Regulatory

Function: SEBI exchanges, brokers, Intermediarles,

participants,such as stock
establishes regulations and
guldelines other
to
various
market
govern
market
entities. It
andand takes actlon agalnstany violations.
monitorstheir activities to ensure regulatory compliance
regulatoryi
The. functions of
1. SEBIhasframed rules andSEBI are as and a code of conduct toregulatetheintermediaries
regulationsfollows:
suchas merchant
bankers, brokers,
underwriters,
2. SEBl registerssand regulatesthe working of stock brokers,:sub-brokers,
etc. sharetransfer agents,
trustees, merchant bankers and all those who are associated withthe stock exchangein any
manner.
SEB0 registerssand regulates the
SEB0 regulatesthe takeover of theworking of mutual funds, etc.
CRB0 Conducts inquiries and audits of companies.
stock exchanges.
These intermediaries have been brought under the regulatory purview and private placement
has been made more restrictive.

SUMMARY
LFinancial Markets (Concept and Nature). Financial markets serve as aconnection between
surplus and deficit units, bringing lenders and borrowers together. There are two key segments
in the financial market:
(a) Capital Market.
(b) Money Market.
2 Functions of financial markets.
(a) Mobilizing savings and directing them towards the most beneficial uses.
(b) Facilitate price discovery.
() Provide liquidity for financing assets.
(d Reduce transaction costs.
3. Money Market. It is a market for short-term funds, which are funds that last up to one year. It is
seen as a market for supplying working capital.
Instruments of money market:
(a) Call money
(b) TreasuryBill
(c) Commercial Bill
() Commercial Paper
(e) Certificate Deposit
Capital market. It is the marketplace for long-and medium-term funds. Itrefers to organisations
/institutions that grant funding for longer than ayear.
Nature of capital market:
(a) The link between savers and investment opportunities
(b) Deals in long-term investment
(C) Determinant of capital formation
(a) Utilizes intermediaries
(e) Government regulations

Financial Markets 271

 There are two components of the capital market:
(a) Primary market: Aprimary market is onein which securitles are sold for first time.

Method of Floatation of Securities In Primary Market MIND MAP

() Public Issue through Prospectus
(ii) Offer for sale
(ii) Private placement Securities and Exchange
Board of India (SEBI)
(iv) Right issue AFinancial Market is a marke for
the crestion and
(v) e-IPO exchange of financial assets.
(b) Secondary Market. It is more commonlyyknown as the second-handsecurity market or stock Objectives ofSEBI Functions of Financtal Market
exchange market. 1. Mobilisation of Savings and Chaneling them into the
a Regulate stock exchanges most Productive Uses
5. Stock Exchange. An organization or bodyrof individuals, whether incorporatedior not
established
to assist, regulate, and controlthe business in buving, selling,and dealing in securities"
6 Prevent trading malpractices
Protect the rights of investors
2. Facilitate Price Discovery
Providing Liquidity to
Functions of Stock Exchange: 4. Redúcing the Cost of Financial Assets
Regulate and develop acode of Transactions
(a) Economic barometer conduct
Functlons of SEBI
(b) Pricing of securities
(c) Safety of transaction la Protective Functlons: To
protect the interest of investors. Concept of Financial
( Contribution to economic growth Market
(iD Development Functions: To
(e) Spread of equity cult promote &develop activities in
) Rights Issue stock exchange &to bring more
9) Liquidity business. FINANCIAL
(h) Better allocation of capital (i) Regulatory Functions: To MARKETS
frame rules, regulations, &code
(0 Promotes the habit of saving and investing of conduct to regulate the stock
6. Trading Procedure on a Stock Exchange: market.
Trading and
(a) Selection of broker |Settlement Procedure
(b) Opening a Demat Account with a Depository
(c) Match the share and best price
Steps in the Trading and Settlement
() Placing the order Dematerialisation and Depositories Procedure
(e) Executing order Demat: 1. Selection of brokers
(A Issue of contract note Conversion of paper/material forn of |2. Opening a demat account with a
Cg) Delivery of share and making payment share certificate into electricity entry. No depository
Physical transfer of securities. Placing the order
(h) Settlement Cycle Match the share &best price
7. Dematerialization and Depositories Depository: Executing Order
Depositor/Investor can deposit and Issue of contract Notes
Constituents of Depository System: withdraw the money or securities Delivery of share and making payment
(a) Depository Settlement cycle.
(b) Depository participants
8. SEBI: SEBI (the Securities and Exchange Board of
of the securities market. India) was established to regulate the functions
9. Function of SEBl:
(a) Protective Function
(b) Developmental Function
(c) Regulatory Function
272 Buslness Studies Volume I R Financial Markets (273
 Methods of Floatation
I. Ofer through Prospectus
2. Offer for Sale Primary market
i) Market for long tem 3. Private Placement New issues market.
4. Rights Issue Deals with new securitics
(ii) Market for fixed capital
5, e-IPOs being issucd for the first
time.

Capital Market
Secondary Market
Stock market or stock
Types of Capital exchange.
Market Purchase and sale of
Short-tem funds deal in existing securities.
monetary assets whose period
of maturity is up to one year. Functions of a Stock
Exchange
1. Providing Liquidity and
Marketability to Existing
Money Classification of
Market Securities
Financial Markets 2. Pricing of Securities
3. Safety of Transaction
4. Contributes to Economic
Growth
Instruments of
Money Market 5. Spreading of Equity Cult
6. Providing Scope for
Speculation
1.Treasury Bill
2.Commercial Paper
3.Call Money Difference Between the Money
4. Certificate of Deposit Market and Capital Market
5. Commercial Bill

Capital Market Money Market

S. No. Basis
&Financial Institutions, banks, Private and Public Co.,
1. Participants Financial Institutions, banks, Private investors & ordinary retail investors don't
Public Co., Foreign investors & ordinary Foreign
retail investors from the public.
participate in money market.
Shorts-Terms Securities having Max. tenure of l year.
2. Duration Long-Terms securities
Instruments Shares, debentures, bonds, etc T-bills, CP, CD, etc.
3.
|High instruments
4. Liquidity Not perfectly
Risky Market |Safer Market
5. Safety
|Low
6 Return High

(274) Business Studies Volume I w