Secondary Market, Primary Vs Secondary, Stock Exchanges, Listing of Securities, Trading Systems in Stock exchanges, Qualifications of Listing,Delisting, Orders, types of Orders,

1. Secondary Market
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2. SECONDARY MARKET
• Market in which securities already issued by
companies are subsequently traded among
investors.
• Continuous trading.
• 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.
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3. • Under Securities Contract Regulation Act
1956, securities trading is regulated by
Central Government;
• Takes place only in stock exchanges
recognized.
• SEBI, Company Law Board and stock
exchanges regulate secondary market.
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4. Primary Vs Secondary Market
• Organisation
• Period
• Capital Contribution
• Ownership
• Liquidity
• Seller
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5. STOCK EXCHANGE
• Market where securities of joint stock
companies and govt, or semi-govt bodies are
dealt in.
• Securities Contracts (Regulation) Act 1956
• Any body of individuals, whether
incorporated or not constituted for the
purpose of assisting, regulating or controlling
the business of buying, selling or dealing in
securities.
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6. STOCK EXCHANGE
• First stock exchange in India- The Native Stock
and Share Brokers Association (Bombay 1875)
• Ahmedabad 1894.
• SCRA 1956.
• G.S Patel Committee 1985
• L C Gupta Committee 1991
• Pherwani Committee 1991
• G S Patel committee 1995
• Varma Committee 1997
• Self regulatory role of Stock exchanges
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7. THE ROLE OF STOCK EXCHANGES
• Raising capital for business.
• Mobilizing savings for investment.
• Facilitating companies growth.
• Profit sharing.
• Creating investment opportunities for small
investors.
• Government capital- raising for development
projects.
• Barometer of the economy.www.kanishgeorge.blogspot.in

8. Functions
• Liquidity and Marketability
• Helps in capital Formation
• Fixation of Prices
• Safety of Funds
• Supply of Long Term Funds
• Motivation for improved performance
• Motivation for investment
• Reflects the general state of economy
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9. Listing of Securities
• Enrolment of name in the official trading list
maintained in the stock exchange.
• SCRA rules, SEBI guidelines and rules and
regulations of exchange prescribe the statutory
requirements to be fulfilled by company for
getting its shares listed.
• Sec 73(1) of Companies Act: should make an
application to one or more recognised stock
exchange for listing its securities within the
prescribed time.
• After scrutiny of listing application, a listing
agreement would be executed.
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10. Objectives of Listing
• Provide ready marketability
• Provide liquidity and transferability
• Ensure proper supervision and control of
dealings
• Protect the interest of shares.
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11. Listing Obligations
• Annual Listing Fee
– Prescribed initial listing fee and annual listing fee on or
before April 30 each year.
• Regulations of Stock Exchange
– Agrees to comply with rules, byelaws and regulations now
and hereafter.
• Notice of Board Meetings
– Prior intimation at least seven days in advance.
• Book closure notice
– 42 days advance notice, specifying the purpose.
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12. • Submission of reports
– Annual reports, B/S, P&L, and all periodical and special
reports
– All notices, resolutions, and circulars relating to new issue
– Notices and call letters of all meetings.
– Proceedings of annual/general body meeting.
– Copies of all notices, circulars etc issued or advertised in
the press.
• Publication of periodical interim statements
– In a form approved by exchange.
• Issue of shares
– Offer shares, securities, rights, benefits to subscribe pro rat
a basis to equity share holders, unless approved in General
meeting, 4 weeks time.
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13. • Effecting changes in securities
– 21 days prior notice necessary to
make changes and make
application to stock exchange
• Circulation of Annual results
– Supply a copy of B/S, P&L and
directors report to each share
holder and up on application to any
member of the exchange
• Information of events
– Inform about strikes, lockouts both
at occurrence and cessation
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14. • Take over conditions
– Take over regulations of SEBI should be fulfilled.
• Unaudited financial results
– Will be published within one month from the end
of a quarter to the stock exchange
• Corporate governance
– Include separate section on corporate governance
in annual reports
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15. Advantages of Listing
• Provides liquidity to the securities of the
company.
• Help investors to evaluate the company through
periodic reports.
• Ensures free transferability of shares.
• Exceptions and concessions available to a widely
held companies are available to listed companies.
• Transactions appear in news papers, provide
information regarding market value of
investments.
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16. • Prices determined by demand and supply,
ensures fair prices.
• By compulsory disclosure, the investing public
get valuable information.
• Improves public image and reputation.
• Facilitates to mobilize more funds from
public.
• Listed securities are treated as collateral
securities for loans and advances.
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17. Disadvantages of Listing
• Regulatory measures of the stock exchanges
and SEBI.
• Sending notices of annual meeting, annual
reports to a large number of shareholders will
raise cost to the company.
• Submitted periodical reports and vital
information might be used by competitors.
• Public offer itself is expensive.
• Listing does not guarantee price quotations.
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18. Minimum Requirements/ Qualifications for Listing
• Minimum Issued capital
– Ministry of finance & Department of
economic affairs: Minimum issued capital 3
crores and minimum public issue 75 Lakhs.
BSE 10 crore
• Payment of excess application money
– Allotment should be done within 30 days of
closure of public issue. 15% p.a interest rate
applicable for further period.
• Listing on multiple exchanges
– Paid up capital of the company above R 5
crores.
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19. • The number of shareholders
– For every 1 lakh of fresh capital- at least 10
shareholders
– For sale of existing capital; 20 shareholders.
• Appointment of a market maker
– Paid up capital between ₹ 3 cr and ₹5 cr, to
provide two way quotations for a minimum
period of 18 months.
• Articles of Association
– If veto power to director to overrule majority
decision, not qualified.
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20. • Advertisement
– Issue over subscribed/ Thanks to the investing
public for their overwhelming response
• Minimum Subscription
– Rs 5000 (500xRs.10) SEBI; reduced to Rs.2000.
Should be given in Prospectus.
• Applying Mode
– Single name or joint name of not more than
three. Can be made by Limited companies,
corporations, or institutions not by trust or
partnership.
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21. • Cost of Public Issue
– Ceiling in the expenditure prescribed by
SEBI
• Public Offer Size
– Size and value should be stated in
prospectus. Whether at premium,
preferential allotment etc should also be
stated.
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22. Listing Procedure
• Preliminary discussion
• Articles of association Approval
• Draft prospectus Approval
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23. Delisting
• Voluntary delisting
– Listing fee is prohibitive.
– Business sick/ Suspended/ closed.
– Capital base is small.
– Mergers, amalgamations and takeovers.
• Conditions to be fulfilled:
– Company must have incurred losses in the
preceding three years, with net worth less
than the paid up capital.
– Securities have been infrequently traded.
– Securities remain listed at least on the
regional stock exchange.
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24. • Compulsory Delisting
– Failed to comply with requirements of
listing agreement.
– Fails to redress the grievances of investors.
– Unfair trade practices of promoters or
managers and malpractices such as issuing
of fake shares by management.
– Thin / negligible shareholding base.
– Trading in securities of the company has
been suspended for more than six months.
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25. Trading System
• Floor Trading
– Trading took place through an open outcry
system on the trading floor or ring of the
exchange during official trading hours.
– Buyers and sellers transact business with
broker.
– Brokers transact on behalf of investors.
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26. • Screen based Trading
– Fully automated computer mode of
trading.
– Distant participants can trade with each
other.
– Greater transparency
– Quick trading
– Proper matching of orders to buy and sell
– Easy and paperless trading through demat
accounts
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27. Quote driven system
• Market maker inputs two way quotes into the
system
– Bid price
– Offer price
• Participants place orders based on bid-offer
quotes.
• These are automatically matched by the
system according to certain rules.
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28. Order driven system
• Clients place their buy and sell orders with
the brokers.
• Orders feed in to the system.
• The buy and sell orders are automatically
matched by the system according to
predetermined rules.
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29. Types of Orders
• Market Orders
– Broker is instructed by investor to buy or
sell a stated number of shares immediately
at the best prevailing price in the market.
– Buy order- lowest price obtainable
– Sell order- highest price obtainable
– Investor will be certain about execution;
uncertain about price.
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30. • Limit Orders
– Investor specifies the limit price.
– Limit buy order- maximum price that he
will pay for the share; order executed at
limit price or lower price.
– Limit sell order- minimum price he will
accept for shares; order executed at
limited price or higher price.
– Limit prices are away from the market
price
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31. • Stop orders (Stop loss order)
– To protect a profit or limit a loss.
– In sell order, stop price will be below the
market price.
– Buy order, stop price will be above the
market price.
– It is a conditional market order, it becomes
a market order when the market price
reaches or passes the stop price.
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32. • Stop limit orders (Conditional limit order)
– The investor specifies two prices, a stop
price and a limit price.
– When the market price reaches the stop
price, the order becomes the limit order to
be executed within the limit price.
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33. • Day order
• Week order
• Month order
• Open orders ( GTC)
• Fill or Kill Orders (FoK)
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34. Settlement
• Execution of orders
– Buy orders are matched with sell orders.
• Settlement of trade
– Delivery of security and payment of cash.
– Functioned by clearing house.
• Clearing house acts as counter party.
• “Account Period Settlement”
• “Compulsory Rolling Settlement”
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35. • Trades executed on a particular day are
settled after a specified number of business
days.
• T + 5, T + 3, now T + 2.
• On the first business day (T+1) exchange
generates delivery and receive orders for
transactions done by member brokers along
with a money statement.
• Can be downloaded by member brokers.
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