Introduction to Securities Market

What is Regulatory Framework for Securities Market?

The regulation of buying, selling and dealing in securities such as shares of a
company, units of mutual funds, Derivatives, etc. and stock exchanges, commodity
derivative exchanges and depositories comes within the purview of Securities and
Exchange Board of India (SEBI) in terms of SEBI Act, 1992 (SEBI Act) and various
SEBI regulations/ circulars/ guidelines/ directives.

Regulator of Securities & Commodities Market in India

Q. Who Regulate Securities Market?

A. SEBI (Securities and Exchange Board of India)
SEBI was established on April 12, 1992 in accordance with the provisions of the SEBI
Act.
- To protecting the interests of investors in securities market
- To regulate the securities market
- To promote the development of the securities market

SEBI is under the Overall control of Ministry of Finance;

Where is the Head office of the SEBI?

• Head office of SEBI is at Mumbai

• Chairman of SEBI is Ms. Madhabi Puri Buch w.e.f 1st March 2022

SEBI acts a Watchdog for all Capital Market Participants and its main purpose is to
provide such an environment for the financial market enthusiasts that facilitate
efficient & smooth working of financial markets.
What are Securities and Securities Market?
Securities Market is a place where companies can raise funds by issuing securities
such as equity shares, debt securities, etc. to the investors (public) and also is a place
where investors can buy or sell various securities (shares, bonds, etc.). Once the
shares (or securities) are issued to the public, the company is required to list the
shares (or securities) on the recognized stock exchanges. Securities Market is thus a
part of the Capital Market.

A. Equity Shares
Equity Shares or commonly called as shares, represent a share of ownership in a
company. An investor who invests in shares of a company is called a shareholder,
and is entitled to receive all corporate benefits, like dividends, out of the profits of
the company. The investor is also entitled to receive the right to cast a vote with
regard to the decision making process of the company at General meeting of the
company.

B. Debt Securities
Debt Securities represent money that is borrowed by the company / institution from
an investor and must be repaid to the investor. Debt securities are also called as
debentures or bonds. An investor who invests in debt securities is entitled to
receive payment of interest/coupons and repayment of principal (i.e. the money
invested). Debt Securities are issued for a fixed term, at the end of which the
securities can be redeemed by the issuer of securities. Debt securities can be
secured (backed by collateral) or unsecured.

C. Derivatives
Derivatives are financial instruments whose value depends upon the value of
another asset such as shares, debt securities, commodities, etc. The main types
of exchange traded derivatives are futures and options.

D. Mutual Funds
Mutual Funds are type of financial instruments made up of a pool of money
collected from many investors. These funds/ mutual funds, then, invest in securities
such as shares, bonds, money market instruments and other assets.

E. Exchange Traded Fund (ETFs)

F. Real Estate Investment Trusts (REITs) and Infrastructure Investment

Trust (InvITs)
Types of Market:
What are Primary Markets?

Primary Market: This market is also called as the new issues market where company
/institutions raise funds (capital) from public by issuing new securities (shares,
debentures, bonds, etc.).

In Primary Market, the Issuer company receives the money from Investors.

Now the issuer company issues new securities to investors. It is also possible that
promoters and strategic investors may sell some of their shares to the public.

There are two major types of issuers of securities:

 Corporate Entities (companies) which mainly issue equity instruments (shares)

and debt instruments (bonds, debentures, etc.)
 Government (Central as well as State) which issues debt securities (dated
securities and treasury bills).

The types of issues made in Primary Market are:

 Public Issue
A. IPO (Initial Public issue)

An IPO is where first public offer of shares is made by a company. An

IPO can be in the following forms:

Fresh issue of securities, where new shares are issued by the company
for the First time.

Enables a company to get listed on the stock exchange and be publically

traded.

Fund raised to be used as per the Objects of the issue like repayment of
debts, investment in infrastructure or R&D etc.
- Fresh Issue of Shares
- Offer for Sale

Effects of being listed:

1. Helps a company gain credibility and visibility.
2. Raise fund from market
3. Obligation on company to make regular disclosure about its affairs to
the public.

B. FPO (Further Public Offer)

When a listed company offers a fresh issue of securities to the general

public for sale, it is known as a FPO.
  Preferential Issue
 Right Issue
 Bonus Issue

Who can apply for an IPO/FPO?

 Anyone with a PAN card and a valid demat account.
 Trading Account – not mandatory for IPOs and FPO.
 To sell shares allotted during an IPO – Trading account needed.
 Open your Trading and Demat account with a SEBI Register Stock broker.
 Trading and Demat Account: Enables investor to subscribe to shares in an IPO
and also trade in these shares afterwards.
 Investor has the choice to open only a Demat account without a Trading
Account.
Secondary market: Once the securities are issued in the primary market, they get
listed on the Stock Exchanges and the investors can buy or sell these listed securities
through those Stock Exchanges. Stock Exchanges have two main segments - Cash
Market segment and the Derivatives Market segment.

What is needed to trade on stock market:

1. Trading Account
2. Demat Account
3. Linked Bank Account