January 2019 - Page 2 of 3 - Stocksbaazigar
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Month: January 2019

Procedure for the bidding

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As an Investor when we apply to an IPO, all we know is Brand Price of the IPO, It’s issue size, duration for subscriptions and views of analysts on the IPO based on it’s fundamental analysis. We don’t know how this bidding procedure takes place and on what basis the allotment is done. In this post we will see the method and procedures of bidding in an IPO. The method and procedures of bidding is subject to following: Bid is required to be kept open for at least 3 working days and no more than 7 working days, which may be extended to a maximum of 10 working days in case the price band is revised. Bidding is permitted only if an electronically linked transparent facility is used. The ‘syndicate members’ are required to be present at the bidding centers so that at least one electronically linked computer terminal all the bidding centers is available for the purpose of bidding. a) The number of bidding centers, in case 75% of the net offer to the public is offered through the book building process shall not be less than the number of mandatory collection centers as specified in regulations. In case 100% of the net offer to the public is made through the book building process, the bidding centers shall be at all the places, where the recognized stock exchanges are situated. b) The same norms as applicable for collection centers shall be applicable to the bidding centers also. Individual, as well as qualified buyers, shall place their bids only through the brokers who shall have the right to vet the bids. The applicant is required to enclose the proof of DP ID and Client ID along with the application while making a bid. The investors shall have the right to revise their bids provided that Qualified Institutional Buyers are not be allowed to withdraw their bids after the closure of the bidding. During the period the issue is open to the public for bidding, the applicants may approach the brokers of the stock exchanges through which the securities are offered under the online system to place an order for bidding to securities. Every broker shall accept orders from all clients/investors who place orders through him. Bidding Form a)There shall be a standard bidding form to ensure uniformity in bidding and accuracy. b)The bidding form before being issued to the bidder shall be serially numbered at the bidding centers and date and time stamped. c)The serial number may be system generated or stamped with an automatic numbering machine. d)The bidding form shall be issued in duplicate signed by the investor and countersigned by the syndicate member, with one form for the investor and the other for the syndicate member(s)/book runner(s). At the end of each day of the bidding period, the demand shall be shown graphically on the terminal for information of the syndicate members as well as the investors. The identities of the Qualified Institutional Buyers making the bidding shall not be made public. The stock exchanges shall display data pertaining to book built issues in a uniform format, interalia giving category-wise details of the bids received indicative format as given in the guidelines. The data pertaining to an issue shall be displayed on the site for a period of at least three days after closure of bids. After the closure of the issue, the bids received are aggregated under different categories i.e. firm allotment, qualified institutional buyers (QIBs), Non-institutional buyers (NIBs), retails etc. The over subscription ratios are then calculated for each of the categories as against the shares reserved for each of the categories in the offer document. Within each of these categories, the bids are then segregated into different buckets based on the number of shares applied for. The over-subscription, ratio is the applied to the number of shares applied for and the numbers of shared to be allotted for applicants in each of the bucket is determined. Then the number of successful allotees is determined. The process is followed in case of proportionate allotment. In the case of allotment for QIBs, it is subject to discretion of the post issue lead manager. Where the lead book runner has reasons not to accept a qualified institutional buyer’s bid, the same is required to be done at the time receipt of the bids and the reasons therefore is required to the bidder Ideally, the share should trade in secondary market on T+6 day after Bid Closure at T day.

Eligibility Norms for companies issuing securities

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The company issuing securities through an offer document shall satisfy the following conditions: 1.1 Filing of offer document 1.1.1) No company shall make any issue of a public issue of securities, unless a draft prospectus has been filed with the Board, through an eligible Merchant Banker, atleast 21 days prior to the filing of Prospectus with the Registrar of Companies (ROCs).     Provided that if within 21 days from the date of submission of draft Prospectus, the Board specifies changes, if any, in the draft Prospectus (without being under any obligation to do so), the issuer or the Lead Merchant banker shall carry out such changes in the draft prospectus before filing the  prospectus with ROCs. 1.1.2) No listed company shall make any issue of security through a rights issue where the aggregate value of securities, including premium, if any, exceeds Rs.50 lacs, unless the letter of offer is filed with the Board, through an eligible Merchant Banker, at least 21 days prior to the filing of the Letter of Offer with Regional Stock Exchange (RSE). Provided that if, within 21 days from the date of filing of draft letter of offer, the Board specifies changes, if any, in the draft letter of offer, (without being under any obligation to do so), the issuer or the Lead Merchant banker shall carry out such changes before filing the draft letter of offer with RSE. 1.1.3) Companies barred not to issue security    No company shall make an issue of securities if the company has been prohibited from accessing the capital market under any order or direction passed by the Board. 1.1.4) Application for listing    No company shall make any public issue of securities unless it has made an application for listing of those securities in the stock exchange (s). 1.1.5) Issue of securities in dematerialized form No company shall make public or rights issue or an offer for sale of securities, unless:    (a) the company enters into an agreement with a depository for dematerialization of securities already issued or proposed to be issued to the public or existing shareholders; (b) and the company gives an option to subscribers/ shareholders/ investors to receive the security certificates or hold securities in dematerialized form with a depository.     Explanation: A depository shall mean a depository registered with the Board under the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996. 1.2) Initial Public Offerings by Unlisted Companies     2.2.1) An unlisted company may make an initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date, only if it meets all the following conditions:     (a) The company has net tangible assets of at least Rs. 3 crores in each of the preceding 3 full years (of 12 months each), of which not more than 50% is held in monetary assets. Provided that if more than 50% of the net tangible assets are held in monetary assets, the company has made firm commitments to deploy such excess monetary assets in its business/project (b) The company has a track record of distributable profits in terms of Section 205 of the Companies Act, 1956, for at least three (3) out of immediately preceding five (5) years     Provided further that extraordinary items shall not be considered for calculating distributable profits in terms of Section 205 of Companies Act, 1956;   (c) The company has a net worth of at least Rs. 1 crore in each of the preceding 3 full years (of 12 months each) (d) In case the company has changed its name within the last one year, atleast 50% of the revenue for the preceding 1 full year is earned by the company from the activity suggested by the new name; and (e) The aggregate of the proposed issue and all previous issues made in the same financial year in terms of size (i.e., offer through offer document + firm allotment + promoters contribution through the offer document), does not exceed five (5) times its pre-issue networth as per the audited balance sheet of the last financial year. 1.2.2    An unlisted company not complying with any of the conditions specified in Clause 1.2.1 may make an initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date, only if it meets both the conditions (a) and (b) given below:    (a) (i) The issue is made through the book-building process, with at least 50% of the issue size being allotted to the Qualified Institutional Buyers (QIBs), failing which the full subscription monies shall be refunded.                                                     OR     (a) (ii) The project has at least 15% participation by Financial Institutions/ Scheduled Commercial Banks, of which at least 10% comes from the appraiser(s). In addition to this, at least 10% of the issue size shall be allotted to QIBs, failing which the full subscription monies shall be refunded.        AND      (b) (i) The minimum post-issue face value capital of the company shall be Rs. 10 crores.                   OR      (b) (ii) There shall be a compulsory market-making for at least 2 years from the date of listing of the shares, subject to the following: (a)  Market makers undertake to offer buy and sell quotes for a minimum depth of 300 shares; (b) Market makers undertake to ensure that the bid-ask spread (difference between quotations for sale and purchase) for their quotes shall not at any time exceed 10%: (c) The inventory of the market makers on each of such stock exchanges, as on the date of allotment of securities, shall be at least 5% of the proposed issue of the company. 1.2.2.A) An unlisted public company shall not make an allotment pursuant to a public issue or offer for sale of equity shares or any security convertible into equity shares unless, in addition to satisfying the conditions mentioned in Clause 1.2.1 or 1.2.2 as the case may be, … Read more

Primary Market Prospectus

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A large number of new companies float public issue. Most of these companies are genuine, but quite a few may want to exploit the investors. Therefore it is important for Investors to obtain detailed information about a Company before investing i it. What is Prospectus? As per the guidelines issued by SEBI (Securities and Exchange Board of India), it is mandatory for disclosure to the public. This disclosure includes detailed information like the reason for raising the money, the way money is proposed to be spent, the return expected on the money etc. This information is in the form of ‘Prospectus’. It acts as both, a disclosure document and a marketing document. It required to contain a detailed description of the business, its current and past performance, the projects, cost of the projects, means of financing, product and capacity etc. It must also give a description of management structure, management salaries, operations, and financial conditions, dividend policy and Market capital of the company etc. It should also include information regarding the size of the issue, the current status of the company, its equity capital, details of promoters, underwriting, statutory compliances etc. It normally starts with a table of contents, definitions, risk factors, the summary of an issuer and financial data. This is followed by a detailed disclosure under three sections.: a)Issue Structure b) Issuer Information c) General and Statutory Information This way the Offer document covers all the relevant information to help an investor to make his/her investment decision. ‘Draft Offer document‘ Draft offer document means the offer document in draft stage. The draft offer documents are filed with SEBI, atleast 21 days prior to the filing of the Offer Document with Registrar of Companies (ROC)/ Stock Exchanges (SEs). The Draft Offer document will be available on the SEBI website for public comments for a period of 21 days from the filing with the Draft Offer document with SEBI. SEBI may specify changes if any which Company with the help of Merchant Banker shall carry out before submitting offer document to the ROC/SEs Abridged Abridged Prospectus is shorter version of Prospectus. It contains all the salient features of a Prospectus. It accompanies the application form of public issue. Red-Herring Red Herring Prospectus is a prospectus which does not have details of either price or number of shares being offered or the amount of issue. Shelf A Prospectus in respect of which the securities or the class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus is called as Shelf Prospectus.

Primary market Intermediaries

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Capital Market intermediaries are the important link between the regulators, issuer, and investor. SEBI has issued regulations in respect of each intermediary to ensure proper services to be rendered by them to the investors and the capital market. In this post, we will learn about some primary market intermediaries. The following market intermediaries are involved in the primary market: Merchant Bankers/Lead Managers Registrars and Share Transfer Agents Underwriters Bankers to the Issue Debenture Trustees etc. Merchant Bankers Merchant Bankers play an important role in the issue management process. Merchant Bankers are mandated by SEBI to manage public issues (as lead managers) and open offers in take-overs. Apart from these, they have other diverse services and functions. These include organizing and extending finance for investment in projects, assistance in financial management, acceptance house business, raising Euro-dollar loans and issue of foreign currency bonds. Lead Managers (Category 1 merchant bankers) has to ensure correctness of the information furnished in the offer document. They have to ensure compliance with the SEBI Rules and regulations and also guidelines for Disclosure and Investor Protection. To this effect, they have are to submit to SEBI a Due Diligence Certificate confirming that disclosures made in the draft prospectus or letter of offer are true, fair and adequate to enable the prospective investors to make a well-informed investment decision. Regulation: Merchant Bankers are one of the major intermediaries between the issuer and the investors, hence their activities are regulated by SEBI (Merchant Bankers) Regulations, 1992 Guidelines of SEBI and Ministry of Finance Companies Act 1956. Securities Contracts (Regulation) Act, 1956. and so on. Criteria for Merchant Banker: Regulation 3 of SEBI (Merchant Bankers) Regulations, 1992 lays down that the application by a person desiring to become merchant banker shall be made to SEBI in the prescribed form seeking a grant of a certificate of registration along with a non-refundable application fee as specified. The applicant shall be a body corporate other than NBFC The applicant has the necessary infrastructure like adequate office space, equipment’s and manpower to effectively discharge his activities. the applicant has in his employment a minimum of two persons who have the experience to conduct the business of the merchant banker. The applicant shall be a net worth of not less than 5 Crore rupees. The applicant, his director, partners, or principal officer is not involved in any litigation connected to securities market the applicant, his director, partner, or principal officer has not any time been convicted for any offence involving moral turpitude or has been found guilty of any offence. the applicant has the professional qualification from an institution recognized by the Government of Finance, Law or Business Management. the applicant is fit and proper person grant of certificate to the applicant is in the interest of investors Registrars and transfer agents R & T agents form an important link between the investor and issuer in the Securities Market. R & T agent is appointed by the issuer to act on its behalf to service the investors in respect of all corporate actions like sending out notices and other communications to the investors as well as dispatch of dividends and other non-cash benefits. R & T agents perform an equally important role in the depository system as well. R & T agents are registered with SEBI in the terms of SEBI (Registrars to the Issue and Share Transfer Agents) Rules and Regulations, 1993. Underwriters Underwriting services are provided by some large specialists financial institutions such as banks, insurance or investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liability arising from such guarantee. Securities underwriting is the process by which investment banks raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equities and debt capital). The services are typically used during a public offering in the primary market. Underwriters are required to register with SEBI in terms of SEBI (Underwriters) Rules and Regulations, 1993. Bankers to the Issue Bankers to an Issue means a scheduled bank carrying on all of the following activities: acceptance of application and application money acceptance of allotment of call money refund of application money Payment of dividends or interest warrants etc. The activities of the Banker to an issue in the Indian Capital Market are regulated by SEBI (Bankers to an issue) Regulations, 1994 Debenture Trustees Debenture Trustee means a Trustee of a Trust deed for securing any issue of debentures. Debenture trustees call for periodical reports from the body corporate takes possession of trust property in accordance with the provisions of the trust deed enforce security in the interest of debenture holders do such acts as necessary in the event the security becomes enforceable carry out such acts as are necessary for the protection of debenture holders and to do all things necessary in order to resolve the grievances of the debenture holders. ascertain and specify that debenture certificates have been discharged within 30 days of registration of the charge with ROC ascertain and specify that debenture certificates have been discharged in accordance with the provisions of the Company Act ascertain and specify that interest warrants for interest due on the debentures have been dispatched to the debenture holders on or before the due date and so on. To inform SEBI in case of breach of Trust Deed and take measures accordingly. The activities of Debenture Trustee in the Indian Capital Market are regulated by SEBI (Debenture Trustees) Regulations, 1993.

Fixed Price Issue and Book Building Issue

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An Initial Public Offering (IPO) is a common way that a company goes public and sells shares for the first time to raise financing. There are two common types of IPOs: a fixed price and a book building offering. Let us discuss both types in detail in this post. What is meant by Issue Price? The Price at which a company’s shares are offered initially in the primary market is called as the Issue Price. When they begin to be traded, the Market Price may be above or below the issue price. Who decides the price of an issue? SEBI does not play any role in the price fixation. There is no price formula stipulated by SEBI. SEBI has provided guidelines under which Issuer shall decide the Issue price in consultation of Merchant Banker The Company and the merchant banker are required to give full disclosures of the parameters which they had considered while deciding the issue price. What is the Fixed Price Issue? Under the Fixed Price Offering, the company going public determines a fixed price at which its shares are offered to investors. Price at which the securities are offered and would be allotted is made known in advance to the investors. Demand for the securities offered is known only after the disclosure of the issue. To take part in this IPO, the investor must pay the full share price making the application. What is the Book Buiding Issue? Under Book building, the company going public offers a 20% price band within which investors are allowed to bid and the final price is determined by the issuer only after closure of the bidding Demand for the securities offered, and at various prices, is available on a real-time basis on the websites of major stock exchanged during the book building process. Investors must specify the number of shares they want to buy and how much they are willing to pay. Unlike Fixed price, there is no fixed price per share. What is the Book Building Process? Book Building is basically a process used in IPOs for efficient price discovery. It is a mechanism where, during the period for which IPO is open, bids are collected from Investors at various prices, which are above or equal to floor price. The process is directed towards both the institutional as well as retail investors. The issue price is determined after the bid closure based on the demand generated in the process. What is a Price Band in a book built IPO? The prospectus contains either the floor price for the securities or a price band within which the investors can bid. Floor Price is the minimum price at which bids can be made Cap price is the maximum price at which bids can be made The spread between the floor and cap of the price band should not be more than 20% It is up to the company to decide on the price band in consultation with the merchant bankers. The actual discovered issue price can be any price in the price band or any price above the floor price. This issue price is called ‘Cut-off price’. What is the main difference between the Book Building Issue and Fixed Price issue? Price at which securities will be allotted is not known in case of book building offer while in case of offer of shares through fixed price issue the price is known in advance to investors. Under book building, investors bid for shares at the floor price or above and after the closure of the book building process the price is determined for allotment of shares. In case of book building, the demand can be known everyday as the book is being built. But in case of Fixed price issue the demand is known at the closure of the issue.

Flow chart of IPO Process

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The process of offering shares in a private corporation to the public for the first time is called Initial Public Offering (IPO). Flow Chart of IPO Process Approval of Board: An approval of the Board of Directors of the company is required fo raising capital from the public. Appointment of Lead Managers: The Lead Manager is a Merchant banker who orchestrates the issue in consultation with the company. Appointment of other Intermediaries: Several intermediaries facilitate the IPO process. A company secretary, an underwriter, bankers, brokers, registrars etc. are selected. Filing of the Prospectus with SEBI: All the companies seeking to make a public issue have to file their offer document with SEBI. The Offer document or Prospectus communicates the information about the company and the proposed security issue to the investing public. Filing of the Prospectus with Registrar of Companies: Once the SEBI and Stock Exchanges gives approval to the prospectus, offer document, must be filed with the Registrar of Companies, along with required documents by the Companies Act, 1956 Filing of Initial Listing Application: Within 10 days of filing the prospectus, the initial listing application must be made to the concerned stock exchanges, along with the initial listing fees. Promotion of the Issue: To promote the issue the company holds conferences for brokers, press, and investors. Advertisements are also released in newspapers and periodicals to generate interest among potential investors. Statutory Announcement: The Statutory announcement of the issue must be made after seeking the approval of the lead stock exchanges. This must be published at least 10 days before the opening of the subscription list. Collection of Applications: During the period of subscription, the bankers to the issue collect application money on behalf of the company. While the managers of the issue, with the help of registrar, monitor the situation. Information is gathered about the number of application received in various categories, the number of shares applied for, and the amount received. Processing of Applications: The applications forms received by the bankers are transmitted to the registrars of the issue for processing. This mainly involves scrutinizing the applications, coding the applications, preparing a list of applications with all the relevant details. etc. Establishing the Liability of Underwriters: If the issue is undersubscribed, the liability of the underwriter has to be established. Allotment of Shares: According to SEBI guidelines, one-half of the net public offers have to be reserved for applications up to 1000 shares and the balance one-half for larger applications. For each of these segments, the proportionate system of allotment is followed. Listing of the issue: The detailed listing application should be submitted to the concerned stock exchanges along with the listing agreement and the listing fee. The allotment formalities should be completed within 30 days after the subscription list is closed or such extended period as permitted by the lead stock exchanges. STAGES OF THE IPO 1) Pre-issue Due Diligence Draft Offer document to be filed with SEBI Final Offer document to be filed with SEBI Application for listing with Stock Exchange Promoter’s Contribution to be brought in prior to the issue Appointment of Compliance Officer In-Principal approval from Stock Exchange to be obtained and filed with SEBI Issue Advertisement Book-building and Bidding processes to be followed 2) Issue Subscription list to be kept open for at least 3 days Issue open with in the time prescribed 3) Post-Issue Monitoring reports to be submitted to SEBI Final Post issue monitoring reports Post Issue Advertisements Dispatch of shares certificates etc. and allotment of the documents.

Advantages and disadvantages of going public

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The first public offering of equity shares of a company, which is followed by a listing of its shares on the stock market, is called the Initial Public Offering (IPO). Often going public is the best choice of growing business. The decision to go public is a very important business financing strategy of a company. Therefore we must discuss the Advantages and Disadvantages of going public. Advantages of going public Lets first discuss some advantages of going public: 1) Access to Capital: The principal motivation for going public is to have access to larger capital. A company that does not tap the public financial market may find it difficult to grow beyond a certain point for want of capital. The biggest advantage of going public is the capital raised. 2) Respectability A company which goes public commands respectability. Pubic companies offer more growth potential compared to non-public companies. Hence they can attract superior talent. 3) Exploit the opportunity Many companies are usually started privately by their promoter(s). When a non-public company recognizes that other companies in the industry are overpriced. It has an incentive to go public and exploit that opportunity 4) Scope for diversification When a company goes public, original owners, investors, managers etc. can cash out of the firm and build a diversified portfolio. 5) Reality Check from Market Market forces decides stocks prices of the companies which are publicly listed. Managers can use this information as a feedback for the improvement of the company. 6) Reduces the Marketing cost Going public attracts media attention. Business Newspapers, TV Channels, Websites, Magazines etc. focus on public companies for providing information to the Investors. This increases the exposure of the public listed companies and their products. 7) Helps Business growth Going public gives companies an increased availability of capital which can be used for building a competitive edge and increasing the market share by increasing the market penetration. 8) Increases Network Public companies can build a great network of suppliers, distributors, and partners due to their reputation as a Publicly listed company. 9) Ability to take advantage of market price fluctuations: Once public, a company can take advantage of market price fluctuations to sell stock when the markets are hot, buy back the stock when the market is cold. This can often be an effective and low cost way to raise significant capital. Disadvantages of going public A public company (or, more precisely, a listed company) is not an unmixed blessing. There are several disadvantages to going public 1) Adverse Selection Investors, in general, know less than the issuers about the value of companies that go public. Hence to stimulate interest and participation of Investors, companies has to under price its securities. 2) Loss of Flexibility The affairs of a public company are subject to fairly comprehensive regulations. Hence when a non-public company is transformed into a public company there is some loss of flexibility 3) Disclosures Public companies must make extensive disclosures and submit to stringent regulations. They are required to disclose a lot of information to investors and regulator. They can not keep secrecy of their expansion plans and product marketing strategies. 4) Accountability Understandably, the degree of accountability of a public company is higher. It has to explain a lot to its investors. Investors who want to see the rise in their share prices often scrutinize every action of management 5) Public Pressure Because of its greater visibility a public company may be pressurized to do things that it may not otherwise do. It really upsets the Entrepreneurs who started those businesses. Market pressure can compel Management to focus on short-term results instead of long term growth. 6) Expenses The cost of complying with SEBI rules and regulations is high and it is getting higher. The cost of going public is substantial both initially and on an ongoing basis. Fees of financial reporting documents and investors relations, stock holding meetings, and other expenses are significant. These are some of the disadvantages of going public.

Primary Market

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Capital Market can be broadly divided in Primary Market and Secondary Market. What is a Primary Market? The Primary Market is the part of Capital Market that deals with the issuance of new securities and then sold to investor directly by the issuer. It is also known as a New Issue Market. In this Market, Investors buy securities that were never traded before. New Issue Markets are facilitated by underwriting groups, consisting of investment banks that set a beginning price range for a given security and oversee its sale to investors. Once the initial sale is complete, further trading is conducted on the secondary market. Investors typically pay less for securities on the primary market than secondary market. What is the role of the ‘Primary Market’? It issues new securities on an exchange for companies, Government and other groups to obtain financing through debt-based or equity-based securities. It provides the channel for sale of new securities. It create long term instruments through which corporate entities raise funds from the capital market. It provides the issuers the opportunity to raise resources to meet their requirements of investment and/or discharge of some obligation. They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market. Ways of raising funds through Primary markets Corporate entities raise funds from New Issue Market in three ways. Public Issue: A stock exchange lists the securities and corporate raises funds through Initial Public Offering (IPO). Rights Issue: Existing shareholders are offered more shares at a discounted price and or a pro-rata basis. Private Allotment: A corporate issues shares at a price which may or may not be related to the current market price of the same security. Major Players of Primary Market There are several major players in the New Issue market. These include the merchant bankers, mutual funds, financial institutions, foreign institutional investors (FIIs) and individual investors.

Money Market

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Features of Money Market Money market deals with all the transactions in short term instruments with a period of maturity of 0-364 days. It is based on the Management of liquidity It is largely regulated by RBI and to an extent by SEBI It is a market where low risk, unsecured and short term debt instruments that are highly liquid are issued and actively traded every day. One of the important functions of a well-developed money market is to channel savings into short term productive investments like working capital. Call money market, treasury bills market, and markets for commercial paper and certificate of deposits are some of the examples of a money market. MONEY MARKET INSTRUMENTS: Treasury Bills (T-Bills) An Instrument of short-term borrowing by the Government of India maturing less than one year. These are also known as Zero Coupon Bonds. These are issued by RBI on behalf of Government of India to meet its short term requirement of funds They are issued in the form of Promissory notes. T-Bills are highly liquid and have assured yield with negligible risk of default. They are issued in discount but then paid at par. T-Bills are available for a Minimum amount of Rs. 25,000/- and in the multiple thereof. Call Money Market The call Money market forms a part of the national money market, where day-to-day surplus funds, mostly that of the banks are traded. The call money loans are of very short term in nature and the maturity period of these loans vary from 1 to 15 days. In this market, any amount could be lent or borrowed at a convenient interest rate, which is acceptable to both borrower and lender. The loans are considered as highly liquid, as they are repayable on demand at the option of either the lender or the borrower. Commercial Banks maintain CRR as per the directives of RBI. By using Call Money, banks borrow from each other to be able to maintain the CRR. A rise in Call Money rates makes other sources of finances like CoDs and CPs cheaper. Commercial Papers Commercial Papers are short term, unsecured promissory notes issued at a discount to face value by well-known companies that are financially strong and carry high credit rating. They have the maturity of 15 days to 1 year They are sold directly by the issuers to the investor or else placed by borrowers through agents like merchant banks and security houses. They are sold at discount and redeemed at par. The flexible maturities at which they can be issued are one of the main attractions for borrowers and investors since issues can be adapted to the needs of both. CPs are negotiable instrument transferable by endorsement and delivery. The commercial paper market has the advantage of giving highly rated corporate borrowers cheaper funds than they obtain from the banks while still providing the institutional investor with higher interest earnings that they could obtain from the banking system. They can be used as an alternative to bank borrowings. Funds raised through Commercial Paper are used to meet the floatation costs. The issue of Commercial Paper imparts a degree of financial stability to the system as the issuing company has an incentive to remain financially strong. Certificates of Deposits Certificate of deposits is defined as short term deposit by way of usance promissory notes having a short maturity of not less than three months and not more than one year. They are bank deposits which are transferable to one party to the other. They are different from conventional time deposits due to their free negotiability. Due to this negotiable nature, they are also known as negotiable certificates of deposits. They are issued in the period of tight liquidity when the deposits by individuals and households in less but demand for credit is high. They help to mobilize large amounts of money in short time period. Money Market Mutual Funds Money Market Mutual Funds that invest primarily in money market instruments of very high quality and of very short maturity. Commercial banks, RBI and public financial institutions can set it either directly or through their existing mutual funds subsidiaries. The scheme offered by MMMF can either be open-ended or closed-ended. In case of open-ended schemes, the units are available on continuous basis and the MMMF would be willing to repurchase the units, while a close ended scheme is available for subscription for a limited period and is redeemed at maturity. Commercial Bills Commercial Bill is a short-term, self-liquidating,negotiable instrument used for financing credit sales of a firm. When Goods are sold on credit, the buyer becomes liable to make a payment on a specified date in future. The seller could wait till the specified date or make a use of a bill of exchange. If the seller draws a Bill of Exchange on Buyer who accepts it then it becomes marketable instrument known as trade bills. When a seller presents this to a bank and accepts it and gives funds against it to the seller, it becomes a commercial bill.

Indian Financial System

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Overview of Indian Capital Markets Capital market is a market where buyers and sellers engage in trade of financial securities like bonds, stocks, etc. The buying/selling is undertaken by participants such as individuals and institutions. The financial market is to facilitate the transfer of funds from surplus sectors (lenders) to deficit sectors (borrowers). It consists of investors or buyer of securities, borrowers or sellers of securities, intermediaries and regulatory bodies. Financial Market does not refer to the physical location. Formal trading rules, relationships and communication networks for originating and trading financial securities link the participants of the market. Indian Financial System The phenomenon of imbalance in the distribution of capital or funds exist in every economic system.  There are areas or people with surplus funds and there are those with the deficit. A financial system functions as an intermediary and facilitates the flow of funds from the areas of surplus to the areas of deficit. A financial system is a composition of various institutions, market, regulations, laws, practices, money managers, analysts, transactions and claims and liabilities. The functions performed by Financial Systems: The functions performed by Financial Systems: The Saving function Liquidity Function Payment Function Risk Function Policy Function Financial Markets The Financial Market is a broad term describing any marketplace where trading of securities including equities, bonds, currencies and derivatives occur. Financial markets can be defined as the market in which financial assets are created or transferred. Financial assets represent a claim to the payment of a sum of money sometime in the future and/or periodic payments in the form of interest or dividend. Financial Markets are sometimes classified as Primary and Secondary Markets. But more often they are classified as Money Markets and Capital markets.  The term financial market is often used to refer just to markets that are used to raise finance; for long term capital markets and for short term finance, the money markets. Functions of Financial Markets Borrowing and lending Price discovery Information collection and distribution Risk sharing Liquidity Efficiency

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