· Mutual funds are an important avenue through which households participate in the

securities market.

2.11 CHECK YOUR PROGRESS

Answer the following with suitable choice:

1. Which of these is a function of the stock exchange?

a. Role of an economic barometer

b. Valuation of securities

c. Encouraging investments and savings

d. All of the above

2. Which of these is the regulatory body for the capital markets in India?

a. National Bank for Agriculture and Rural Development (NABARD)

b. Securities and Exchange Board of India (SEBI)

c. Insurance Regulatory and Development Authority (IRDA)

d. Reserve Bank of India (RBI)

3. The first computerised stock exchange in India was ________.

a. Bombay Stock Exchange (BSE)

b. Multi Commodity Exchange (MCX)

c. National Stock Exchange (NSE)

d. Over-the-Counter Exchange of India (OCTEI)

4. Which of the following is not a regulatory institution in Indian financial system?

a) RBI
b) CIBIL
c) SEBI
d) IRDA
5. Financial institutions are also known as ______________.
a) Financial organization
b) Financial intermediaries
c) Financial system

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 d) Any of the above
6. The market in which new Securities are issued by the Corporations to raise funds are
called ______.
a) Primary Markets
b) Secondary Markets
c) Gross Markets
d) Proceeds Markets’
7. Primary capital markets are the platform where ______.

a) New securities are issued

b) New securities are sold

c) New securities are borrowed

d) Both (a) Both (a) and (b)

8. 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

9. What “rights issue” do the shareholders of a company have under the Companies Act,
1956?
a) Voting rights of the shareholder members of each affiliate of a public company that
contains the shares equity and possesses votes in proportions.

b) First Board Meeting: The board meeting was held, and the resolution for issuing the
right shares was passed, and the right issue does not need the approval of
shareholders.

c) Issue a letter of the offer without the approval of shareholders

d) None of the above

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 10. What are the eligibility criteria for a listed company to make a public issue?

a) Company should have predictable and consistent revenue, and the company should
have enough money to pay for the process of IPO. Moreover, companies should be
key players in the industry.

b) The company should contain a minimum of Rs 3 crore in net tangible possessions in

the recent three years

c) The company’s continuous growth is not required.

d) Both (a) & (b)

Answer to Check Your Progress

1. d
2. b
3. c
4. b
5. b
6. a
7. d
8. a
9. a
10. d

2.12 SUMMARY
Financial systems are crucial for economies as they promote economic growth. They
enable individuals and institutions to save, invest, manage risks, and conduct transactions
efficiently. Financial systems also play a role in price discovery, ensuring fair prices for
assets and commodities. They contribute to economic stability, support monetary policy, and
help regulate financial activities. Overall, financial systems are vital for the functioning and
development of economies. From the above information in the chapter, we can understand
the importance and worth of financial system to the economy and how a good financial
system can carry forward an economy in a progressive way.

Apart from the financial system, financial institution and financial market which are a
part of a financial system play a viral role in developing an economy has briefly explained.
The stock market is concerned with the public market meant for issuing, purchasing, and
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selling stocks that trade over the counter or on a stock exchange. A stock market, equity
market, or share market is the aggregation of buyers and sellers of stocks (also called shares),
which represent ownership claims on businesses; these may include securities listed on a
public stock exchange, as well as stock that is only traded privately. Stock markets have an
impact on economic activity through the creation of liquidity. The liquid financial market was
an important enabling factor behind most of the early innovations that characterised the early
phases of the Industrial Revolution. Companies enjoy permanent access to capital raised
through equity issues. By facilitating longer-term and more profitable investments, liquid
markets improve the allocation of capital and enhance the prospects for long-term economic
growth.

2.13 KEY WORDS

Stock market : Stock markets are venues where buyers and sellers
meet to exchange equity shares of public corporations.

Public Issues : Public issue is the most common method of issuing

securities of a company to the public at large. It is
mainly done via Initial Public Offering (IPO) resulting
in companies raising funds from the capital market.

Initial Public Offer (IPO) : When shares are offered to the public for the first time,
it is referred to as IPO or public offering.

Follow on Public Offer (FPO) : A company which had already made a public issue at
an earlier stage and is listed on the stock exchange,
when makes another issue, it is known as the Follow-
on Public Offer (FPO).

Fixed Price Issue : In the fixed price IPO process, the Company along
with its underwriters evaluate the company’s assets,
liabilities, and every financial aspect.

Book Building Issue : In the book building issue, the price is discovered
during the process of IPO. There is no fixed price, but
there is a price band.

Offer for Sale : Offer for sale (or OFS) is a process whereby
stakeholders (like stakeholders and promoters) can sell

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 their stake to the public and thus reduce their holdings.
The primary objective of this process is to raise
additional capital after an IPO in a transparent manner.

2.14 QUESTIONS FOR SELF-STUDY

1. Define Financial System. Explain the role of financial system in a country.
2. Explain the scope and objectives of Financial System
3. Explain the nature and features of Financial System
4. Explain briefly the legislative measures taken by India for its financial system.
5. Explain the structure of Financial Markets.
6. What are the components of financial markets?
7. Explain the functions of financial markets.
8. What are the objectives of Indian stock markets?
9. Explain the functions of Indian stock market.
10. Define financial institutions, what are its objectives?
11. Explain briefly the characteristics of financial institutions in India.
12. Classify the types of financial institution in India
13. What is new issue market? Explain the methods of issue of new securities.
14. Explain briefly the SEBI guideline for issue of securities in new issue market.
15. Explain briefly the developments in Primary and Secondary markets in India

2.15 REFERENCES
1. Bhola, Mahakud, Financial Institutions and Markets, McGraw Hill, 6th edition.
2. Shashi K. Gupta, Nisha Aggarwal, Neeti Gupta, Financial Institutions and Markets,
Kalyani publication.
3. Mahesh Kulkarni, Suhas Maharaj, Capital Market and Financial Services, Nirali
prakashan, 2014.
4. E. Gordon and K Natarajan, Financial Markets and Services, Himalaya publication.
5. Bimal Jaiswal, Bhuvana venkatraman, Richa Banerjee, Financial Markets, Institutions
and Financial Services, Sahitya bhawan publication.
6. Punithavathy Pandian, Financial services and markets, Vikas publications.
7. Nischith S., Indian Financial System, Mysore Book House, 2023.
8. Nischith S., Financial Markets and Institutions, Mysore Book House, 2023.

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UNIT – 3 SECURITIES EXCHANGE BOARD OF INDIA (SEBI)
Structure:

3.0 Objectives

3.1 Introduction

3.2 Establishment of Securities Exchange Board of India

3.3 Objectives of SEBI

3.4 Investors Protection

3.5 Listed Companies

3.6 Investor Grievances

3.7 Departments of SEBI

3.8 Prohibition of Insider Trading

3.9 Check Your Progress

3.10 Summary

3.11 Keywords

3.12 Questions for Self-Study

313 References

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