Share Wealth

Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets.

For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduit - by facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions.

In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity trading avenue in which already existing/pre- issued securities are traded amongst investors. Secondary market could be either auction or dealer market. While stock exchange is the part of an auction market, Over-the-Counter (OTC) is a part of the dealer market.

A broker is a member of a recognized stock exchange, who is permitted to do trades on the screen-based trading system of different stock exchanges. He is enrolled as a member with the concerned exchange and is registered with SEBI.

A sub broker is a person who is registered with SEBI as such and is affiliated to a member of a recognized stock exchange.

The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto.

Pay in day is the day when the brokers shall make payment or delivery of securities to the exchange. Pay out day is the day when the exchange makes payment or delivery of securities to the broker. Settlement cycle is on T+2 rolling settlement basis w.e.f. April 01, 2003. The exchanges have to ensure that the pay out of funds and securities to the clients is done by the broker within 24 hours of the payout. The Exchanges will have to issue press release immediately after pay out.

The Exchange purchases the requisite quantity in the Auction Market and gives them to the buying trading member. The shortages are met through auction process and the difference in price indicated in contract note and price received through auction is paid by member to the Exchange, which is then liable to be recovered from the client.

Arbitration is an alternative dispute resolution mechanism provided by a stock exchange for resolving disputes between the trading members and their clients in respect of trades done on the exchange.

Weekly Options

Equity Futures & Options were introduced in India having a maximum life of 3 months. These options expire on the last Thursday of the expiring month. There was a need felt in the market for options of shorter maturity. To cater to this need of the market participants BSE launched weekly options on September 13, 2004 on 4 stocks and the BSE Sensex.

Weekly options have the same characteristics as that of the Monthly Stock Options (stocks and indices) except that these options settle on Friday of every week. These options are introduced on Monday of every week and have a maturity of 2 weeks, expiring on Friday of the expiring week.

The Standing Committee on Finance, a Parliamentary Committee, at the time of recommending amendment to Securities Contract (Regulation) Act, 1956 had recommended that the minimum contract size of derivative contracts traded in the Indian Markets should be pegged not below Rs. 2 Lakhs. Based on this recommendation SEBI has specified that the value of a derivative contract should not be less than Rs. 2 Lakh at the time of introducing the contract in the market. In February 2004, the Exchanges were advised to re-align the contracts sizes of existing derivative contracts to Rs. 2 Lakhs. Subsequently, the Exchanges were authorized to align the contracts sizes as and when required in line with the methodology prescribed by SEBI.

Lot size refers to number of underlying securities in one contract. The lot size is determined keeping in mind the minimum contract size requirement at the time of introduction of derivative contracts on a particular underlying.

For example, if shares of XYZ Ltd are quoted at Rs.1000 each and the minimum contract size is Rs.2 lakhs, then the lot size for that particular scrip stands to be 200000/1000 = 200 shares i.e. one contract in XYZ Ltd. covers 200 shares

The contract period for both Futures and Options are 1 month, 2 month and 3 months, each contract ending on the last Thursday of the contract month. If it is holiday, then the immediately preceding business day (Business day is a day during which the underlying stock market is open for trading). On the last trading day, the closing value of the underlying stock is the final settlement price of expiring futures contract. In Options, apart from normal contract period, there's also 1, 2 weeks contract periods.

Derivative trading in India takes place either on a separate and independent Derivative Exchange or on a separate segment of an existing Stock Exchange. Derivative Exchange/Segment function as a Self-Regulatory Organisation (SRO) and SEBI acts as the oversight regulator. The clearing & settlement of all trades on the Derivative Exchange/Segment would have to be through a Clearing Corporation/House, which is independent in governance and membership from the Derivative Exchange/Segment.

Dematerialisation is a process by which physical certificates are converted into electronic form.

"Beneficial Owner" is a person in whose name a demat account is opened with depository for the purpose of holding securities in the electronic form and whose name is recorded as such with the former.

A Depository Participant (DP) is an agent of the depository who is authorised to offer depository services to investors. Financial institutions, banks, custodians and stockbrokers complying with the requirements prescribed by SEBI/ Depositories can be registered as DP.

Issuer means any entity making an issue of securities

ISIN (International Securities Identification Number) is the identification number given to a security of an issuer at the time of admitting such security in the depository system.

No, different securities issued by the same issuer will have different ISINs.

Following services can be availed of through a DP:

• Dematerialisation i.e. converting physical securities into electronic form.
• Rematerialisation, i.e. converting electronic securities balances in a BO account into physical form.
• To maintain record of holdings in the electronic form.
• Settlement of trades by delivering/ receiving underlying securities from/in BO accounts.
• Settlement of off-market trades i.e. transactions between BOs entered outside the Stock Exchange.
• Providing electronic credit in respect of securities allotted by issuers under IPO or otherwise.
• Receiving on behalf of demat account holders non-cash corporate benefits, such as, allotment of bonus and rights shares in electronic form or securities ensuing upon consolidation, stock split or merger/amalgamation of companies.
• Pledging of dematerialised securities.
• Facilitating Securities Lending and Borrowing, if the DP is registered as an "Approved Intermediary" for the purpose.

SEBI Guidelines defines Book Building as a process undertaken by which a demand for the securities proposed to be issued by a corporate body is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document.

Price at which securities will be allotted is not known in case of offer of shares through book building while in case of offer of shares through normal public issue, price is known in advance to investor. In case of Book Building, the demand can be known everyday as the book is built. But in case of the public issue the demand is known at the close of the issue.

Book should remain open for minimum of 3 working days.

Floor price is the minimum price at which bids can be made.

Yes.

Yes.

Book Running Lead Manager appointed by the issuer will intimate to the exchange the list of members who are eligible to participate in the issue. These members will be allowed to enter the bids in the IPO.

No. The system automatically rejects the bids if price is less than floor price.

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

Yes. He can bid in a book-built issue for a value not more than Rs.1,00,000. Any bid made in excess of this will be considered in the HNI category.

As per the requirement, all the public issues of size in excess of Rs.10 crore, are to made compulsorily in the demat mode. Thus, if an investor chooses to apply for an issue that is being made in a compulsory demat mode, he has to have a demat account and has the responsibility to put the correct DP ID and Client ID details in the bid/application forms.

In case of fixed price issues, the investor is intimated about the CAN/Refund order within 30 days of the closure of the issue. In case of book built issues, the basis of allotment is finalized by the Book Running lead Managers within 2 weeks from the date of closure of the issue. The registrar then ensures that the demat credit or refund as applicable is completed within 15 days of the closure of the issue. The listing on the stock exchanges is done within 7 days from the finalization of the issue.