CAPITAL MARKET

It refers to a market for Long Term Capital. It involves all the facilities and institutional

arrangements for borrowing and lending Long

Term Capital. That is, it is the market for buying and selling long term financial instruments.

CAPITAL MARKET
*Capital Market acts a connecting link between those who have funds and those who need funds and channels the savings of the former to meet the needs of the latter. * Capital market acts as intermediary between the savers and investors.

FACTORS AFFECTING THE CAPITAL MARKET

A number of factors affect the capital market such as Government, fiscal, and industrial policies. General economic conditions prevailing in a country with particular reference to industrial production and profitability. Trends in the money market with a particular reference to price and savings situations from time to time.

*Demand for capital from public and private sectors for developmental expenditures by way of new issue of industrial securities. *Investors preference for liquidity and forward looking expectations as reflected in the pattern of yields and movements in prices of securities in secondary markets.

FUNCTIONS OF CAPITAL MARKET

Capital market facilitates growth in savings and mobilizes the same for investment purposes. It provides funds to the borrowers with deficits by connecting the lenders with surpluses with the former. It helps the corporate sector to expand, grow and diversify and thereby it facilitates growth of output and income in the economy of the nation. At present, corporate enterprises are allowed freely to enter into the capital market and raise any amount of funds they want. Besides, they can price their securities freely as per the SEBI guidelines.

PLAYERS IN THE CAPITAL MARKET

The players in the Capital Market can be discussed under two categories: Primary Market Secondary Market The major players in the Primary Market in India include:

* Merchant Bankers * Collecting Bankers * Registrar to Issues * Brokers * Auditors * Underwriters * Advertising Agencies * Printers * Solicitors * Sub-under writers * Mailing Agents

Merchant Bankers: They act as lead managers and co-managers to the issue.
Collecting Bankers: They are In charges of collecting cash/DD/ Cheque and also receiving the application. Registrar to Issues: He is responsible for allotment and despatch of share certificates for the allottees. They have to attend the complaints of the investors.

Brokers, Sub-Brokers, Under Writers and Sub-Under writers: They engage in marketing the issue and work for giving assurance as to the success of the issue. Printers, Advertisers, Mailing Agents, Solicitors and Auditors: They are the intermediaries in the new issues market and each one has their own part to perform certain function and make the
new issue securities a success.

MAJOR PLAYERS IN THE SECONDARY MARKET

The Major players in the Secondary market are as follows: Brokers Jobbers Dealers Badla Financiers Arbitrageurs

BROKERS
They act on behalf of non members and not for themselves. They are merely a commission agents. They are paid a commission on the purchase and sales made through them.

JOBBER
They act for themselves. He is not an agent of non members. He buys and sells security in his own name.

ARBITRAGEURS

They involve in inter market deals

for a profit through difference in prices between two markets say

Mumbai and Chennai.

SECURITY DEALERS
They specialize in the buying and selling of gilt edged securities issued by Central /State/Quasi-Government agencies like EB, Housing Boards, Municipal Corporations, Port Trusts and Financial Institutions. They operate in close liaison with RBI and Commercial Banks and LIC.

IMPORTANCE OF CAPITAL MARKET

It plays a vital role in mobilizing savings and channelizing them in to productive investments for the development of trade, commerce and industries. (i.e. The Capital Market helps in Capital Formation and economic development of the country) It provides incentives to savers in the form of interest/dividend and transfer funds to investor.

 It provides a market mechanism for those who have savings and to those who need funds for productive investments. Such an arrangement help the capital market to divert resources from wasteful and unproductive channels to productive investments. It deals in ordinary shares, stocks, debentures, and bonds of corporation and securities of the Government.

 The funds which flow into the capital market come from savers. Various institutions such as banks, development banks give quantitative and qualitative direction to the flow funds and bring rational allocation of resources. This is done by converting financial assets in to productive physical assets. This results in the development of business. Capital market is the source from which long term capital is raised for the setting up and sustained growth of companies.

 It readily provides money for new/existing ventures. It also helps investors to trade in their shares and maintain the liquidity of investments. It provides ready and continuous market for securities. It integrates the demand and supply of securities in an effective manner and determines the price for securities every now and then.

Investors form the back bone of the corporate sector Growth of capital market attracts public they invest in corporate securities creates demand for shares and debentures at present mega issues launched by new companies . It is most attractive source of raising in funds.

CAPITAL MARKET INSTITUTIONS

CCIL Clearing Corporation of India Ltd SEBI Securities and Exchange Board of India SHCIL Stock Holding Corporation of India Ltd NSDL National Securities Depository Ltd. OTCEI Over The Counter Exchange of India NSEIL National Stock Exchange of India Ltd.

REGULATION OF CAPITAL MARKET

The following regulatory authorities regulate Stock Exchanges: Securities Contracts (Regulation) Act 1956 SEBI Governing Board of Stock Exchanges Capital Issues (Control) Act 1947 Companies Act 1956

SEBI
The Government felt the need to set up a regulatory body to ensure investor protection and promotion , and growth of vibrant securities market. The SEBI was constituted as an administrative arrangement on 12th April, 1988 as a result established as a statutory body on 21st February , 1992. Regulation of the Indian securities market required the SEBI to simultaneously perform both disciplinary and developmental roles. The two roles ought to be complementary and carefully synthesized. The disciplinary dimension involves providing for disincentives and penalties for errant and unfair behavior which harm the market. The development dimension is a positive aspect that involves providing incentives to market participants to engage in a constructive role.

OBJECTIVES OF SEBI
According to the preamble of the SEBI Act 1992, the objectives of SEBI are threefold; To protect the interest of the investors in securities To promote the development of securities market in India To regulate the securities market.

ORGANIZATION OF SEBI
The SEBI organizes its affairs through a board. The board consists of the following members: o A Chairman o 2 members from amongst the officials of the Ministry of the Central Government dealing with Finance and Administration of the Companies Act,1956 o 1 member nominated by the RBI from among its official o 5 other members, nominated by the Central Government, of whom at least 3 shall be whole time members.

DEPARTMENTS OF SEBI

Under its internal administrative arrangements, SEBI is divided into various departments in order to concentrate on various aspects of the securities market. These departments are as follows:

Primary Market Departments Secondary Market Departments Venture Capital Departments Mutual Funds Departments Collective Investment Schemes Department Takeover Department Legal Department Foreign Institutional Investors Department Depositories Department Derivatives Department Investigation, Enforcement And Surveillance Department

FUNCTIONS OF SEBI
According to the SEBI Act 1992, the Main functions of SEBI are: Regulating the securities market Recognition and regulation of the stock exchanges Registering and regulating the working of various intermediaries including merchant bankers, registrars, share transfer agents, stock brokers, sub brokers, debenture holders, bankers to the issue, under writers, portfolio managers, etc.

Registering and regulating the functioning of depositories, custodians and depository participants Registration of foreign institutional investors Registering and regulating the working of venture capital funds, mutual funds and other collective investment schemes including plantation schemes Promotion and regulation of self-regulatory organizations Prohibiting fraudulent and unfair trade practices relating to the securities market Prohibiting insider trading insecurities.

 Regulating substantial acquisition of shares and takeover of companies Promoting investor education and training of intermediaries Conducting research relating to securities market Call information, undertake inspection, conduct inquiries and order audit of stock exchanges, intermediaries, mutual funds or any other person associated with the securities market. Perform the functions and exercise the powers of the central government under the SCR Act 1956. These powers have now been delegated to SEBI

POWERS OF SEBI
For the purpose of regulation of the securities market, SEBI has been vested with all the powers of a civil court as per code of civil procedures, 1908. The powers include; The discovery and production of any books of accounts and other documents. Summoning and enforcing the attendance of persons and examining them on oath. Inspection of any books, registers and other documents.

To inspect any books, register, and other documents and records of a listed company or a public company (not being any of the intermediaries mentioned above) intending to get its securities listed on a stock exchange where the Board suspects the company of indulging to insider trading or fraudulent and unfair trade practices related to the securities market. Issuing commission for the examination of witnesses or documents

During an investigation or a pending enquiry, in order to protect the interests of investors or the securities market, the Board may,
Suspend trading of a stock in a stock exchange Restrain persons from accessing the securities market and prohibit any person associated with the securities market to buy, sell or deal in securities Suspend any office bearer of any stock exchange or self regulatory authority Impend and retain the proceeds or securities of any transactions under investigation * Attach after the specified purposes, for a period not exceeding one month, the bank account(s) or any intermediary or person associated with the securities market in a matter involving violation of the provisions of SEBI Act * Direct any intermediary or person associated with securities market not to dispose of or alienate an asset forming past of any transaction under investigation. *

The board may take any of the measures in * these cases in respect of any listed company intending to get its securities listed, where it suspects the company to be indulging in insider trading or fraudulent and unfair trade practices relating to the securities market. With respect to prospectus, offer documents and advertisements soliciting money, the Board may for the protection of investors, - specify by regulations ^ Matters relating to issue of capital, transfer of securities and matters incidental thereto. ^ The manner in which such matters are disclosed

-Specify by special orders ^ Prohibit any company from issuing prospectus, any offer document or issue advertisements, soliciting money for issue of securities. ^ Specify the conditions subject to which these documents can be issued. The Board may specify the requirements for listing and transfer of securities. In addition to the above, the other powers of SEBI are:

 Levy penalties for certain offenses Levy fees and other charges Issue orders/directions in the interest of investors or orderly development f securities market. However, such orders can be issued only after conduct of an inquiry. Hear appeals by companies against the decision of stock exchanges to refuse listing of their securities. Suspend or cancel the registration of any intermediary.

APPEAL AGAINST SEBI ORDER

Any person aggrieved by an order of SEBI can file an appeal petition to the Central Government. Such appeal has to be filed within 30 days from the date of communication of the order. However, the Central Government may extend the period by a further 15 days if it is satisfied that the appellant had sufficient cause for not preferring the appeal within 30 days.

ACHEIVEMENTS OF SEBI

Its achievements can be listed out as below; Guidelines on disclosure and investor protection issued and clarified from time to time. Proper disclosure to investors through prospectus made obligatory Guidelines for merchant bankers issued Advertising code for mutual funds.

 Mutual funds required publishing balance sheets Take over code being finalized Draft guidelines on share transfer agents and registrars to an issue Portfolio management service guidelines Draft guidelines on insider trading, takeover bids, etc. Stock invest scheme to eliminate delayed refunds. BSE persuaded to pass a resolution admitting corporate members.

 Proposed that the exchanges take percentage of the issue amount as deposit from companies seeking listing BSE made to publicize outstanding trading position on some scrip's. Suggested detailing brokerage/commission in contract notes Registered a number of investor associations Set up self regulatory organizations like the Association of Merchant Bankers of India. Total Ban on forward trading.

 Commenced registration of intermediaries associated with the stock exchange Issuing guidelines for foreign institutional investors for portfolio investments in India Guidelines for lead managers for inter se allocation of responsibilities issued. Format for reporting to SEBI by companies for public/right issues drafted. A series of advertisements are being issued to educate and enlighten investing public.

Further, it is required that all security exchanges submit a detailed report on the volume turnover in the securities and the outstanding position of transactions in securities to SEBI so as to monitor a securitys market. SEBI is taking active steps with respect to investor protection by identifying them to redress investors grievances promptly. It has asked the Company Law Board to prosecute the companies delaying share transfers and thereby reducing the floating stock and increasing share prices. Thus we can say that establishment of SEBI is a welcome move in the history of stock dealings in India.

GOVERNING BOARD OF STOCK EXCHANGES

The governing body of a recognized stock exchange has wide governmental and administrative powers. It is the decision making body. It has the power, subject to Governmental approval, to make, amend and suspend the operation of the rules, bye-laws and regulations of the exchanges. It also has complete jurisdiction over all members and in practice, its power of management and control is almost absolute.

POWERS OF THE GOVERNING BOARD OF STOCK EXCHANGES

o o Under the constitution, the governing body has the following powers; To admit and expel members To warn, censure, fine and suspend members and their partners, attorneys, remisers, authorized clerks and employees To approve the formation and dissolution of partnerships and appointment of attorneys, remisers and authorized clerks To enforce attendance and information To adjudicate disputes and impose penalties To determine the mode and conditions of stock exchange business and regulate stock exchange trading in all its aspects, and To supervise, direct and control all matters and activities affecting the stock exchanges.

o
o o o o

ORGANISATION OF BSE
The organization of BSE is explained here for an understanding. In BSE, the members on roll elect; 16 members as Directors in Governing Board in BSE They elect a President, Vice President and Treasurer Government appoints Executive Director on the recommendation of Governing Board 3 Representatives from Government, 3 from public and 1 from RBI on the Board to represent their interest.

CAPITAL ISSUES CONTROL ACT, 1947

All the capital issues made in the country were controlled and regulated by the Act. It was abolished in 1992 and powers were transferred to SEBI.

COMPANIES ACT, 1956

In India all the Companies are governed by Companies Act. The act Regulates the company activities so as to achieve healthy growth of capital market and protect investors. The company arte the major borrowers of funds from capital market by way of issuing securities. It consists of 600 sections and unimaginable to discuss all the sections relating to regulation of capital market.

Let us discuss some of the important provisions of the Act, relating to the capital market activities of corporate enterprises. Provisions relating to types of companies Transferability of shares Prospectus Allotment against new issue Payment of dividends Minimum subscriptions

MONEY MARKET

It is a market for short term (up to one year) money and financial assets that are near substitutes for money (Convertible in to cash with minimum transaction cost)

FEATURES OF MONEY MARKET

LIQUIDITY. EMERGE AS A NATIONAL MARKET. IMPERSONAL IN CHARACTER. RELATIVELY PURE COMPETITION. TRUE MONEY MARKET GIVES SCOPE FOR ARBITRAGE. NEW INSTRUMENTS WERE INTRODUCED. LARGE FUNDS WERE TRADED IN MONEY MARKET.

MONEY MARKET INSTRUMENTS

Call money market Inter bank term money market Treasury bills Commercial paper Certificate of deposits Commercial bills Inter bank participation certificate Inter corporate deposit Repo

DISTINCTION BETWEEN CAPITAL MARKET AND MONEY MARKET

S.No 1 CAPITAL MARKET Money Market There is a classification between No such division is there, however primary and secondary market slowly a secondary market is greater form is coming up in money market also. It Provides funds for long term It provides funds for short term requirements requirements Only few instruments are there. More instruments are there Viz., shares and debentures Players in capital market are The players are Bankers, RBI, and general investors, brokers, Government. merchant bankers, Registrars to issue, under writers, corporate investors, bankers, etc.

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