By, Meera N

Pre 1992-restrictions on foreign investment,poor governance,securities contract act,floor based trading,no investor protection Post 1992-sebi formed, IT as a tool,free pricing of securities,BOLT and NEAT,rolling settlement(T+2), Depositories act, NSDL, access to international capital market,trading in equity derivatives,grading of ipos, clearing house mechanism, Indian Security market- Overview

 Securities markets are markets in financial assets or instruments and these are represented as I.O.Us in financial form  Broadly classified into primary and secondary markets  Major characteristics of securities are their marketability and transferability

Equity market Corporate debt market Securities market Primary market Money market Options market Derivatives market Secondary market Futures market Govt debt market Capital market Long term debt market

 Allocation function  Liquidity function  Indicative function  Savings and investment function  Merger functions

 Relevant acts to understand the security market operations  The Securities and Exchange Board of India Act 1992  The Securities Contracts (Regulation) Act,1956  Companies Act 1956

 Regulating the business in stock exchanges and any other securities markets  Registering and regulating the working of venture capital funds and collective investment schemes including mutual funds  Prohibiting fraudulent and unfair trade practices relating to securities markets  Prohibiting insider trading in securities  Regulating substantial acquisition of shares and take- over of companies  Calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, mutual funds, other persons associated with the securities market

 As per RBI definitions “A market for short terms financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market”.  The money market is a mechanism that deals with the lending and borrowing of short term funds (less than one year).  A segment of the financial market in which Financial instruments with high liquidity and very short maturities are traded

 Distinct cost advantage over banks in providing short term funds  As the money market instruments are highly liquid, holding funds in the money market enables the investor to act quickly the moment they identify the investment opportunity  To keep a balance between cash inflows and outflows, govts and corporations invest in money markets. Eg: to synchronize govt tax revenues and expenses

 RBI, schedule commercial banks, DFHI, businesses, investment companies, brokerage firms, financial institutions, insurance companies, pension funds, general public Money market instruments - Call or notice money -Treasury Bills -Certificate of deposits -Commercial paper -Repurchase agreements -Banker’s acceptance -Eurodollars -Money market MFs

 Issued with 3 standard maturities- 91 days, 182 days, 364 days.  The first two are auctioned weekly whereas as the last one is auctioned monthly  Do not carry any interest rate  Have a highly active secondary market  Terms of t- bills are not specified on any paper but simply recorded on the computer

Commercial paper  Corporate equivalent of a t-bill  Can issue either directly to the investor( direct paper) or through dealers/banks( dealer paper)  Maturity period is 90 to 180 days Certificate of deposits  Term savings deposit  Interest bearing securities  Maturity period is 3 months to 1 year  NCDs can be sold in the open market before maturity  Deposit is maintained in the bank until maturity  Higher rate of interest than t-bills

Eurodollar  Bank deposits denominated in US dollars but issued and held outside US branches of foreign banks  2 forms- Eurodollar CDs and deposits  Eurodollar CDs are negotiable whereas deposits are not REPO  Involves purchase and repurchase of given security by 2 parties at prices determined when the agreement is made.  Maturity is generally 14 days to 1 month  Repo rate depends on the nature of security traded and credit worthiness of the seller  If underlying security depreciates seller is required to repay a portion of funds or additional securities

Banker’s acceptances  Used to finance international trade  Bank agrees to pay a particular amount at a specified future date, in exchange bank is given the temporary title to the goods and a commission  Maturity ranges from 30 days to 180 days MMMFs  2 types- taxable( CPs, NCDs, T-bills) and tax free( short term municipal debts)  Only individuals can subscribe

As per Mckinsey study, increasing the market participation, expanding issuers, streamlining processes and deepening product markets are the key elements that will lead to a three-fold growth in India’s capital markets by 2020