocks, bonds, futures, options, currencies, etc.) with the goal of making money from a shift in price. Trading tactics involve speculation.  Understanding the different sorts of intermediaries is necessary to comprehend their roles in the market and their contribution to giving the participants a common platform. Their roles are likewise predetermined and depend on the sort of middleman. 10.5 KEYWORD  Financial instruments ― Financial instruments are agreements between parties to exchange money. They can be made, exchanged, changed, and resolved. They could be money (currency), proof of ownership in a company, a legal right to receive or send money (forex), debt instruments (bonds, loans), equity instruments (shares), or derivatives (options, futures, forwards).  Role of intermediaries - These middlemen serve as the points of contact in any traditional marketplace, whether it is a stock market, a business, or another one. They make it easier for those parties to engage in intermediary activity or transactions. Any transaction involves parties other than the buyer and seller; in the stock market, these parties are known as intermediates. The main market and secondary market are the two segments of the financial market, and there are distinct intermediaries for each segment. 10.6 LEARNING ACTIVITY 1. Define intermediates ___________________________________________________________________________ ___________________________________________________________________________ 2. Name the tools used for trading ___________________________________________________________________________ ___________________________________________________________________________ 134 CU IDOL SELF LEARNING MATERIAL (SLM)

10.7 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What are the limitations Of Capital Budgeting? 2. What is deep discount bonds 3. What are the different types of derivatives 4. What is under writing and what is its role Long Questions 1. What is the difference betweek debt and equity? 2. What are the key differences between commercial and investment banking? 3. Explain what a convertable bond is? 4. What are the advantages and limitations of credit rating? 5. What is capital market and how dose a company raise their funds in capital market? B. Multiple Choice Questions 1. Which of the following statements is true? A. The income statement illustrates a business’ financial position. B. The income statement includes dividends paid C. The income statement illustrates the business’ financial performance D. The income statement has to show the results for one year 2. The main aim of accounting is to: A. maintain ledger accounts for every asset and liability B. provide financial information to users of such information C. produce a trial balance D. record every financial transaction individually 3. A Debit entry could lead to: 135 CU IDOL SELF LEARNING MATERIAL (SLM)

A. an increase in assets or a decrease in expenses B. an increase in sales or an increase in liabilities C. a decrease in sales or a decrease in assets D. a decrease in liabilities or an increase in expenses 4. If the owner of a business takes goods from inventory for his own personal use, the accounting concept to be considered is the: A. relevance concept B. capitalisation concept C. money measurement concept D. separate entity concept Answers 1-b, 2-a, 3-c. 4-b 10.8 REFERENCES Reference books  Infinite Financial Intermediation, 50 Wake Forest Law Review 643 (2015)  Pierre Siklos (2001). Canada in the International Environment: Money, Banking, and Financial Institutions. McGraw-Hill Ryerson, Toronto. p. 35. ISBN 0-07-087158-2.  Out of sight, out of mind? Bretton Woods Project (2010) Banks, private equity firms, and other financial intermediaries are used by IFC to make investments.  Financial Intermediation, Bruce Gahir, 2009, Prague, Czech Republic Textbooks  Söhnke M. Bartram, Gregory W. Brown, and Jennifer C. Conrad  Lemke, Lins (2013–2014). The use of soft currency and other types of trading. Robert West.  Michael Durbin, \"All About Derivatives,\" 2011. (2nd ed.). McGraw-Hill, New York.  For Financial Markets Institute (2011). Options and Futures 136 CU IDOL SELF LEARNING MATERIAL (SLM)

Website  http://www.slideshare.net/sreenath.s/evolution-of-hrm  https://en.wikipedia.org/wiki/Derivative (finance)  WWW. https://en.wikibooks.org/wiki/Trading 137 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT - 11 SEBI GUIDELINES STRUCTURE 11.0 Learning Objectives 11.1 Introduction 11.2 Indian Capital Market 11.3 Recent Trends in capital market 11.4 National market system 11.5 Summary 11.6 Keywords 11.7 Learning Activity 11.8 Unit End Questions 11.9 References 11.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Functions and responsibilities of capital market  Learn about Indian capital market  External commercial borrowing  National institutes of securities market  Transaction Tax  National market system 11.1 INTRODUCTION The Security and exchange board of India(SEBI) is the regulatory body established under Section 3 of the SEBI Act 1992 to safeguard the interests of investors in securities, to encourage the growth of the securities market, to regulate it, and for matters related to and incidental to those purposes. 138 CU IDOL SELF LEARNING MATERIAL (SLM)

History In order to control the securities market, the Securities and Exchange Board of India (SEBI) was first constituted as a non-statutory entity in 1988. With the passage of the SEBI Act 1992 by the Indian Parliament, it was given statutory powers and became an independent organisation on January 30, 1992. SEBI is headquartered in Mumbai's Bandra Kurla Complex, and it also has regional offices in New Delhi, Kolkata, Chennai, and Ahmedabad for its northern, eastern, southern, and western regions. In the 2013–2014 fiscal year, it established local offices in Jaipur, Bangalore, Guwahati, Bhubaneshwar, Patna, Kochi, and Chandigarh. Prior to the creation of SEBI, the regulating body was the Controller of Capital Issues, which received its jurisdiction from the 1947 Capital Issues (Control) Act. Members of the SEBI, which includes the following, manage it: 1. The Indian Union Government proposes the chairperson. 2. Two officers from the Union Finance Ministry, i.e., members. 3. A single Reserve Bank of India representative. 4. The Union Government of India proposes the other five members; at least three of them must be full-time representatives. 5. Except for nidhis, chit funds, and cooperatives, collective investment plans were brought under SEBI with the amendment of 1999. Functions and responsibilities The Securities and Exchange Board of India's basic responsibilities are \"...to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, as well as for matters connected therewith or incidental thereto,\" according to the Preamble of the S&EB. Three groups make up the market, and SEBI must respond to their needs: issuers of securities investors market intermediaries 139 CU IDOL SELF LEARNING MATERIAL (SLM)

SEBI is a single entity with quasi-legislative, quasi-judicial, and quasi-executive authorities. As a legislative body, it creates regulations. As an executive body, it carries out enforcement actions and investigations. As a judicial body, it issues judgments and orders. Despite the fact that this gives it a lot of authority, there is an appeals mechanism to establish accountability. A three-member body called the Securities Appellate Tribunal is now presided over by Justice Tarun Agarwala, a former chief justice of the Meghalaya High Court. Another appeal is available to the Supreme Court directly. In order to streamline disclosure obligations to meet worldwide standards, SEBI has chosen a highly proactive approach. 11.2 INDIAN CAPITAL MARKET As opposed to the money market, which deals in short-term cash, the Indian capital market is the market for long-term loanable funds. It refers to the institutional frameworks and borrowing and lending opportunities for short-, medium-, and long-term finances. In general, businesses use capital market loans primarily for fixed investments. Instead of dealing in capital goods, it focuses on obtaining money for investment or other purposes. The industrial securities market and the gilt-edged market are the two segments of the Indian capital market. The market for government and semi-government securities that are supported by the RBI is referred to as the gilt-edged market. Banks and other organisations are very interested in the stable-valued assets traded on this market. The market for shares and debentures of both established and start-up enterprises is referred to as the industrial securities market. The new issues market and the old capital market, or stock exchange, are further divisions of this market. In contrast to the old capital market, which deals with securities that have already been issued by firms, the new issue market refers to the raising of fresh capital in the form of shares and debentures. Primary and secondary capital markets are additional divisions of the capital market. The term \"primary market\" refers to the market for new issues, which includes the issuance of bonds for the public sector as well as the shares, preference shares, and debentures of non-government public limited businesses. On the other side, the secondary market is the market for older, previously issued securities. The industrial security market, often known as the stock exchange, is where industrial securities are bought and sold, while the gilt-edged market is where government and semi-government assets are traded. Together, these two markets make up the secondary capital market. Indian capital market before Independence 140 CU IDOL SELF LEARNING MATERIAL (SLM)

Pre-independence, there was practically any capital market in India. Although agriculture constituted the backbone of the economy, there was very little long-term funding to the sector. Similar to this, the industrial securities market's expansion was severely constrained by the fact that there were relatively few firms and much fewer securities were traded on stock exchanges. The gilt-edged market for government and semi-government securities dominated the Indian capital market. Individual investors were extremely rare, and those that did exist were only found among the wealthy classes in urban and rural locations. The public's funds could not be mobilized and directed toward investment since there were no specialized middlemen and organizations. Indian capital market after Independence The Indian capital market has had significant expansion across the board since independence, as evidenced by rising levels of savings and investments. In 1951, there were 28,500 joint stock firms (a key sign of the development of the capital market), both public and private, with a paid-up capital of Rs. 775 crore. By 1990, that number had increased to 50,000, with a paid-up capital of Rs. 20,000 crore. Given the rapid pace of the Indian economy's expansion spurred by the five year plans, the rate of growth of investment has been extraordinary in recent years. Factors Influencing Capital Market: Merchant banking Entrepreneurs and investors interact financially through merchant bankers. The establishment of merchant banks by enterprises and individuals involved in the financial advice sector, private financial service companies, or subsidiaries of commercial banks are all possible options. Indian merchant banks oversee and manage new issues, manage credit syndication, assist corporate clients with capital raising, and handle other financial tasks. To encourage better transparency and hold merchant bankers accountable, merchant banking has been formally included under the Securities Exchange Board of India's (SEBI) regulatory framework since 1993. The merchant banks that were once affiliates or subsidiaries of commercial banks are under the RBI's supervision. Leasing and Hire-Purchase Companies: 141 CU IDOL SELF LEARNING MATERIAL (SLM)

Leasing has proven to be a popular financing option for purchasing equipment, particularly for small and medium-sized businesses. The benefits of speed, informality, and flexibility to meet specific demands have contributed to the expansion of leasing companies. The Narasimhan Committee has recommended that I a minimum capital requirement should be specified; (ii) prudential norms and guidelines in respect of business conduct should be laid down; and (iii) supervision should be based on periodic returns by a unified supervisory authority. The Narasimhan Committee has acknowledged the importance of leasing and hire- purchase companies in the financial intermediation process. Global Depository Receipts (GDR): The Indian government has permitted international investment in its assets since 1992 by issuing global depository receipts (GDRs) and bonds convertible into foreign currencies (FCCBs). At first, the profits from the Euro-issue had to be put to use for authorized purposes within a year after the issue date. The government required the issuing companies to retain the proceeds of the Euro-issue abroad and only repatriate when expenses for the approved end uses were incurred because there was a continuous accumulation of foreign exchange reserves with the RBI and there were lengthy gestation periods for new investment. Venture capital companies: The purpose of venture capital firms is to provide financial support for the introduction and adoption of new technologies, as well as for innovative concepts. They are crucial for technocrat entrepreneurs who possess technical know-how and proficiency but lack venture money. Financial institutions typically demand bigger investment finance contributions, where technocrat entrepreneurs can rely on venture capital firms. Risky venture capital financing is involved. The Narasimhan Committee claims that the regulations for forming venture capital firms are too stringent and impractical, which has hampered their development. The committee has suggested that the policies be reviewed and modified. Other new Financial Intermediaries: 142 CU IDOL SELF LEARNING MATERIAL (SLM)

In addition to the institutions mentioned above, the government has formed a number of new financial intermediaries in the fields of venture capital, credit rating, leasing, and other areas to meet the expanding financial demands of business and industry. (1) Since 1989, the Technology Development and Information Company of India (TDICI) Ltd., a venture capital firm, has approved project financing for innovative technological ventures. (ii) Risk Capital and Technology Finance Corporation (RCTFC) Ltd., an organisation founded in 1988 that gives technology financing to companies focused on technology and provides risk capital to emerging entrepreneurs. (iii) The 1988-founded Infrastructure Leasing and Financial Services (IL&FS) Ltd. specializes in leasing machinery for infrastructure development. (iv) The corporate sector receives credit rating services from three credit rating agencies: Credit Rating Information Services of India (CRISIS) Ltd., Credit Analysis and Research (CARE) Ltd., and Investment and Credit Rating Agency (ICRA), all of which were founded in 1993. By informing them of the assessed comparative risk of investing in the listed securities of various companies, credit ratings advance the interests of investors. If a company has a good credit rating, it also makes it easier and more affordable for them to raise money. (v) Stock Holding Corporation of India (SHCIL) Ltd. was founded in 1988 with the intention of implementing a book entry system for the transfer of shares and other types of scrips, thereby minimizing the extensive paper work required and lowering transfer delays. The subcategories of capital market in India: Development Devolvement is a procedure whereby an underwriter is compelled to purchase the remaining shares in the event that an investment offering is undersubscribed, particularly in India's investment banking industry. The underwriter assumes responsibility for the remaining unsubscribed amount. Another name for this is hard underwriting. When there are numerous underwriters or sub-underwriters, the Securities and Exchange Board of India provides guidelines and a suggested method of computation relating to the extent of the devolvement onto a certain underwriter. 143 CU IDOL SELF LEARNING MATERIAL (SLM)

External commercial borrowing External Commercial borrowing (ECBs) are loans given to Indian borrowers by non-resident lenders in the country. They are frequently utilised in India to help Indian businesses and PSUs access overseas capital (public sector undertakings). Commercial bank loans, credit from suppliers and buyers, credit from official export credit agencies, and commercial borrowings from the private sector window of multilateral financial institutions like the International Finance Corporation (Washington), ADB, AFIC, CDC, etc. are all examples of ECBs. ECBs cannot be used for real estate speculation or stock market investing. Guidelines and policies of the ECB are monitored and regulated by the Reserve Bank of India, the DEA (Department of Economic Affairs), and the Ministry of Finance of the Government of India. The majority of these loans are given by institutions and foreign commercial banks. Between 20 and 35 percent of the capital flows into India throughout 2012 came from ECBs. A significant number of Indian corporations and PSUs have employed ECBs as investment sources. Up to 50% of finance (via the ECB) is permitted for infrastructure and greenfield projects. The Reserve Bank of India increased the ECB ceiling for \"non-banking financing firms (NBFCs) categorised as infrastructure finance companies (IFCs)... from 50% to 75% of owned funds, including outstanding ECBs,\" according to an article in The Hindu in January 2013. Up to 50% of funding from ECBs is permitted in the telecom sector as well. Recently, the Indian government permitted yuan-denominated borrowings. Previously, the business sector could automatically mobilise $750 million, whereas the service sector and non- governmental organisations (NGOs) could only do so with $200 million and $10 million, respectively, for microfinance. In a more recent statement, RBI stated that all qualified borrowers may raise ECB up to USD 750 million or equivalent. 25% of the ECB can be used by borrowers to pay off rupee debt, with the remaining 75% going toward new projects. Through the ECB, a borrower cannot refinance the entirety of an existing rupee loan. Given the near-zero interest rates in the US and Europe, the money generated through the ECB is more affordable, and Indian companies can use that money to pay back some of their current pricey loans. Forward markets commission In India, the commodity and futures markets are governed by the Forward Markets Commission (FMC). It is a branch of the Government of India's Ministry of Finance and the 144 CU IDOL SELF LEARNING MATERIAL (SLM)

Securities and Exchange Board of India. It controlled commodities trading worth Rs 17 trillion in India as of July 2014. The Ministry of Finance is in charge of this financial regulatory body, which has its headquarters in Mumbai. In India, there are 22 exchanges that the Commission permits commodities trading on, of which 6 are national. The commission made headlines in March 2012 for its decision to outlaw trading in guar gum futures after claiming that the price had doubled as a result of fracking-related food inflation. In order to reflect the fact that futures trading was increasingly becoming a financial activity, the commission's authority was transferred to the Ministry of Finance in September 2013. India is regarded as a pioneer in several futures trading markets and has a long history of trading in commodities. In 1875, Mumbai established the first derivative market where cotton futures were traded. The introduction of futures markets for bullion, raw jute, finished jute products, and the complex of edible oilseeds came next. With reported high volumes, this sector became active. But a statute allowing the government to partially impose restrictions on and exercise direct control over food production was passed in 1935. (Defence of India Act, 1935). This included the power to limit or forbid the trade of those food commodities' derivatives. India struggled to feed its population after gaining independence in the 1950s, and the government tightened restrictions on the trafficking of food items. The government believed that just as the FMC was being founded, derivative markets boosted speculation, which resulted in higher costs and pricing instability. And finally outlawed trading in options and futures in 1953. The prohibition forced the sector underground, which meant that growth and development were stopped. The Indian derivatives markets lagged behind when the rest of the world's futures and options markets started to grow in the 1970s. The government maintained the restriction well into the 1980s due to concerns about the role of speculation, especially in times of scarcity. As a legacy of the Prohibition era, India now has numerous sparsely populated regional futures markets. The futures markets were scattered and dispersed, with distinct trading communities located in various regions and little interaction between them. The exchanges had not yet adopted contemporary business procedures or technological advancements. There were many havala marketplaces in addition to the exchanges that had received official approval. The majority of these unregulated commodity exchanges have been in operation for many years. The volume of trading on some unauthorised markets is 20–30 times greater than on \"legitimate\" futures exchanges. They provide option contracts in addition to futures. Due to their low transaction costs, smaller hedgers and speculators alike are drawn to them. However, due to a lack of regulation and appropriate clearing procedures, these markets were mostly \"controlled\" by the standing of the major participants. 145 CU IDOL SELF LEARNING MATERIAL (SLM)

National institutes of securities markets The National Institute of Securities Markets (NISM) is a public trust in India that was founded in 2006 by the Securities and Exchange Board of India (SEBI), the country's securities market regulator. It serves as the national apex body for the regulation and licencing of the financial market dealing profession in India. The Securities and Exchange Board of India, the Ministry of Finance, and the Government of India are the owners. Chidambaram, the former Union Finance Minister, proposed in the Budget Speech of February 2006 to give the Securities and Exchange Board of India permission to establish a National Institute of Securities Markets for educating and training intermediaries in securities markets and fostering research. NISM was consequently created in 2006. Through educational efforts, NISM aims to raise market quality. It is a self-governing body that is overseen by a Board of Governors. NISM receives strategic counsel from an international advisory council. Through the implementation of its programme POCKET MONEY, the School for Investor Education & Financial Literacy (SIEFL) is working to raise awareness of the value of financial literacy among students. The promotion of wealth development through better financial planning is done through investor education, which is addressed to a variety of audiences, including college students, young investors, retirees, and the general public. Through its many trainings and workshops, the School concentrates on raising awareness of the Securities Market & Mutual Funds. As a knowledge and project management partner in a groundbreaking programme to prepare young people in our nation for employment in the BFSI sector or even for launching their own enterprise in the securities markets, NISM is involved with sponsoring corporates (under CSR). Securities Transaction tax The value of securities (except from commodities and currencies) exchanged through a recognised stock exchange is subject to the Securities Transaction Tax (STT), which is a tax owed in India. In terms of delivery-based equity trading, it is 0.1% as of 2016. Off-market, currency or commodity transactions are not covered by STT. The initial tax rate for a delivery-based equity transaction was set at 0.125% and for an intra-day transaction at 0.025%. The rate was set at 0.017% for all transactions involving futures and options. To prevent capital gains tax avoidance, P. Chidambaram, who was the finance minister at the time, first proposed STT in 2004. Following years of complaints from the brokerage industry and the trading community, the government decreased this levy in the 2013 budget. For delivery-based equities trading, the updated STT is 0.1% of turnover. The tax has been lowered to 0.01% for futures on the sell-side only. The STT has been lowered for equity options to 0.05% on the sale side of the premium sum. The rest of the tax system is unchanged. A direct tax is STT. 146 CU IDOL SELF LEARNING MATERIAL (SLM)

The Indian union government imposes and collects the STT. Depending on the circumstances of the transaction, either the seller or the buyer may pay STT. Securities that are subject to STT taxation are defined by the Securities Contract (Regulation) Act of 1956. The classification of the activity of buying and selling shares or derivatives as an investing activity or a commercial activity determines how the profit or loss from securities transactions is taxed. 11.3 RECENT TRENDS IN CAPITAL MARKET 1. Economic Liberalization due to Indian Capital Market: More deregulation, liberalization, and privatization of several public sector enterprises in India have resulted from the economic liberalization. As a result, the public now has access to some of the public sector undertakings' shares. The government's previous industrial policy prohibited both private sector and individual investment in the core sector. However, the public can now contribute to the shares thanks to the privatization of several public sector enterprises. Steel Authority of India, for instance (SAIL). The Navaratnam enterprises, which include significant PSUs like ONGC, BHEL, Oil India Ltd, Gas Authority, etc., are some of the businesses that have not yet undergone privatization. Recently, VSNL's shares were purchased by TATAs. 2. Promoting more private sector banks: The public has contributed to the shares of these banks in the Indian capital market as a result of the opening of new private sector banks. The government recently announced that foreigners would own 74% of the equity in Indian private sector banks. This has prepared the door for current banks to merge with other banks as well as for the promotion of new banks. For instance, the Bank of Madura and ICICI Bank merger. 3. Promotion of Mutual funds The Indian capital market has also benefited as a result of banks, both nationalised and non-nationalized, promoting mutual funds. They assisted the general population by offering tax-saving opportunities. Example: The monthly income plan at UTI. Investments have surged as a result of nationalised banks' promotion of mutual funds. Mutual fund operations are now governed by SEBI, and banks are required to disclose their weekly net asset value by providing information to major publications. The value of some mutual funds' investments is currently falling below the face value of the securities, which is a highly concerning development. As a result, there is a strong probability that the public may stop believing in mutual funds. Unit Trust of India, as an example. 4. Regulation of NRI investment 147 CU IDOL SELF LEARNING MATERIAL (SLM)

Non-resident investors have received increased encouragement as a result of the Foreign Exchange Regulation Act (FERA) being amended into the Foreign Exchange Management Act (FEMA). NRI investments in Indian enterprises have gone from 5% to 24% of total investments. India experienced a severe foreign exchange deficit in 1991, and the country's then-finance minister took specific measures to increase foreign exchange reserves. He permitted any individual NRI to invest up to 24% of the then-existing paid up capital in any Indian enterprise. This had increased the amount of foreign money coming into India. The Indian capital market has been forced to accept direct investments from foreign financial organisations. 5. Online trading in Indian capital market: Some of India's top stock exchanges have implemented computer systems for their trading operations. The brokers can connect and conduct their trading activities online. The public and the brokers will be able to access computer terminals at any moment to learn the current market price. This will stop speculative behaviour. 6. Transparency through online trading The use of computers for internet trading has increased the transparency of market activities. Since everyone has access to current market prices at all times, brokers are unable to deprive their clients of their earnings. It is no longer possible for market brokers to manipulate the starting and closing prices of shares. 7. National stock exchange A new stock exchange named the National Stock Exchange has been established, and there are many companies listed there. It is a significant rival to the Bombay Stock Exchange and has the power to have an impact there as well. Shares of businesses are traded on the National Stock Exchange, and market prices serve as a benchmark for stock pricing. In addition to expanding the market, the National Stock Exchange's establishment has restrained the Bombay Stock Exchange. It has made it possible for the stocks of all major corporations to be exchanged on a single market. As a result, it gives the general public access to information about the companies' underlying strengths. 8. Sensitivity index in Indian capital market: There has also been a change in how the index number is calculated. A sensitivity index has been developed, which reflects 30 significant companies whose share volume and price determine the state of the market. The sensitivity index gives an indicator of the market's current conditions as well as those it is expected to face in the future. 9. Demating of shares in Indian capital market 148 CU IDOL SELF LEARNING MATERIAL (SLM)

Transactions have become even better as a result of the advent of demating. Demating is a system in which actual share delivery is no longer used. It's referred to as \"scripless trade.\" Individual investors are issued a pass book along with their shares, which are held by a stock holding company. Entry will be made in the pass book for any share sale or purchase. The involved companies are also informed so they can make the necessary changes to the share register. This has stopped conjecture and blank transfer. Every market transaction is not only documented, but it also generates income for the government in the form of registration and stamp fees. Blank transfers and stock speculating over the short term are not permitted. 10. Over the country exchange of India Another stock market with less limitations has been established for the benefit of newly launched companies, and its name is Over The Counter Exchange of India (OTCEI). Some newly formed businesses might not be able to list their shares on the active stock exchanges. These companies will have small share capitals, thus a plan should be in place for listing their shares. These recently promoted companies benefit from the establishment of the Over The Counter Exchange of India (OTCEI). 11.4 NATIONAL MARKET SYSTEM The National Market System (NMS), which governs how all significant exchanges declare and carry out trades, encourages free market transparency. It is the trading, clearing, depository, and quotation distribution components of the US equity trading and order fulfilment system. The NASDAQ market and all official U.S. stock exchanges are governed by the NMS. The National Association of Securities Dealers (NASD) and NASDAQ are in charge of managing the National Market System, which was established by the Securities Acts Amendments of 1975. The NMS controls exchange-based trading, including trading on the NASDAQ OTC market and the New York Stock Exchange. Even though the talks take place directly between market participants, the NASDAQ is theoretically regarded as an exchange. The NMS mandates that exchanges make bids and offers (ask price) open and transparent to both retail and institutional participants in order to enable the fair dissemination of information. Better prices and more liquidity are two benefits. The arrangement, however, makes it challenging for huge investors and institutions to carry out covert large deals. Some claim that this visibility has forced such trading off-exchange, accelerating the growth of dark pool private exchanges. 149 CU IDOL SELF LEARNING MATERIAL (SLM)

The highest level of over-the-counter (OTC) trading, known as NASDAQ, requires companies to achieve certain capitalization, profitability, and trading activity requirements. Additionally, NASDAQ has more thorough intraday trading data that is accessible for OTC equities at lower levels. Last-sale prices, daily high and low prices, cumulative volume, and bid and ask quotes are all included in the data. Within 90 seconds of the transaction, market makers are required to provide the actual transacted prices and share sizes. Contrast this requirement with the non- real-time reporting for lower tier, non-NMS OTC equities. The NASDAQ is a virtual exchange that adheres to all the rules, specifications, and safety measures associated with clearing houses even though it is still a decentralised system for over- the-counter stock trading. Other OTC markets have a lot less regulations and protections. The OTCQX, OTCQB, and Pink Sheets are the three layers of OTC markets. With each level, fewer listings are needed. Additionally, none of these marketplaces adhere to the same standards as the exchanges protected by the National Market System. System of National Market Regulation (Reg NMS) The Securities and Exchange Commission (SEC) determined that the NMS needed to be strengthened in order to keep up with evolving technologies. The Regulation National Market System (Reg NMS), which has four basic components, was released by them in 2005. 1. To ensure investors receive the best price at the time their order is executed, the Order Protection Rule was created. 2. The rule eliminates the possibility to execute orders at a poorer price or to have them traded through. 3. The Access Rule has improved access to quotes from trading centres in the NMS. Greater connection and reduced access fees are mandated by the rule. 4. The Sub-Penny Rule establishes a minimum increment of one cent in order to ensure uniform quotes. All stocks with a share price over $1 are covered by the rule. 5. Revenue from Market Data Rules is given to self-regulatory groups that advance and enhance market data access. The order protection, or trade through, clause was probably the most crucial part of these regulations. Whatever the location of the lowest price, trade executions are offered at that rate. 150 CU IDOL SELF LEARNING MATERIAL (SLM)