PRIMARY AND SECONDRY

MARKETS

Submitted to: Submitted by:

Mr.Tushar Tantia Anupam
Deepak
Utkarsh
Vipul
 Topics Covered
• Primary Market
• Features of Primary Market
• Secondary Market
• Features of Secondary Market
• Difference between Primary & Secondary
Market
• Different Products And Instruments of Both
 Capital Market
• The capital market is the market for securities where either
companies or the government can raise long term funds.

• One way that the companies or the government raise these long term
funds is through issuing bonds, which is where a person buys the
bond for a set price and allows the government or company to
borrow their money for a certain time period but they are promised a
higher return for allowing them to borrow the money, the higher
return is paid through interest that accrues on the money that the
government or company borrows.

• Another way that the companies or government can raise money in

the capital market is through the stock market.
 Primary Market
• It refers to any market where new shares of
stock are sold. A corporation wishing to sell
new shares of stock benefits from this sale
because the stock is sold in the market directly
by the issuing company.
 Features of Primary Market
• This is the market for long term equity capital.
• It is called the new issue market.
• In a primary issue, the securities are issued by
the company directly to investors.
• The primary market performs the crucial
function of facilitating capital formation in the
economy.
• Methods of issuing securities in the Primary
Market: IPO, Right Issue, Offer for Sale.
 Methods of Issuing Securities

• IPO: It is the most popular method for floating

shares in the new market. It is a fresh issue of
securities made by an unlisted company. The
sale of securities can be either through book
building or through normal public issue.
• Right Issue: It is a measure for distribution of
shares normally used by companies which are
already listed in the stock exchange to its
existing shareholders.
• Offer For Sale: It is a method of flotation of
shares indirectly through an issuing house.
• Private Placement: It is a method of flotation
of shares only to a select set of people. An
issue is said to be privately placed when an
allotment is made to less than 50 persons.
 Secondary Market
• The secondary market is that market in which
the buying and selling of the previously issued
securities is done.
The transactions of the secondary market are
generally done through the medium of stock
exchange. The chief purpose of the secondary
market is to create liquidity in securities.
 Features of Secondary Market
• Deals with securities that have been listed through
the primary market.
• The prices in the secondary market is determined
on the basis of demand and supply besides other
number of factors.
• Investors buys and sells share in the secondary
market through brokers & sub brokers who are
members of recognized stock exchange.
• Secondary Market may be further sub-divided
into the Spot Market & Derivative Market.
 Difference between Primary &
Secondary Market
• In the Primary Market, securities are offered to
public for subscription for the purpose of
raising capital or fund. Secondary Market is an
equity trading venue in which already
existing/pre-issued securities are traded among
investors.
• Primary Market has no physical existence
while Secondary Market has physical
existence.
 Equity Shares
• Equity Shares are also known as ordinary
shares or common shares, represent the owners
capital in a company. The holders of these
shares are the real owners of the company.
They have a control over the working of the
company. Equity capital is paid after meeting
all other claims. They take risk both regarding
dividend and return of capital. Equity share
capital can not be redeemed during the life
time of the company.
 Characteristics of Equity Shares
• Maturity :- Equity shares provide permanent capital to
the company and cannot be redeemed during the life
time of the company. Equity shareholders can demand
refund of their capital only at the time of liquidation of
the company but they are paid back after meeting all
other prior claims. In this a company can even buy back
the shares if they have surplus.
• Right to Income :- Equity shareholders have residual
claim on the income of a company. Equity shares are
also known as Variable Income Security because the
shareholder has a claim on income that is left after
paying dividend to preference shareholders. In many
cases, they may not get anything if profits are
insufficient, or may even get a higher dividend.
• Claim on Assets :- Equity shareholders have residual
claim on ownership of company’s assets. In the event
of liquidation of a company, the assets are first utilized
to meet the prior claims and thereafter if something left,
belongs to the equity shareholders.
• Voting Rights:- Equity shareholders have voting rights
in the meetings of the company. The control in case of
a company rests with the board of directorswho are
elected by the equity shareholders. Directors are
appointed in the AGM by majority votes. Each equity
share carries one vote.
• Pre-emptive right :- Whenever a public limited
company proposes to increase its subscribed capital by
the allotment of further shares, after the expiry of two
years from the formation of the company or the expiry
of the one year from the first allotment of shares in the
company whichever is earlier, such shares must be
offered to holders of existing equity shares in
proportion to the capital paid up on these shares. Shares
so offered are called Right shares and their prior right
to such is known as Pre-emptive right.
• Limited Liability :- The liability of equity shareholder
is limited to the value of share they have purchased. If
the shareholder has already fully paid the share price,
he can’t be held liable further for any losses of the
company even at the time of liquidation.
 Preference Shares
• As the name suggests, these shares have
certain preferences as compared to other
types of shares. These shares are given two
preferences:-

1. Preference for payment of dividend.

2. Preference for repayment of capital at the
time of liquidation of the company.
 Features of Preference Shares
• Maturity :- Preference shares provide long term
capital to the company and can be redeemed as
per the type of preference share. A company has
to redeemed the preference shareholder after
meeting the claim as per the issue.
• Claim on Income :- A fixed rate of dividend is
payable on preference shares. They have prior
claim on income over equity shareholders. In this
case also, it is the prerogative of the management
to decide whether to pay dividend or to reinvest
earnings.
• Claim on assets:- Their claims on assets are
superior to those of equity shareholder. In the
event of winding up of company , their claim is
to settled first before making any payment to
the equity shareholders.
• Control :- Preference shareholders do not have
any voting rights so they donot have any say in
the management or the control of the company.
 Types of Preference Shares
• Cumulative Preference Shares.
• Non Cumulative Preference Shares.
• Redeemable Preference Shares.
• Irredeemable Preference Shares.
• Participating Preference Shares.
• Non- Participating Preference Shares.
• Convertible Preference Shares.
• Non Convertible Preference Shares.
 Debentures
• A company may raise long term finance
through public borrowings. These loans are
raised by the issue of the debentures. A
debenture is an acknowledgement of debt. A
debenture holder is a creditor of the company.
A fixed rate of interest is paid on the
debentures. When the debentures are secured,
they are paid on priority in comparison to all
other creditors.
 Features of Debentures
• Maturity :- Although debentures provide long
term funds to the company, they mature after a
specified period. The company must pay back the
principal amount on these debentures on the given
date otherwise the debenture holders may force
winding up of the company as creditors.
• Claim on Income :- A fixed rate of interest is
payable on debentures. Even if a company makes
no earnings or incurs losses. It is under an
obligation to pay interest to the debenture holders.
The default in payment of interest may cause
winding up of the company.
• Claims on assets :- Debenture holders have
priority of claim on assets of the company. They
have to be paid first before making any payment
to the preference or equity share holders in the
event of liquidation of the company.
• Control :- They do not have any voting rights to
elect the directors of the company or on any other
matters. But at the time of liquidation of the
company they have prior claim over shareholders
and if remain unpaid, they may take control over
the company.
 Types of Debentures
• Secured Debentures.
• Unsecured Debentures.
• Bearer Debentures.
• Registered Debentures.
• Redeemable Debentures.
• Irredeemable Debentures.
• Convertible Debentures.
• Zero interest Debentures.
• Zero Coupon Bonds.
• First Debentures and Second Debentures.
• Guaranteed Debentures.
 What is SEBI and what is its role?
• The SEBI is the regulatory authority
established under Section 3 of SEBI Act 1992
to protect the interests of the investors in
securities and to promote the development
of, and to regulate, the securities market and
for matters connected therewith and
incidental thereto.
 
 The following departments of SEBI take care of the
activities in the secondary market.

• 1. Market Intermediaries Registration and

Supervision department (MIRSD)
Major Activities:-
Registration, supervision, compliance
monitoring and inspections of all market
intermediaries in respect of all segments of the
markets viz. equity, equity derivatives, debt
and debt related derivatives.
2. Market Regulation Department (MRD)
Major Activities:-
Formulating new policies and supervising the
functioning and operations (except relating to
derivatives) of securities exchanges, their
subsidiaries, and market institutions such as
Clearing and settlement organizations and
Depositories (Collectively referred to as
‘Market SROs’.) 
 3. Derivatives and New Products Departments
(DNPD)
Major Activities:-
Supervising trading at derivatives segments of
stock exchanges, introducing new products to
be traded, and consequent policy changes