INSTITUTE-UNIVERSITY SCHOOL OF

BUSINESS
DEPARTMENT-MBA
Banking and Financial Services Management
21BAA-635
Chapter 2.1

FACULTY NAME: Manpriya Singh

(Assistant Professor)

Topic- Primary Market

DISCOVER . LEARN . EMPOWER
 Primary Market

Course Outcome
Blooms
Course
Description Taxonomy
Outcome Level
1 To demonstrate a comprehensive knowledge of the disciplines Understand/
of banking and financial services Remember

2 Employing the knowledge of financial services to choose Apply Will be covered in this
between lease, buy or hire-purchase lecture
3 To analyse the performance of the various financial Analyze
instruments

4 Evaluating the different investment vehicles on the basis of Evaluate

credit ratings

5 Design/Create
To structure and appraise the debt securitisation deals for the
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business
Constituents of Capital Market in India

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 Primary Market
 It is a market for new issues of shares, debentures and
bonds.
 Type of Issues
 Issues are of three types. They are as follows:

(a)Public Issue
(b)Right Issue
(c)Private Placements
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 IPO Process

 Appointment of merchant banker and other intermediaries

 Registration of offer document
 Book Building
 Marketing of the issue
 Post-issue activities
Marketing of the Issue

(a) Timing of the Issue

(b) Retail Distribution

(c) Reservation of the Issue

(d) Advertising Campaign

Post-Issue Activities

 Principles of Allotment
 Formality Associated With Listing
The Role Financial Intermediaries In Capital
Markets
• From the time an investor gains access to the market by buying a stock, till the
time the stock is credited in the investor’s Demat account, multiple
intermediaries are involved in the process flow.
• These intermediaries play their role behind the scenes while complying with the
requirements as laid down by the regulatory body – Securities and Exchange
Board of India (SEBI).
• These intermediaries seek to provide an effortless and smooth experience for
transactions conducted in the capital markets.
• They are independent of each other and hence create an ecosystem.

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Stock Broker
• A broker is a corporate entity that is registered as a trading member with the
stock exchange and holds a broking license.
• To conduct trading in a stock, an investor needs a ‘Trading Account’ with a
broker. An individual can select any broker depending on the services he/she is
looking for and the costs involved with these brokers.
• Once an individual selects a broker, he/she can open a trading account that
allows an investor to carry out financial transactions (buying and selling of
securities) in the market.
• Thus at any time when you are willing to buy/sell a security, you need to interact
with, your broker in manners provided by the broker.

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Some of the services provided by the brokers are –
• Necessary documentation about the stock market.
• Provide access to the stock market and transaction processes
• Offers a margin for trading
• Provides trading platform – a platform is a tool (web tool or mobile app or even a desktop app) that
can be used to put in trade orders
• Call and trade facility.
• Issue contract notes for the transactions conducted
• Facilitate the movement of funds from investor’s bank account to the trading account and vice versa
• Provide dashboard for a complete view of the transactions
• Customer support
• Provide a capital gains report for the financial year

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Depository And Depository Participant
• A share is a document that confirms your ownership in a company. Thus, you
need to have a proof stating the same. When you buy or sell a stock, share
certificates are issued. This acts as proof that you hold a certain number of
shares of a company and you have acquired the same in a legit manner.
• Previously, the certificates were issued in hard copy but with the rising volume
and to improve efficiency along with the transaction process; the certificates are
now being distributed in the electronic form.
• The electronic form is also known as a dematerialized form (digital form) and is
often termed as the Demat form. Thus, the Demat shares need an electronic
safe to be kept safely.
• To provide safety and security to the share certificate, the Demat account was
introduced. The account acts as a digital vault for electronic shares.

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• A depository is an intermediary that provides the services of the Demat account. In
India, two depositories offer the Demat account services. The services offered are –
• NSDL (National Securities Depository Ltd
• CDSL (Central Depository Services (India) Ltd)
• There is no difference between the two, and both the entities are strictly regulated
by the regulator, i.e., the Securities and Exchange Board of India (SEBI).
• As an investor, you can’t go to exchange directly for trading and need the help of a
broker.
• Similarly, you cannot access depository directly and thus need a depository
participant (DP) through whom you can access depository with the help of the
Demat account.

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Bank

• Bank is a financial institution that facilitates the transaction in the capital market.
• The bank plays a significant role in the execution of trades as the bank manages
the funds’ flow.
• It helps in channelizing the funds from an investor’s bank account to the
investor’s trading account and vice versa.

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Clearing Corporation
• A clearing corporation is a wholly-owned subsidiary of either the National Stock
Exchange (NSE) or the Bombay Stock Exchange (BSE).
• The role of clearing corporation is to ensure that all the trades placed by an
investor on the exchange through a broker are closed successfully.
• For example, if there is a buyer for ten stocks of Reliance Industries Ltd, there
should a seller too selling at the same rate so that the trade executes. In India,
there are two clearing houses –
• NSCCL (National Security Clearing Corporation Ltd)
• ICCL (Indian Clearing Corporation)

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• NSCCL is a part of the NSE, while ICCL is a part of BSE.
• Role of the clearing corporation is detailed as under –
• Match the buyer and seller for the same security, price, and quantity to execute
a trade.
• Check that neither buyer nor the seller defaults on their transactions.
• This means that the buyer and seller should not back out after opting for a deal.

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Role of SEBI in primary
market
SEBI Guidelines for the Primary Market
• In 2000 the Securities and Exchange Board of India, or SEBI, issued a set of
guidelines for the primary market
Initial Public Offerings
• Indian companies that want to open their operations to public funding must work
through a broker who is licensed with SEBI to offer and accept applications for
funding through India's e-IPO system, which is an online system for bringing
private companies to the primary market.
• The broker must work with a registrar from the company to negotiate all offers
between the company and potential investors.

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Issuing and Pricing Securities
•A company must file a draft prospectus with SEBI at least three weeks
before filing its final documentation with the Registrar of Companies on
the primary market.

Issuing Debt Instruments

•Companies and banks that include debt instruments as part of an
investment offering must disclose credit ratings to SEBI before entering
into any agreements with investors. 

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 a) Protecting the interest of investors
• SEBI ensures that the investors do not get befooled by misleading and false
advertisements.
• SEBI issued guidelines so as to protect investors and also ensured that the
advertisement is fair and concise.
• Regulation of price rigging: Price rigging refers to manipulation of prices by way of
fluctuating the prices with the object of inflating and depressing the market price
of securities.
• SEBI make efforts to educate investors so that they are able to make choices
between the offerings of different companies and choose the most profitable
securities.
• SEBI has issued guidelines to investigate cases of fraud and insider trading.
• Adding to this the provisions for fine and Imprisonment.
 Price rigging
• Also known as collusion or price fixing, price rigging occurs when a group of people or
businesses agree to set the price for something. 
• HOW IT WORKS (EXAMPLE):
• In the stock market, traders with inside information might conspire to work together
on trades in order to benefit from the inside information. Likewise, sellers might
inflate the price of an asset to realize more profits.
• For example, let’s assume that there are four major telecommunications providers in
the United States and they all agree not to compete with one another for customers
in certain geographic areas of the country. To accomplish this, the group agrees on
which of the four providers will "get" each territory by offering the best price or
service in that territory. The other three agree not to undercut that provider in that
territory. In return, the providers ensured that no other competitors will enter the
markets, thereby preserving their profits and territories as a whole.
Insider trading
• Insider trading is defined as a malpractice wherein trade of a company's
securities is undertaken by people who by virtue of their work have access to the
otherwise non public information which can be crucial for making investment
decisions. 

• When insiders, e.g. key employees or executives who have access to the strategic
information about the company, use the same for trading in the company's
stocks or securities, it is called insider trading and
• It is highly discouraged by the Securities and Exchange Board of India to promote
fair trading in the market for the benefit of the common investor. 
b) To ensure Development activities in Stock
Exchange

• E-Trading: Concept of E-trading have been introduced few years back

by SEBI to eliminate the discomfort. It simplifies the process of buying
and selling of securities.
• SEBI promotes training of intermediaries of securities market with the
object of smooth functioning.

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c) Regulate the business and activities of stock exchange
• Rules and Regulations to regulate intermediaries such as Broker, mutual fund
companies, banking institutions, etc.
• Registers and Regulates the working of merchant Bankers, sub-brokers, stock-brokers,
share transfer agent, trustees, etc.
• Registers the working of mutual Funds.
• SEBI regulates turnover of the companies.
• It also conducts inquiry and audits.
 d) To Regulate Insider Trading
• Insider Trading have been a problem since the introduction of the
Market dealing with buying and selling of securities, stock exchange,
etc.
• An Insider is a person or a group of people having first- hand
knowledge about the internal issues and Ups and downs of a
company.
• The moment insider gets to know about the loss which is going to
occur, the shares under insider’s name are sold immediately. Hence,
company suffers a huge amount of loss.
 e) Issue of prospectus
• It also includes information related to project, plant location, Technology,
collaboration, products, export obligations, etc.
• Prospectous issued by the company must be approved by SEBI.
 References

• Bhole, L.M.,Financial Institutions & Markets.Tata McGraw Hill, New Delhi

• Khan, M.Y.Financial Services Tata McGraw Hill, New Delhi
• Meir,Kohn,Financial Institutions & Markets,Tta McGraw Hill,New Delhi
• Prasanna Chandra: Financial Management, Tata McGraw Hill.
• Kothari, C.R., Investment Banking & Customer Services Arihant Publishers, Jaipur
• Sharpe, William F. etc. Investment. New Delhi, PHI
• Pandey, I.M.,Financial Management,Vikas Publishing House ,New Delhi
• Khan, M.Y. ―Financial Servicies – Tata MeGraw Hill Publishing Company Limited .
• Ferrell , O.C. and Others, ―Marketing Strategy Vikas Publishing House.

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