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Tavant Technologies:

Sidvin School of business Tavant Technologies Understanding the Secondary Markets Prof.PremSundar

Capital Markets:

Sidvin School of business Capital Markets Primary markets – IPO, Public issue. Market participants – Issuer co. Merchant banker Underwriter Registrar & share transfer agents Debenture trustees Brokers Mutual funds Institutional investors – FIs’ & FIIs’ Public SEBI

Primary market:

Sidvin School of business Primary market Draft Prospectus Prospectus vetting by SEBI Issue open & close dates Book building Allotment Green shoe option Credit Rating – ICRA / CRISIL/CARE

Book-Building :

Sidvin School of business Book-Building Is a process undertaken by which the demand for the securities proposed to be issued by a body corporate is determined based on a floor price or a price band & the quantum of securities to be issued to each category of participants is determined. The BOOK RUNNER who is the lead merchant banker maintains a book wherein the bids placed by retail & institutional members are all noted . A group of institutional members enter into a syndicate and agree to underwrite .

Green shoe option :

Sidvin School of business Green shoe option Facility for stabilising the post listing price (immediate) consequent to an IPO & as per the provisions stipulated in the guidelines Share holder approval necessary for initiating this facility Over allotment not more than 15% of issue size To appoint a Stabilsing Agent – SA Prime objective is to stabilise immediate post issue prices SA to borrow shares from promoters SA to allot shares proportionately in case of over subscription SA to decide the timing & quantum of buy back of over alloted shares If entire quantum cannot be bought back , the SA and the company will treat the deficiency as over allotment Stabilisation period not to exceed 30 days

Merchant Banker:

Sidvin School of business Merchant Banker Make all efforts to protect the interests of investors High standards of integrity & fairness in the conduct of business Exercise due diligence & professional judgment Redress investor grievances Not to misrepresent facts Arms length between merchant banking & other activities

Debenture Trustees:

Sidvin School of business Debenture Trustees Responsibilities Call for periodical reports from Corporates Take possession of trust property Enforce security in favour of debenture holders Do such acts as are necessary if security becomes enforceable Redressing the grievances of D HOLDERS. Despatch of D certificates & interest warrants in time Ensure money is repaid to D holders on D maturity Compliance with the norms of the stock exchange etc.


Sidvin School of business FII Institution incorporated outside India which makes investments inside India Certificate of registration to be issued by SEBI Track record professional competence & general reputation Whether regulated in the country of origin Whether a MF / PF institution Whether a AMC / Trustee / PA Holder of a reputed institution Whether a fit & proper person

Mutual funds:

Sidvin School of business Mutual funds Put not your trust in money,but your money in trust Advantages – Diversification Low costs Liquidity Transparency Types Open ended Closed ended Income oriented Growth oriented Hybrid schemes/ balanced fund High growth schemes(speculative) Money market mutual fund


Sidvin School of business Contd. Open ended scheme – Units of these M/Fs are bought & sold at all times on NAV basis No listing on S/E. Business directly with MFs and not in Secondary markets NAV = (Total assets – total liabilities) / No. of units outstanding Highly liquid & redemption & fresh issue go hand in hand Closed ended scheme -- Fixed corpus. No redemption .Listed on SE for buying & selling Trades considering both NAV & Market price Loads Front- end load increases the purchase price ( 2% Load) Public offer price = NAV / (1- LOAD) = 10 / (1-0.02 ) = Rs 10.20 Back end load increases redemption price = NAV / (1+ LOAD) = 10 /(1+0.02) =Rs. 9.80

Credit rating parameters:

Sidvin School of business Credit rating parameters Industry profile Cos. position in the industry Quality of accounts Financial flexibility Debt - Equity structure Cash flow adequacy Liquidity & profitability “balance” Management capability

Credit rating symbols - CRISIL:

Sidvin School of business Credit rating symbols - CRISIL Debentures – 1. High investment grade AAA(triple A) – Highest safety wrt interest & principal repayments AA - High safety 2. Investment grade A – Adequate safety BBB – Moderate safety

C/R Symbols Contd.:

Sidvin School of business C/R Symbols Contd. 3. Speculative grade – BB – Inadequate safety B - High risk C - Substantial risk D - Default likely

Stock Exchanges:

Sidvin School of business Stock Exchanges Place where instruments of primary markets traded Stock Exchanges (SRO S) synonymous with Secondary markets Power of Stock Exchange Open, High, Low, Close each day Trade monitoring & surveillance – Stock Watch System Settlement of trades Margining & Exposure limits Suspension of trades in specific scrips Circuit filters Settlement of claims and disputes – Arbitration (Member Vs Clients) Fines & penalties Limits on “Specific Member Volumes”

Member - Admission:

Sidvin School of business Member - Admission Not less than 21 years of age Citizen of India Not adjudged insolvent Not engaged in any other business Cos under Sec 322 of Cos. Act

Listing of Securities :

Sidvin School of business Listing of Securities Mandatory for secondary market trades Types Initial Listing – IPO Public Issue Listing Rights issue listing Bonus Shares listing

De- listing:

Sidvin School of business De- listing Voluntary de-listing sought by promoters Any acquisition by the promoters of the public holding , in a scheme of arrangement/ rights issue ,reducing the public holding to below the minimum limit (25%) Consolidation by the promoter group in such a way as to reduce the holding to below the minimum limit (25%) Companies compulsorily de-listed by the SE SEBI allows a rights issue to go through and the listing to hold , even if , the public holding fell below the limit in the process Conditions for voluntary de listing Cannot use buy-back provisions for de listing Consideration to share holders to be in cash , for shares offered

Benefits of Listing:

Sidvin School of business Benefits of Listing Enhancement of company’s image Provides liquidity Shareholders benefit from disclosures Financial support from Banks & FI for listed Co’s

Types of Delivery:

Sidvin School of business Types of Delivery Spot Delivery Normal Hand Delivery Special Delivery

Terminologies in the Secondary Markets:

Sidvin School of business Terminologies in the Secondary Markets Investor Trader Bull Long Unloading Bear Short Covering Close out Auction

Terminologies (Contd.):

Sidvin School of business Terminologies (Contd.) Tick size Market lot ( Par value of Equity) Spreads Impact costs Q order Aggressor Order

Terminologies (Contd.):

Sidvin School of business Terminologies (Contd.) Market Depth ( No. of trades / unit time) A.O.N Cash Segment > Margin Disablement

Terminologies (Contd.):

Sidvin School of business Terminologies (Contd.) Market orders Limit orders Order conformation Order matching ( Rate matching is First and then Quantity) Stop loss order ( Range) Marked to market Margin Trading - Initial margins - Maintenance margins

Terminologies Contd:

Sidvin School of business Terminologies Contd Open Offer Substantial acquisition of shares Mandatory public offer Creeping acquisition Participatory Notes – P/N UIN – Unique identification number Insider trading Price sensitive information Penalties for insider trading

Regulatory bodies:

Sidvin School of business Regulatory bodies Securities & Exchange Board of India Securities Appellate Tribunal SRO – Stock exchanges

Terminologies contd.:

Sidvin School of business Terminologies contd. Types of shares - Equity shares (ordinary stock) Preferred stock (preference shares) Convertible debentures –PCD FCD Optionally convertible preference shares Treated as debt for infrastructure foreign capital

Mutual Funds:

Sidvin School of business Mutual Funds Open ended & closed ended Sector specific- Infrastructure, FMCG,Cap.goods Midcap Funds Equity schemes only Debt schemes only Balanced Funds Fund of funds

Terminologies (Contd.):

Sidvin School of business Terminologies (Contd.) Capital adequacy & Gross Exposure (10-15 X) Membership - Net worth Rs.25 Lakhs - Security Deposit Rs. 15 lakhs minimum ( Cash / Securities / Cash equivalents) - Admission Fee – Rs. 1 lakhs - One Time Charge * Rs 2 lakhs Investor Protection Fund * Rs. 1 lakh Trade Gaurantee Fund

Terminologies (Contd.):

Sidvin School of business Terminologies (Contd.) Sensex NIFTY Market capitalisation Free Float Basket Trading ( NIFTY composition) Stock Borrowing and lending ( Margin 100-150%) Settlement Pay in ( Securities & Funds) Pay out ( Securities & Funds)

Terminologies (Contd.):

Sidvin School of business Terminologies (Contd.) Book Closure & Record dates Market making Safety Net Cum dividend and Ex dividend Fat fingers and Trade insurance

Terminologies contd.:

Sidvin School of business Terminologies contd. Fundamentals Networth EPS PE ratio Debt equity Trading on equity Equity dilution NAV

Terminologies contd.:

Sidvin School of business Terminologies contd. Technicals – Support Resistance Whipsaw Head & shoulder Inverted head & shoulder Consolidation Re-tracement Breakout Moving averages


Sidvin School of business Contd. Corporate governance Clear identification of the roles , responsibilities & accountability of the board/CEO/ Chairman Management ethics Independence of the board Financial reporting of materially significant events Appointment of audit committees Risk management Participation of stake holders in management

Terminologies Continued…..:

Sidvin School of business Terminologies Continued….. Screen Components Open- high- low- close- volume- price change ** In depth (F6) in NEAT Buy and sell quantities. WAP MOST ACTIVE- volume, price change


Sidvin School of business Built in MECHANISMS FOR SAFE TRADE Yes/No before Enter Client wise quantities & Value limits Ouick cancellation facility ( Executed trades cannot be cancelled) Exchange sets exposure limits for members

Capital market evolution:

Sidvin School of business Capital market evolution BSE 1850 Open outcry Cash segment 15days fixed settlement Carry forward badla trades

Present Scenario:

Sidvin School of business Present Scenario SBT > Online transparent Auctions Software ( Front end Trading Software) with several features Online charting Clearing House & Depository K Y C norms Marked to market

Some more terminologies :

Sidvin School of business Some more terminologies Hedgers Arbitragers Rolling settlement Rights issue Bonus shares Buy back of equity shares Stock split EPS & P/E multiplies Systematic risks (across the board) Unsystematic risks ( specific)


Sidvin School of business Buy-Back Quantum not more than 25% of paid up capital + free reserves The limit is applied to the amount and not to the number of shares to be bought back Sources of funds Out of free reserves Out of share premium collected in cash Out of proceeds of an issue of ANY OTHER securities Pricing – Board decision based on EPS , PE , Book value , industry outlook etc.

Substantial acquisition :

Sidvin School of business Substantial acquisition Acquirer & a person acting in concert Acquire or agree to acquire – Voting rights – Management control in the target company Control is defined to include the right to appoint the majority of directors on the board & or control managemet policy decisions excercised by a person Types of control Majority control Minority control Management control Persons acting in concert Directors of the company Mutual fund FII etc.


Sidvin School of business contd Disclosure of interests - 2% 5% 10% 14% 55% Once 15% is reached , the take over code is triggered To acquire minimum 20% from the public by way of mandatory public offer Buying beyond 75% could result in a de-listing


Sidvin School of business Surveillance On line surveillance Off – line surveillance – Top 10 by volume price rise %, new high new low etc. Derivative market surveillance Investigation –written explanation called for Surveillance actions Special margins Circuit filter reduction for induvidual scrips Circuit breaker for the market Trade for trade Suspension from trading Penalty / de- activation of terminals


Sidvin School of business Contd. Proactive measures Statement of top 10 purchasers / sellers Concentrated purchases or sales Examining trades in B1, B2, Z category Verification of institutional trades Snap investigation Market intelligence from newspapers, reports etc .

Order life cycle:

Sidvin School of business Order life cycle Pending order book Executed order book Auction Pay in Pay out

Components of a typical contact:

Sidvin School of business Components of a typical contact Date of Trade Trade time Scrip name Quantity bought or sold Rate (s) at which bought or sold Brokerage Statutory levies like a service tax / STT

Depository NSDL / CDs:

Sidvin School of business Depository NSDL / CDs Like a bank - Eliminates bad deliveries - Eliminates problems of physical handling - Faster disbursements of non-cash corporate benefits -Handles huge volumes - Dematerialization - Re- materialization

Depository - Procedure:

Sidvin School of business Depository - Procedure Investor opens an a/c with DP Fills Dematerialisation Request (DRF) form Lodges DRF + Share certificate with D/P D/P intimates the Depository Depository intimates- the Issuer Co - the Register for physical certificates DP sends certificates and DRF to Registrar / Issuers Registers / Issuer co confirm Demat to Depository Depository credits Investors a/c

Resources mobilization in International markets -outline:

Sidvin School of business Resources mobilization in International markets -outline Used by Indian corporates to raise funds from international markets Foreign currency Bonds : ( FCCB) - unsecured with low fixed rate of interest in US $ - Option for conversion into a fixed number of equity shares - “ Trading on Equity” till conversion - Drawback: Extent of conversion not clear till after the date of conversion

International Markets:

Sidvin School of business International Markets Depository Receipt – ADR / GDR - Negotiable instrument evidencing a fixed no of equity share of Issuer Co. - Each GDR = 2 underlying shares - Issue Mechanism Issuers Co underlying equity local custodian Q.I.B. DR Depository DR Issuer Co


Sidvin School of business Contd. Option to convert DR to shares after a cooling period Investor advises Foreign Depository which advises local custodian to release the shares Are traded in foreign markets till the conversion Carry no voting rights Carry all economic benefits like underlying shares


Sidvin School of business Contd. 2 way fungibility 1) Investor holding GDR/ ADR can cancel them with the Depository and sell the underlying shares in the market 2) The co. can issue fresh GDR/ ADR to the extent of shares cancelled


Sidvin School of business QUESTION & ANSWER


Sidvin School of business THANK YOU

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