ISSUE ON
MONTHLY
JOURNAL OF
CAPITAL
29
JANUARY
INDIAN
FINANCIAL
SYSTEM MARKET
2024
TOPICS DISCUSSED
• INTRODUCTION &
MEANING
MEASURES TAKEN BY • CLASSIFICATION
SEBI TO REGULATE OF CAPITAL
INDIAN CAPITAL MARKET
MARKET: • CAPITAL MARKET
REFORMS IN INDIA
SEBI as a Regulator
• CAPITAL MARKET
INSTRUMENTS
As a regulator of the capital
market, SEBI :
• Formulation of Stock Exchange
and other securities market
INTRODUCTION & MEANING
business regulations.
Capital market is a place where buyers Capital markets are financial markets that
• Registering and regulating the and sellers indulge in trade bring buyers and sellers together to trade
intermediaries of the business, (buying/selling) of financial securities like stocks, bonds, currencies, and other financial
like brokers, transfer agents, bonds, stocks, etc. The trading is assets. Capital markets include the stock
bankers, trustees, registrars, undertaken by participants such as market and the bond market. They help
portfolio managers, investment individuals and institutions. people with ideas become entrepreneurs and
consultants, merchant bankers, help small businesses grow into big
etc. companies. They also give folks like you and
Capital market trades mostly in long- me opportunities to save and invest for our
• Recording and monitoring the
term securities. The magnitude of a futures.
work of custodians, depositors, nation’s capital markets is directly
participants, foreign investors, interconnected to the size of its economy Capital markets are marketplaces for buying
credit rating agencies, etc. which means that ripples in one corner and selling bonds, stocks, currencies and
can cause major waves somewhere else. other financial assets. They assist
• Registering investment schemes A capital market is a financial market in entrepreneurs and help small businesses grow
like Mutual fund & venture capital which long-term debt (over a year) or into big ones. Additionally, they provide
funds, and regulating their equity-backed securities are bought and opportunities for regular people to invest and
save for their future. Capital markets are key
functioning. sold, in contrast to a money market engines of economic growth and wealth
where short-term debt is bought and creation in any economy.
• Promotion and controlling of sold. Capital markets channel the wealth
self-regulatory companies. of savers to those who can put it to long- A capital market is a platform for channelling
term productive use, such as companies savings and investments among suppliers and
• Keeping a check on frauds and those in need. An entity with a surplus fund
or governments making long-term
unfair trading methods related to
investments. Financial regulators like can transfer it to another that needs capital
the securities market.
Securities and Exchange Board of India for its business purpose through this platform.
• Observing and regulating major (SEBI), Bank of England (BoE) and the Capital markets are those market where
transactions and take-over of the U.S. Securities and Exchange Commission trading of assets such as bonds, equity and
companies. (SEC) oversee capital markets to protect securities take place. Capital markets deal
investors against fraud, among other with financial instruments that are having a
• Carry out investor awareness duties. lock-in period of more than one.
and education programme.
There are many thousands of such A capital market is a financial market in which
• Train the intermediaries of the systems, most serving only small parts of long-term debt (over a year) or equity-
business. the overall capital markets. A capital backed securities are bought and sold,[1] in
market can be either a primary market or contrast to a money market where short-term
• Inspecting and auditing the
a secondary market. debt is bought and sold. Capital markets
security exchanges (SEs) and channel the wealth of savers to those who
intermediaries. can put it to long-term productive use, such
Transactions on capital markets are as companies or governments making long-
• Assessment of fees and other generally managed by entities within the term investments.
charges.
financial sector or the treasury
departments of governments and
corporations, but some can be accessed
directly by the public.
GFFUNCTIONS
CLASSIFICATION
OF CAPITAL
MARKET
OF
• Capital formation CAPITAL MARKET
• Regulate security
prices
• Capital liquidity
• Minimises Capital markets are those market
transaction cost A primary market is a source Take, for example, U.S.
of new securities. Often on an Treasuries—the bonds, bills, where trading of assets such as
• Link borrowers and notes issued by the U.S. bonds, equity and securities take
exchange, it's where companies,
and investors government. The Dept. of the
governments, and other groups Treasury announces new place. Capital markets deal with
go to obtain financing through issues of these debt securities financial instruments that are
at periodic intervals and sells
debt-based or equity-based having a lock-in period of more .
them at auctions, which are
CAPITAL MARKET securities. Primary markets are held multiple times A primary market is a
- STRUCTURE facilitated by underwriting throughout the year. This is an
marketplace where corporations
groups consisting of investment
example of the primary
market in action. imbibe a fresh issue of shares for
Capital markets structure is banks that set a beginning price
made of primary and The secondary market is being contributed by the public
secondary markets. range for a given security and
where investors buy and sell for soliciting capital to meet their
Primary markets consist of oversee its sale to investors.
companies that issue
securities. Trades take place necessary long-term funds like
securities and investors on the secondary market
A primary market is a source of extending the current trade or
who purchase those between other investors and
securities directly from the new securities. Often on an traders rather than from the buying a unique entity. It plays a
issuing company. These exchange, it's where companies, companies that issue the
motivational part in the
securities are called Initial securities. People typically
governments, and other groups mobilisation of savings in the
Public Offerings (IPO). associate the secondary
Whenever a company goes go to obtain financing through market with the stock market. economy.
public it sells its stocks and
debt-based or equity-based National exchanges, such as
bonds to large scales A marketer including all institutions,
institutional investors like securities. Primary markets are the New York Stock Exchange
hedge funds and mutual (NYSE) and the NASDAQ, are organisations, and instruments
facilitated by underwriting secondary markets. The
funds. providing medium and long-term
Secondary markets are groups consisting of investment secondary market is where funds is known as a Capital Market. It
places where the trade of banks that set a beginning price securities are traded after
does not include institutions and
already issued certificates they are put up for sale on the
between investors are range for a given security and instruments providing finance for a
primary market.
overseen by regulatory oversee its sale to investors. short term; i.e., up to one year. Some
bodies. Issuing companies Examples of stock markets (or
of the common instruments of a
play no part in the The primary market is the part of secondary markets) include
the NYSE and Nasdaq in the capital market are debentures,
secondary market. the capital market that deals with
Examples of secondary U.S., as well as the London shares, bonds, public deposits, mutual
markets are New York the issuance and sale Stock Exchange (LSE), funds, etc. A capital market is of two
Stock Exchange (NYSE). of securities to purchasers the Hong Kong Stock
types;namely, PrimaryMarket and
directly by the issuer, with the Exchange, the Bombay Stock
secondary Market.
Exchange, and the Frankfurt
issuer being paid the proceeds. Stock Exchange.
CAPITAL MARKET
– ADVANTAGES
*Money moves between
people who need capital and
who have the capital.
*There is more efficiency in
the transactions.
*Securities like shares help in
earning dividend income.
CAPITAL MARKET *With the passage of time,
the growth in value of
investments is high.
REFORMS IN INDIA *The interest rates provided
Capital market reform allows capital The recent capital market reforms by securities like Bonds are
markets to embrace new ideas and include: higher than interest rates
given by banks.
techniques that affect the capital Change in trading and settlement
market. Capital market liberalisation is procedure: Earlier, trading on a stock *Can avail tax benefits by
one such capital market reform that exchange used to take place on the investing in stock markets.
various countries have implemented in floor of a stock exchange, where *Scope for a wide range of
order to strengthen their economies. prices were shouted out and shares investments.
The government has launched a were sold to the highest bidder.
*Securities of capital
number of initiatives from time to time However, nowadays, trading is done markets can be used as
to provide financial and regulatory electronically in the broker's office collateral for getting loans
reforms in the primary and secondary through a computer terminal, which from banks.
market segments of the capital market. is connected to the main computer
These policies are intended to maintain system of the stock exchange. Any
investors' (both domestic and foreign) member can log on to the site, feed
confidence in the country's capital the information about the shares he CAPITAL
market. The primary goal of all policies wants to buy or sell and the price MARKET-
and reforms was obviously to into the computer. DISADVANTAGES
strengthen a specific country's capital Accordingly, the transaction is
*Capital market is very risky
market as much as possible. executed by matching the orders at because of its volatile nature in
the best bid and offer price. terms of price. The price
fluctuation is very fast and
hence, it is difficult to do
research.
* Investment in capital market
never gives fixed income due to
the price fluctuation in the
market.
* Capital market involves high
cost of transaction due to non-
availability of norms for
institutional investment.
*In capital market, there is
absence of proper control over
the brokers and sub-brokers.
the major weakness of capital
market is insider trading where
the management uses the
confidential information for
earning more return.
CAPITAL MARKET
–EXAMPLES
CAPITAL
Examples of capital markets are
MARKET
INSTRUMENTS
given below.
*Stock Market: A stock market,
equity market or share market is
the aggregation of buyers and
sellers of stocks, which represent
ownership claims on businesses 1.EQUITY SHARES: Equity shares are part ownership where the shareholders are fractional
owners and initiate the maximum entrepreneurial liability related to a trading concern. Equity
*Bond Market: The bond market is shareholders reserve the right to vote. However, holders of this instrument rank bottom on the
a financial market where scale of preference in the event of company liquidation because they are considered owners of
participants can issue new debt, the enterprise.
known as the primary market, or
buy and sell debt securities
*Currency and Foreign Exchange
2.PREFERENCE SHARES:Preference shares, more commonly referred to as preferred stock,
are shares of a company’s stock with dividends that are paid out to shareholders before
Markets: The foreign exchange
common stock dividends are issued. If the company enters bankruptcy, preferred
market is a global decentralized or stockholders are entitled to be paid from company assets before common stockholders.
over-the-counter market for the
trading of currencies. This market
determines foreign exchange rates
for every currency. 3.DEBT INSTRUMENTS: Corporations, as well as governments, raise funds for capital-
intensive projects by issuing a debt instrument. As a result, this type of instrument leads to the
formation of a borrower-creditor relationship. Therefore, unlike equities, holders of debt
*Debt Market: Debt instruments do not possess any ownership in the issuing entity.
securities are traded on the
bond market and are IOUs
that can come in the form of
bonds or notes. They 4.DERIVATIVES: These instruments are derived from other securities that are known as
essentially represent the underlying assets. Though the level of associated risk, function, and price of a derivative
borrowing of money that depends on its underlying assets, it is very volatile and comes with higher risks than equities.
will be paid back at a later
date with interest
