CU-MCOM-SEM-IV-Capital Market and Financial Services

12.11 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is Hazard Sharing? 2. What do you mean by Hazard Retaining? 3. What is recognizing the Risk? 4. What is Treat the Risk? 5. What is the advantage Culture? Long Questions 1. Explain about the approaches of risk management. 2. Explain the limitations of risk management. 3. Explain about risk management process. 4. Explain about importance of risk management. 5. Explain about the types of risk management. B. Multiple Choice Questions 1. ___________________each hazard by calculating in the two its chance of occurring and its possible effect on the venture. a. Planning b. Rank c. Controlling d. Supervisor 2. Hazard models can furnish associations with the deception that they can survey and manage each ________________danger. a. Buckle b. Market Risk c. Conceivable d. Credit Risk 151 CU IDOL SELF LEARNING MATERIAL (SLM)

3. _______________past information to recognize hazards requires exceptionally prepared individuals. a. Dissecting b. Homogeneous c. Independent d. Heterogeneous 4. Wellbeing and ____________are essential pieces of a danger administrator's job. a. Funds b. Agency costs c. Markets d. Security 5. Business _________________take these sorts of dangers themselves to expand investor esteem and benefits. a. Procurement b. Capital budgeting c. Computation d. Endeavours Answers 1-b, 2-c, 3-a, 4-d, 5-d 12.12 REFERENCES Reference’s book  Abell, D. (1980). Defining the Business – The Strategic Point of Strategic Planning. Prentice Hall, Englewood Cliffs, NJ.  Ackers, K. (2000) ISO 9001:2000 (DIS), High-grade Resources Limited.  Ansell, J. and Wharton, F. (1995). Risk: Analysis Assessment and Management, John Wiley & Sons, Chichester. 152 CU IDOL SELF LEARNING MATERIAL (SLM)

 Archibald, R.D. and Lichtenberg, S. (1992). Experiences Using Next Generation Management Practices. 153 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 13: DEMUTUALIZATION OF STOCK EXCHANGES STRUCTURE 13.0 Learning Objectives 13.1 Introduction 13.2 Meaning and definition 13.3 Advantages of Demutualization 13.4 Need for demutualization 13.5 Types of Demutualization 13.6 Advantages of Demutualization 13.7 Challenges of Demutualization 13.8 Summary 13.9 Keyword 13.10 Learning Activity 13.11 Unit End Questions 13.12 References 13.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  To understand about demutualization of stock exchange.  To know more about need and advantages of demutualization.  To find out types of demutualization.  To know the challenges of demutualization. 13.1 INTRODUCTION Demutualization of stock trades suggests that a commonly claimed stock trade is changed over into an organization possessed by investors. At the end of the day changing the 154 CU IDOL SELF LEARNING MATERIAL (SLM)

legitimate construction, of a trade structure to a business enterprise structure is alluded to a demutualization. The possession, the executives and exchanging is isolated and are in various hands. They are unmistakably isolated like a business element. The administration of the trade is isolated from the investors and the intermediaries. Demutualization of a stock trade is whole interaction by which a non-benefit part possessed common association is changed into a for-profit investor company. Trades all throughout the planet have been demutualizing a direct result of worldwide contest and innovative difficulties to customary methods of exchanging protections. The difference in a stock trade from a part claimed association to revenue driven investor organization triggers various inquiries regarding administrative oversight. When a demutualized trade is recorded on its own board, some administrative oversight should be moved to an administration controller. In numerous nations, demutualization of the significant public stock trade has been joined by broad protections administrative change. 13.2 MEANING AND DEFINITION Demutualization alludes to the transformation of a current non-benefit association into a benefit arranged organization. As such, an affiliation that is commonly possessed by individuals changes over itself into an association that is claimed by investors. The organization can take various shapes and structures, that is, it very well may be either a recorded or unlisted organization which might be firmly held or openly held. Demutualization of stock trades includes the isolation of individuals' directly into unmistakable sections, viz. possession rights and exchanging rights. It changes the connection among individuals and the stock trade. Individuals while holding their exchanging rights procure possession rights in the stock trade, which have a market worth, and they additionally gain the advantages of restricted responsibility. The investors in a corporatized stock trade might be a different gathering, as individuals might choose to hold their offers or to sell them. Demutualization in any case, doesn't protect them from rivalry. A stock trade whose administration doesn't adequately attempt to keep up with its situation in the market may before long turn into an assume control over target. This term isn't confined uniquely to corporatization of stock trades. Any association that is a non-benefit body (which isn't equivalent to misfortune making), and isn't disseminating its 155 CU IDOL SELF LEARNING MATERIAL (SLM)

benefits to proprietor individuals yet holds something similar to foster framework of the association, can demutualize. In this way restating indeed Demutualization alludes to the progress cycle of a trade from a \"commonly claimed\" relationship to an organization \"possessed by investors\". All in all, changing the lawful construction of a trade from a common structure to a business enterprise structure is alluded to as demutualization. The abovementioned, as a result implies that after demutualization, the proprietorship, the administration and the exchanging rights at the trade are isolated from each other. A demutualized trade is way not the same as a shared trade; the three elements of possession, the executives and exchanging are mediated into a solitary Group in a common trade. The dealer individuals from the trade here are both the proprietors and the brokers on the trade and they further deal with the trade too. A demutualized trade has this load of three capacities obviously isolated. SEBI had framed a Group on Corporatization and Demutualization of Stock Exchanges under the Chairmanship of Justice M H Kania, previous Chief Justice of India, for instructing SEBI on corporatization and demutualization regarding trades and to prescribe the means that should be taken to execute something similar. The Group presented its Report to SEBI on August 28, 2002. SEBI has taken up with Central Government to alter the SC(R) A to influence Corporatization and Demutualization. 13.3 ADVANTAGES OF DEMUTUALIZATION  Excused Governance: The corporate model will empower the board to make moves that are to the greatest advantage of clients and the actual trade. There would be straightforwardness.  Financial backers Participations: A demutualized trade bears the cost of both institutional financial backers and retail financial backers the chance to become investors. Institutional financial backers require a lot more prominent liquidity for block exchanging.  Contest from Alternate Trading System's (ATS) and Electronic Communication Networks: ATS and Electronic Communication Networks give modest and effective admittance to cited stocks dissimilar to conventional stocks trades. To adapt to 156 CU IDOL SELF LEARNING MATERIAL (SLM)

contest, trade required assets. While individuals claimed have constraints in raising assets.  Globalization: Historically intermediaries and trades were privately engaged. Trades didn't confront significant contest from trades in distance places. Through coalitions, trades look to draw in more financial backers by fitting particular exchanging climate and by offering more prominent item assortment.  Assets for capital speculation: One of the drivers of stock trade demutualization is screen exchanging, which has which has supplanted floor exchanging on most trades. When clients have direct admittance to screens, trades participations at this point don't have as much financial worth and clearing firms as opposed to merchants become a predominant power in return exercises. 13.4 NEED FOR DEMUTUALIZATION Stock trades possessed by individuals will in general run after the interest of individuals alone, which could once in a while be impeding to privileges of different partners. Division of possession among individuals and untouchables can prompt a fair methodology, eliminate irreconcilable circumstances, make more prominent administration responsibility, and think about the interest of different players. To adapt to rivalry, stock trades require reserves. While part possessed stock trades have impediments in raising assets, freely claimed stock trades can tap capital business sectors. Freely claimed stock trades can be more expert when contrasted with part possessed associations. Further, because of the pretended by investors, reinforcing of the administration and the association, there is more prominent straightforwardness in dealings, responsibility and market discipline. This would improve the executive’s adaptability. A freely held organization is better prepared to react to changes when contrasted with a firmly held commonly possessed association. Further, an organization can branch off its auxiliaries; get into consolidations and acquisitions, raise reserves, and so forth An organization can branch off auxiliaries, get into consolidations and acquisitions, raise more monies, and so on for example, the NSE what began as a corporate body has turned off 157 CU IDOL SELF LEARNING MATERIAL (SLM)

entirely possessed auxiliaries like the National Securities Clearing Corporation (NSCCL) and all the more as of late, NSE.IT, a committed data tech organization. 13.5 TYPES OF DEMUTUALIZATION The two kinds of demutualization are: 1. Full demutualization In full demutualization, the common organization changes over completely into a public offer organization. Qualified policyholders will be remunerated as money, recently gave portions of normal stock, or strategy credits in return for their enrollment advantages. 2. Supported demutualization In a supported demutualization, the common organization is likewise completely changed over into a public offer organization. Once more, similar to full demutualization, all policyholders are redressed. The thing that matters is that shared possession is basically purchased by a solitary stock parent partnership, not the first common organization. Rather than getting stock authentications from the first shared organization, policyholders will get stock endorsements in the new parent organization all things considered. Hazard and risk are moved completely to the new parent organization. 13.6 ADVANTAGES OF DEMUTUALIZATION Worldwide rivalry and advances in innovation costs are making stock trades all throughout the planet inspect their plans of action and become more pioneering. Many trades have reacted by demutualizing, which is achieving significant changes in possession and corporate administration structure. By changing over part possessed, non-benefit associations into benefit driven financial backer claimed enterprises, demutualization will give trades admittance to capital that can be utilized both for interest in new innovation also, for cooperation in the continuous combination of the business. During the time spent giving the trades capital, demutualization is likewise expected to fortify the corporate administration of the trades. Trades create and implement market lead rules. These standards energize a reasonable and straightforward market, which thusly draws in market support and upgrades liquidity. Market direct standards remember forbiddances for market control, front running of customers and 158 CU IDOL SELF LEARNING MATERIAL (SLM)

insider exchanging just as the precise stamping of exchanges to honor the portion strategy utilized on the trade. A trade may likewise create and uphold business and deals lead rules, which oversee the connection between the customer and the vendor. A shift from not-for-benefit common association to revenue driven association with possession isolated from access to exchanging may permit the trade to react all the more viably to serious pressing factor and to act independently from the interests of individual individuals in this manner making a more smoothed out and market-situated trade. A portion of the upsides of demutualization are given underneath • Mutual trades regularly need centered vital objectives and business purposes and tend not to have clear responsibility. This is to a limited extent on the grounds that most are organized as not-revenue driven associations for which making investor esteem isn't a need. It is frequently exacerbated by a likely disengage between the proprietors and the trade. The individuals might be more worried about their business advantages as merchants than the trade's inclinations in general. Individuals in a shared, not-revenue driven association won't have something very similar see as investors in a company since they won't straightforwardly benefit, through a higher offer cost or profit stream, from the trade's development (in spite of the fact that they might help by implication through lower exchange charges). The board's (and the association's) advantages are all the more effortlessly lined up with investors than with individuals. • Mutual trades likewise can become buried in endeavors to fabricate part agreement on issues prior to bringing them to an end, easing back the dynamic interaction significantly. The individuals may not be of one mind on numerous or most issues. • The administration construction of a common trade serves just a single partner: the stockbroker. Recorded organizations and financial backers, whose cooperation is urgent to an effective market, play no part except if designated as \"public\" or \"free\" individuals from the top managerial staff. They might consider the to be as a \"private stick\" moreover went against to their dispositions or not propped to regard their interests as a need. • Mutual substances can't tap the value markets for capital. Their failure to get to value markets may likewise limit their capacity to get to obligation markets on similar terms as equivalent companies. This might uncover the individuals to tolls to cover consumptions or setbacks, as the trade has no other financing alternative. In a few trades the individuals' responsibility is restricted yet for different trades it is limitless. 159 CU IDOL SELF LEARNING MATERIAL (SLM)

13.7 CHALLENGES OF DEMUTUALIZATION Demutualization is anything but a legitimate venture, however is a multi-disciplinary issue. As trades demutualize, numerous provokes go to the front. The business idea of the trade, to be specific benefit expansion, may repudiate with its job as a public element offering a support. The difficulties that the demutualized stock trades ordinarily face is as per the following - 1. Self-guideline: A simple transformation from a not-for-benefit authoritative design to a revenue driven construction would neither guarantee better guideline nor would it ingrain financial backer certainty. A revenue driven undertaking claimed and worked by individuals appropriating the excess procured is the same as a shared not-revenue driven association. The Deutsche Borse and the Paris Bourse before the public contribution in 2001 were organized concerning benefit organizations claimed solely by individuals. More than 90% of the portions of the Borsa Italian are as yet claimed by Italian mediators. Functionally, such trades are the same as a mutualized trade. Demutualization can be fruitful just if the premium of financial backers, guarantors and different partners are of prime worry to investors. A demutualized trade, zeroed in on benefits, may not play its self-administrative job truly. The advantages of successful guideline are not apparent, while the consumption on guideline is. Allotment of assets for self-guideline, both human and financial, might be compromised. On the off chance that this to be sure occurs, the principal objective of isolating possession and utilization would be crushed. Stripping the trading of its administrative job and entrusting it to a different association, either autonomous or an auxiliary of the trade, has additionally been mooted to beat this misgiving. Notwithstanding, the degree to which a particularly free association would be dependent upon the authority of market controller, the viability of bringing together guideline and the certainty that such a plan would create among financial backers are issues of concern. Such a move might debilitate financial backer insurance, is one more idea. The restricted involvement in demutualized trades has not uncovered occurrences of forfeiting administrative obligations. With extraordinary rivalry, any trade that tradeoffs on self- guideline and which is seen to be careless in authorization may ultimately lose the support of financial backers. Along these lines in a serious climate, self-guideline is normal to be more grounded. 160 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Self-listing: An altogether new struggle emerges if the trade records its offers on itself. The trade determines benefits by posting its offers – improved perceivability and notoriety, responsibility, straightforwardness and market discipline, to give some examples. Yet, can a trade self-control itself? Does this contention with other contending organizations that are likewise recorded on the trade? The contention is obvious not just in fulfilling posting prerequisites consistently. There could be clashes in the corporate targets of the trade and its administrative job. An exemplary case was simply the offered made by the recorded Australian Stock Exchange (ASX) for the portions of the Sydney Futures Exchange. A counter bid by Computershare Ltd., one more recorded organization, cast questions about the commitment of the trade to implement posting rules. A few endeavors have been made in settling this contention. The Australian Securities and Investments Commission has been made answerable for managing posting rules on account of the ASX. At the point when the London Stock Exchange chose to change its possession structure in June 1999, its administrative job of the essential market was moved to the Financial Administrations Authority. The Monetary Authority of Singapore is approved through a Memorandum of Comprehension to screen consistence with posting necessities of the Singapore Exchange. However, self-posting would stay a region where satisfactory protections must be developed as involvement in demutualization is acquired. 3. Adaptability of offers: Like some other organization, would the portions of the recorded trade be unreservedly adaptable? Also, provided that this is true, what might be the results, if after an antagonistic takeover; the interests of the new investor are not lined up with the job of the trade as a public substance? Trades that have demutualized have been touchy to this issue. A breaking point on the shareholding has been forced to forestall grouping of holding and the ensuing exchange of control. In the greater part of the cases, as far as possible is 5%, aside from the ASX where it is 15%. The Stockholm trade doesn't recommend any cutoff, however has the forces to evaluate the capability of the proposed investor who means to hold over 10%. It can likewise require any investor who has overabundance holding, to carry his holding to under 10%. Administration: Another worry is whether demutualization and the drive for benefits would think twice about position of stock trade as a public substance. A suitable overseeing structure adjusting the interests of investors and the general population everywhere is a potential cure. Consideration of outside Directors on Board to fill in as a check and advance honesty in the dynamic of the Board could decrease this danger. Legal obligations might be 161 CU IDOL SELF LEARNING MATERIAL (SLM)

forced on such open chiefs. A wide proprietorship may likewise make public possession and actually look at extreme enthusiasm to benefit. Administrative limitations on the arrangement of senior chiefs in the trade might guarantee that right people are selected and that they act in broad daylight interest, aside from being mindful to investors. Monetary concerns: A demutualized corporate design gives sufficient freedoms to enhance and set up other business tasks. There could be irreconcilable circumstance because of such enhancement. Strategies to manage such contentions and the inward isolation between different business interests must be advanced. In the in the interim, more noteworthy administrative oversight might be important to spot such struggle circumstances. Proceeded monetary suitability of the trade is of central significance. Other business exercises of the trade ought not to open it to monetary danger. According to this point of view, regardless of whether it is prudent to force capital sufficiency standards on the trade is a basic issue. On the off chance that such standards are discovered vital, should it be pertinent to the trade per se, or made material additionally to the holding organization claiming the trade is muddled. While the corporate possession construction may not legitimize inconvenience of such standards on the holding organization, the danger of monetary insecurity of the last ought not to affect the trade. No firm view has developed on this issue. Estimating choices of the trade in this situation might be anything, yet sensible. Further developing the portion of the overall industry might drive the trade to value its administration uneconomically, along these lines affecting the nature of guideline. However, syndication status or the absence of satisfactory contest and the strain to create benefits might initiate it to value the help at an undeniable level. According to the FIBV, demutualized trades recorded the best yield with a normal return of 45% in 1999, forcefully expanding more than the 37.4% return came to in 1998 and the 17.7% in 1997. It isn't clear if such a development in benefits is because of productivity gains or the trades enjoy taken benefit of their imposing business model status. In case it is the last mentioned, planning an appropriate market structure that would cultivate a sound climate with sufficient disincentives to keep trades from exploiting their market position is the need of the hour. 13.8 SUMMARY Albeit stock trade is monetary gauge of economy yet exchanging on this stage likewise included such countless delegates. There are such countless agents, clearing companies, Depository members and financial backers. Each stock trade has its own clearing 162 CU IDOL SELF LEARNING MATERIAL (SLM)

organization. Each and every part and member work with incredible consideration and synchronization that everything is done in extremely less time as contrasted with before securities exchange. The presentation of data innovation has truly made exchanging less complex and simpler. NSDL and CDSL are assuming the vital part of keeping every single record in dematerialized structure 13.9 KEYWORD  Management Buyins: Management Buy-ins is funds provided to enable an outside group of managers(s) to buy an existing company.  Management Buyouts: In Management Buyouts (MBOs) venture capital institutions provide funds to enable the current operating management/investors to acquire an existing product line/business.  Turnarounds: Such form of venture capital financing involves medium to high risk and a time Notes scale of three to five years. 13.10 LEARNING ACTIVITY 1. What do you mean by Excused Governance? ___________________________________________________________________________ ___________________________________________________________________________ 2. What is full demutualization? ___________________________________________________________________________ ___________________________________________________________________________ 13.11 UNIT END QUESTIONS A. Descriptive Questions 163 Short Questions 1. What is Supported demutualization? 2. What do you mean by Globalization? 3. What are assets for capital speculation? 4. What is meaning of Contest from Alternate Trading System's? 5. What is Self-listing? CU IDOL SELF LEARNING MATERIAL (SLM)

Long Questions 1. Explain about Adaptability of offers. 2. Explain about Self-guideline. 3. Explain about types of demutualization. 4. Explain the need for demutualization. 5. What are the challenges of demutualization? B. Multiple Choice Questions 1. A wide ____________may likewise make public possession and actually look at extreme enthusiasm to benefit. a. Planning b. Proprietorship c. Funds d. Controlling 2. A __________________corporate design gives sufficient freedoms to enhance and set up other business tasks. a. Demutualized b. Market Risk c. Credit Risk d. Liquidity Risk 3. ______________and Electronic Communication Networks give modest and effective admittance to cited stocks dissimilar to conventional stocks trades. a. NTS b. DTS c. ATS d. BTS 4. ____________monetary suitability of the trade is of central significance. 164 a. Funds b. Proceeded CU IDOL SELF LEARNING MATERIAL (SLM)

c. Agency costs d. Markets 5. A demutualized trade, _______________in on benefits, may not play its self- administrative job truly. a. Zeroed b. Procurement c. Capital budgeting d. Computation Answers 1-d, 2-a, 3-c, 4-b, 5-d 13.12 REFERENCES Reference’s book  Aggarwal, R. (2002), “Demutualization and Corporate Governance of Stock Exchanges”, Journal of Applied Corporate Finance, Vol. 18, Number 1, pp. 106-113.  Aggarwal, R. (2006), “Demutualization and Public Offering of Financial Exchange”, Journal of Applied Corporate Finance, Vol. 18, Number 3, pp.96-106.  Domowitz, I., Steil, B. (1999), “Automation, trading costs and the structure of the securities trading industry.” Brookings-Wharton Papers on Financial Services, pp. 33- 81.  Elliott, J., (2002), “Demutualization of securities exchanges: a regulatory perspective.” IMF Working Paper  Hart O, Moore. J, (1996), “The governance of exchanges: member’s cooperatives versus outside ownership. “Oxford Economic Policy, 12(4): pp.53–69 165 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 14: EMERGING CHALLENGES IN CAPITAL MARKETS STRUCTURE 14.0 Learning Objectives 14.1 Introduction 14.2 Meaning and definition 14.3 Issues and Challenges of the Indian Capital Market 14.4 Division of the Capital Market 14.5 Recent Changes in Indian Capital Market 14.6 Recent Developments in the Capital Markets Division 14.7 Summary 14.8 Keyword 14.9 Learning Activity 14.10 Unit End Questions 14.11 References 14.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  To understand emerging challenges in capital market.  To know more about division of the capital market.  To find out the recent changes in Indian capital market.  To know the recent development in capital market. 14.1 INTRODUCTION The issue of how the lacking or less created economies could expand their financial action, increase living expectations to ease destitution, and spot themselves on a way of supported 166 CU IDOL SELF LEARNING MATERIAL (SLM)

financial development was one of the most basic issues confronting the world economies in the period after the finish of World War II. Issues being developed financial matters reflected the worries of standard financial aspects in the industrialized world. That there are created nations that have started numerous developments during the time spent monetary development gives both a model to, and a source of help to, agricultural nations. One basic issue was whether financial advancement is best accomplished through the unhampered activity of market influences or regardless of whether dynamic mediation of the public authority is a positive and supportive power for advancement. The experience of the United States and European economies in the sadness of the 1930s had driven a few financial experts to address whether a market economy took into account compelling ex-bet coordination of financial choices. The contentions of the Cold War prompted genuine consideration being given to the job of preparation, displayed on the USSR order economy style, in the improvement cycle. The course of improvement arranging required an unequivocal assertion of the long-haul objectives of the economy over an extensive stretch (following the USSR approach, improvement plans were for a five-year time frame), a nitty gritty particular of what yields were to be delivered, and techniques to guarantee that the objectives of the arrangement were really accomplished. The significant procedure of such plans was to activate assets proficiently and successfully in request to raise yield rapidly to impact supported development. In order economies, for example, those of the USSR and its satellites, such improvement arranging dealt with numerous issues. The general issue was to accomplish a harmony between various sorts of creation like protection and regular citizen merchandise, venture products and shopper merchandise, industry and agribusiness, between various districts of the economy, and among focal and nearby specialists. Arranging in order economies couldn't resolve the challenges over the long haul; the more extended term financial improvement of the order economies saw the organization of failures and the powerlessness to accommodate the different equilibrium necessities. The outcome was that the order economies deteriorated and endeavored during the 1990s to change themselves into market economies. In creating economies, different endeavors to execute an arranging way to deal with monetary development were carried out, albeit non-order economies thought that it is very hard to build the pace of reserve funds in the economy and surprisingly harder to accommodate the 167 CU IDOL SELF LEARNING MATERIAL (SLM)

requests of various locales, gatherings, and goals of individuals. A significant imperative on financial development that was more major than expanding reserve funds was the challenges many creating economies experienced in making the vital preconditions for an advanced economy. A portion of these preconditions are building up an arrangement of enforceable property rights or, much more in a general sense, regard for law and order, successful land residency frameworks, and the general lawful and social foundation taken as a given in cutting edge economies. 14.2 MEANING AND DEFINITION The capital market is the market for protections, where organizations and governments can raise long haul reserves. It is a market wherein cash is loaned for periods longer than a year. The various sorts of monetary instruments that are exchanged the capital business sectors are value instruments, credit market instruments, protection instruments, unfamiliar trade instruments, half and half instruments and subsidiary instruments. Capital Market contains of crucial market and non-compulsory market. In essential market newly given sanctuaries and stocks are traded and in voluntary market purchasing and selling of as of now existing bonds and stocks occur. Essential Capital Market The essential capital business sectors are additionally called the New Issue Market or NIM. The protections which are presented in the market are sold for first an ideal opportunity to the overall population in this market. This market is otherwise called the drawn-out obligation market as the raised money from this market gives long haul capital. The demonstration of selling new issues in the essential capital market follows a specific cycle. This measure requires the contribution of an organization of the protection’s vendors. The vendors who are running the cycle get a specific sum for as commission. The cost of the security presented in the essential capital market incorporates the seller, commission too. Once more, if the issue is an essential issue, the financial backers get the issue straightforwardly from the organization and no go-between is required simultaneously. For the reason, the financial backer necessities to send the specific measure of cash to the 168 CU IDOL SELF LEARNING MATERIAL (SLM)

individual organization and subsequent to getting the cash, the specific organization gives the security authentications to the financial backers. The essential issues which are presented in the essential capital market give the fundamental assets to the organizations. These essential issues are utilized by the organizations to set new organizations or to extending the current business. Simultaneously, the assets gathered through the essential capital market, are additionally utilized for the modernization of the business. At the equivalent time, the essential capital market is additionally associated with the most common way of making capital for the particular economy. There are three different ways of offering new issues in the essential capital market. These are: 1. First sale of stock (IPO): An IPO is the primary offer of stock by a privately owned business to the public. Initial public offerings are frequently given by more modest, more youthful organizations looking for the funding to grow, be that as it may, should likewise be possible by enormous exclusive organizations hoping to turn out to be openly exchanged. In an IPO, the guarantor acquires the help of a guaranteeing firm, which assists it with deciding what sort of safety to issue (normal or liked), the best contribution cost and the time to offer it for sale to the public. 2. Particular Issue: A special issue can be characterized as an issue of stock accessible just to assigned purchasers. These purchasers are a select arrangement of individuals, regardless of whether advertisers, their family members, or institutional financial backers. One could consider it a discount value market since the retail financial backers or investors are not welcomed to partake. 3. Rights Issue: The rights issue is a unique type of rack offering or rack enrollment for existing Companies. With the gave rights, existing investors have the advantage to purchase a predefined number of new offers from the firm at a predetermined cost inside a predefined time. 14.3 ISSUES AND CHALLENGES OF THE INDIAN CAPITAL MARKET Indian Economy is the 10th biggest economy on the planet by ostensible GDP and the fourth biggest by buying power equality (PPP). Following a solid monetary change post-freedom 169 CU IDOL SELF LEARNING MATERIAL (SLM)

communist economy, the country's monetary development advanced at a quick speed, as the LPG strategy was executed in 1991 for global contest and unfamiliar speculation. Notwithstanding quick monetary development, India actually faces monstrous pay imbalances, high joblessness and ailing health.  Given underneath are the huge issues and difficulties of the Indian capital market: Inflation – Inflation is the rate at which the costs for labor and products are rising and therefore, buying power is falling. The swelling circumstance in the economy proceeds to be a reason for concern. Regardless of fixing of the money related approach by the summit of India, RBI and different advances taken by the public authority, expansion keeps on excess near the twofold digit mark. High worldwide oil costs, high worldwide food costs are a portion of the reasons for high swelling. Non-uniform Tax changes - With the non-consistency in the expense framework across the states it is a troublesome undertaking to complete the organizations which came about in under-development of the equivalent. The distinctive assessment rates carried out in certain states across skillet India is a significant test to convey out the business easily and furthermore it represents an explanation of expanding costs of merchandise and administrations. Population – The current populace of India is over 1.27 billion, making it the second most crowded country on the planet after China, with over 1.35 billion individuals. India addresses practically 17.99% of the total populace which is a genuine concern. In the event that the pattern of development proceeds, the crown of the world's most crowded nation will continue on India from China by 2030. The populace development rate is at 1.58% with which it is anticipated India would reach 1.5 billion imprints by 2030. Education and Unemployment – 9.4 % of the populace is jobless which one more disturbing issue for the developing country is. The education rate in India is 74.04% as of April 2011 populace enumeration which comprises of 65.46% females and 82.14% guys. The education rate is expanding yet the pace of addition is low, which again involves concern. Index of Industrial Production – Weakness in mechanical creation pattern keeps on being a mark of worry for the economy. The new IIP numbers was enlisted underneath assumption. Shortcoming was seen with development in the capital products portion, halfway merchandise fragment also, purchaser products portion which dialed back radically during these months. 170 CU IDOL SELF LEARNING MATERIAL (SLM)

Foreign Policy – Foreign speculation streams into India saw a plunge of about 3% in the year 2013 over the earlier year. This plunge is generally by virtue of a log jam found if there should be an occurrence of FDI. In 2012, India pulled in US$ 22.78 billion of FDI, which was diminished to US$ 22.03 billion of every 2013. Poverty – About 37 % of Indian populace lies underneath destitution line which is an exceptionally disturbing circumstance for a developing economy like India. The fundamental justification behind such variety is the lopsided circulation of abundance in the economy where a modest bunch of individuals are the proprietor of most extreme income and most of the populace is too poor to even consider evening mastermind their everyday bread. The destitute individuals are high in number, while the high total assets individuals are not many in numbers. 14.4 DIVISION OF THE CAPITAL MARKET Essential business sectors manage exchange of new issues of stocks and different protections, though optional market manages the trade of existing or beforehand gave protections. One more significant division in the capital market is made based on the idea of safety exchanged, for example financial exchange and security market. Governments will in general issue just bonds, though; organizations frequently issue either value or bonds. The fundamental elements buying the securities or stock incorporate annuity reserves, flexible investments, sovereign abundance reserves, and less normally well-off people and venture banks exchanging on their own sake. In the optional business sectors, protections existing are purchased and sold among financial backers or dealers, normally on a trade, over-the-counter, or somewhere else. The presence of optional markets expands the readiness of financial backers in essential business sectors, as they probably are aware they are probably going to have the option to quickly cash out their speculations if the need emerges. In view of the sort of protections exchanged capital market is partitioned into two sections i.e., securities exchange also, security market. Bond Market - The security market which is otherwise called the credit, or fixed pay market is 171 CU IDOL SELF LEARNING MATERIAL (SLM)

That piece of capital market where members purchase and sell obligation protections which are ordinarily as bonds. Stock Market - A securities exchange or value market is a public element for the exchanging of organization stock i.e., offers and subsidiaries at a concurred cost. For Example: Bombay Stock Exchange or BSE is one of the most seasoned stock trades and furthermore partakes in its height of being the fourth biggest stock trade in Asia, manages the exchanging of protections where around 5,085 Indian organizations are recorded. 14.5 RECENT CHANGES IN INDIAN CAPITAL MARKET 1. Monetary Liberalization because of Indian Capital Market 2. Advancing more private area banks 3. Advancement of Mutual Funds 4. Guideline of NRI Investments 5. Direct Foreign Investment: 6. FERA Companies 7. Web based Trading in Indian Capital Market 8. Straightforwardness through online exchanging 9. Public Stock Exchange 10. Affectability Index in Indian Capital Market 11. Electrical switch in Indian Capital Market 12. Demating of offers in Indian Capital Market 13. Market Makers in Indian Capital Market 14. Protections and Exchange Board of India 15. Restoration of Registration 172 CU IDOL SELF LEARNING MATERIAL (SLM)

14.6 RECENT DEVELOPMENTS IN THE CAPITAL MARKETS DIVISION The Indian administrative and administrative structure of protections market in India has been sufficiently reinforced through the authoritative and managerial measures in the new past. The administrative structure for protections market is steady with the best worldwide benchmarks, for example, principles recommended by International Organization of Securities Commissions (IOSCO). Late capital market changes and a plan for changes are given underneath. Broad Capital Market Reforms were attempted during the 1990s including authoritative administrative and institutional changes. Legal market controller, which was made in 1992, was reasonably engaged to control the aggregate speculation plans and estate plans through a correction in 1999. Further, the association reinforcing of SEBI and appropriate strengthening through consistence and implementation powers including search and seizure powers were given through a revision in SEBI Act in 2002. Despite the fact that dematerialization began in 1997 after the lawful establishments for electronic accounting were given and storehouses made the controller commanded continuously that exchanging a large portion of the stocks occur just in dematerialized structure. Till 2001 India was the main modern market having account period settlement close by the subordinates’ items. From center of 2001 uniform moving settlement and same settlement cycles were recommended making a genuine spot market. After the lawful structure for subordinates exchanging was given by the alteration of SCRA in 1999 subordinates exchanging began in a progressive way with stock file prospects in June 2000. Later on, alternatives and single stock fates were presented in 2000-2001 and presently India s subordinates market turnover is more than the money market and India is one of the biggest single stock prospects markets on the planet. India's danger the board frameworks have consistently been extremely present day and compelling. The VaR based margining framework was presented in mid-2001 and the danger the board frameworks have withstood gigantic unpredictability experienced in May 2003 and May 2004. This included continuous openness observing, disablement of agent terminals, VaR based margining and so on India is one of only a handful of exceptional nations to have begun the screen-based exchanging of government protections in January 2003. 173 CU IDOL SELF LEARNING MATERIAL (SLM)

In June 2003 the loan cost prospects contracts on the screen based exchanging stage were presented. India is one of only a handful of exceptional nations to have begun the Straight through Processing (STP), which will totally mechanize the course of request stream and clearing and settlement on the stock trades. RBI has presented the Real Time Gross Settlement framework (RTGS) in 2004 on trial premise. RTGS will permit genuine conveyance v/s. installment which is the worldwide standard perceived by BIS and IOSCO. To further develop the administration component of stock trades by ordering demutualization and corporatization of stock trades and to ensure the premium of financial backers in protections market the Securities Laws (Amendment) Ordinance was proclaimed on twelfth October 2004. The Ordinance has since been supplanted by a Bill. 14.7 SUMMARY  Arising economies are creating economies that have taken on market-arranged arrangements and have set up securities exchanges to get unfamiliar cash-flow to increment financial development. This is a stamped change on past perspectives towards financial development, which had been viewed as a bigger job for government arranging. The progressions in arising economies arrangements mirrors the improvement of worldwide monetary business sectors that has seen generous and expanding streams of private money all throughout the planet.  There has likewise been a worldwide agreement that traditionalist financial and money related approaches, huge scope privatizations, and decreases in the size of government are an important premise for sound financial administration. Arising economies have embraced these strategies in line with their strength in cutting edge nations. While there is no last proof, a provisional end is that arising economies that depend on private capital inflows accomplished higher financial development somewhat recently of the 20th century than those subject to true unfamiliar guide. 14.8 KEYWORD  Merchant Banker: A bank that deals mostly in (but is not limited to) international finance, long-term loans for companies and underwriting. 174 CU IDOL SELF LEARNING MATERIAL (SLM)

 Underwriting: Underwriting is an agreement, entered into by a company with a financial agency, in order to ensure that the public will subscribe for the entire issue of shares or debentures made by the company  Doubtful Assets: With effect from March 31, 2005, an asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.  Loss Assets: A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly.  NPA: When a loan asset fails to contribute any income on the stipulated dates – every quarter in case of working capital loan and half yearly basis on term loans – to the owners, it is known as NPA. 14.9 LEARNING ACTIVITY 1. What do you mean by Bond Market? ___________________________________________________________________________ ___________________________________________________________________________ 2. What is Stock Market? ___________________________________________________________________________ ___________________________________________________________________________ 14.10 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is a Non-uniform Tax change? 2. What do you mean by Index of Industrial Production? 3. What is Education and Unemployment? 4. What is Essential Capital Market? 5. What is IPO? Long Questions 1. Explain about recent developments in the capital markets division. 175 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Explain the division of the capital market. 3. Explain about recent changes in Indian capital market. 4. Explain about issues and challenges of the Indian capital market. 5. Explain about capital market. B. Multiple Choice Questions 1. _____________has presented the Real Time Gross Settlement framework (RTGS) in 2004 on trial premise. a. Planning b. Funds c. Controlling d. RBI 2. Governments will in general issue just bonds, though; organizations frequently issue either value or____________. a. Buckle b. Market Risk c. Bonds d. Liquidity Risk 3. Weakness in mechanical creation pattern keeps on being a mark of worry for the_____________. a. Homogeneous b. Economy c. Independent d. Heterogeneous 4. A ________________exchange or value market is a public element for the exchanging of organization stock. a. Funds 176 b. Agency costs c. Markets d. Securities CU IDOL SELF LEARNING MATERIAL (SLM)

5. ______________________is the rate at which the costs for labor and products are rising and therefore, buying power is falling. a. Procurement b. Capital budgeting c. Inflation d. Monetary Answers 1-d, 2-c, 3-d, 4-d, 5-d 14.11 REFERENCES Reference’s book  Guruswamy, Merchant Banking and Financial Services, Thomson Learning.  Machiraju, H.R., Merchant Banking: Principles and Practice, New Age International Pvt. Ltd.  www.canarabank.com  www.indbankonline.com  www.onemine.org  www.pnbindia.in 177 CU IDOL SELF LEARNING MATERIAL (SLM)