JAIIB PPB Unit 5 - Role of Capital Markets, Securities and SEBI

1. Capital market is a market for long term debt and equity shares (both are issued and traded).

2. Two types of capital market are: primary and secondary.

• Primary Market - In the primary market, securities (shares, bonds, debentures) are offered to the public for subscription, for raising capital or fund.
• Secondary Market - In the secondary market, securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Secondary market comprises equity markets and debt markets.

3. Corporatization is the process of converting the organizational structure of the Stock Exchange from a non-corporate to a corporate structure.

4. Demutualization refers to the transition process of a Stock Exchange from a mutually owned association to a shareholders-owned company.

5. FII can invest up to 49 % in Stock Exchange in India.

6. No single investor can hold shares in an Indian Stock Exchange beyond a limit of 5%.

7. A broker is registered with SEBI and is a member of a recognized Stock Exchange and is permitted to do trading of different Stock Exchanges.

8. Government securities are coupon bearing instruments which are issued by RBI on behalf of Government of India. Government securities have maturity dates ranging from less than 1 year to a max of 30 year.

9. Debentures are bonds issued by a company. It has fixed rate of interest usually payable half-yearly, on specific dates and the principal amount repayable on a particular date on redemption of debenture. It is an unsecured debt.

10. A bond is a negotiable certificate usually unsecured. In coupon bonds, interest are paid bi-annually, in zero-coupon bonds, interest is paid at the maturity.

11. Commercial papers are borrowing of a company from the market. These money market instruments are issued for 90 days.

12. Treasury bills are securities issued by RBI on behalf of Government of India for 91 days.

13. IPO refers to issue of fresh securities by an unlisted company or an offer for sale of its existing securities or both for the first time to the public.

14. FPO refers to issue of fresh securities by an already listed company or an offer for sale to the public through an offer document.

15. Rights Issue is when a listed company issues fresh securities to its existing shareholders as on a recorded date.

16. A private placement is an issue of shares or of convertible security by a company to a select group of persons under section 81 of the Companies Act 1956.

17. Any company making a public issue or a listed company making a RI of a value of more than Rs 50 lacs is required to file a draft offer document with SEBI for its observations. This observation period is only 3 months.

18. DIP stands for Disclosure and Investor Protection guidelines.

19. Offer document means prospectus in case of public issue.

20. Offer document means an offer for sale and letter of offer in case of a RI.

21. Offer documents are filed with Registrar of Companies and Stock Exchanges.

22. A draft offer document means the offer document in a draft stage.

23. The draft offer documents are filed with SEBI.

24. The period of filing draft offer document is at least 21 days prior to that of offer document.

25. RHP (Red Herring Prospectus) is a prospectus which doesn’t have details of either price of number of shares being offered or the amount of issue. But the number of shares and the upper and lower price bands are disclosed.

26. In case of FPO, the RHP can be filed with Registrar of Companies without the price band. The price band is notified one day prior to the opening of the issue by way of an advertisement.

27. In book-built issue, price cannot be determined until the bidding process is completed.

28. In a book-built issue allocation, RII: NII: QIP::35: 15: 50 (or may be 60:10:30). RII – Retail Individual Investors. NII – Non-Institutional Investors. QIP – Qualified Institutional Placement.

29. Retail individual investor means an investor who applies or bids for securities of or for a value not more than Rs 1,00,000.

30. A merchant banker possessing a valid SEBI registration in accordance with the SEBI (Merchant Bankers) Regulations, 1992 is eligible to act as a BRLM (Book running Lead Manager).

31. A QIB (Qualified Institutional Buyer) means those investors who have expertise and financial muscle to evaluate and invest in capital market. Examples: mutual fund, scheduled commercial banks, FII registered with SEBI, insurance companies registered with IRDA, PF with a minimum corpus of Rs 25 crore etc.

32. Above mentioned entities are not required to be register with SEBI as QIB.