Stock Market

Stock market  or equity market or share market  (Primary Securities ) 

 

A securities market is a system of interconnection between all participants (professional and nonprofessional) that provides effective conditions:

To attract new capital by means of issuing new security (securitization of debt)

To transfer real asset into financial asset

To invest money for short or long term periods with the aim of deriving profitability

Commercial function (to derive profit from operation on this market)

Price determination (demand and supply balancing, the continuous process of prices movements guarantees to state correct price for each security so the market corrects mispriced securities)

informative function (market provides all participants with market information about participants and traded instruments)

regulation function (securities market creates the rules of trade, contention regulation, priorities determination)

Transfer of ownership (securities markets transfer existing stocks and bonds from owners who no longer desire to maintain their investments to buyers who wish to increase those specific investments

Insurance (hedging) of operations though securities market (options, futures, etc.)

 

LEVELS OF SECURITY MARKET 

Primary Market 

The primary market is the part of the capital market which deals with the issuance and sale of equity backed securities to investors directly by the issuer. 

Investors buy securities that were never traded before. 

Primary markets create long term instruments through which corporate entities raise funds from the capital market . It is also known as the New Issue Market (NIM). 

In a primary market, companies, governments or public sector institutions can raise funds through bond issues and corporations can raise capital through the sale of new stock through an initial public offering (IPO). This is often done through an investment bank or finance syndicate of securities dealers. 

The process of selling new shares to investors is called underwriting. Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus.

IPOs are not the only way new shares are issued. Publicly traded companies can issue new shares in what is called a primary issue of debt or stock, which involves the issue by a corporation of its own debt or new stock directly to institutional investors like pension funds, or to private investors and shareholders. 

 

Raising funds 

Funds can be raised through various sources 

Public Issue 

Public issue refers to the issue of shares or convertible securities in the primary markets by the company promoters . so as to attract new investors for a subscription.

 

Initial Public Offer (iPO) 

By the name we can understand that it is a sale of a company's share to the public at large for the very first time .  

It is the sale of a company's share . It is an offer which is issued by the company which is held privately; it issues shares or securities which are convertible .

Further Public Offer (FPO) 

These are the shares which are issued by the company which has gone through IPO . They offer shares to the public for sale so that they can expand their equity base or pay off debts it is known as further public offer . 

RIGHT ISSUE 

 In a right issue shares or securities which are offered to the existing shareholders at concessional rates, on a stipulated date , fixed by the company itself . 

The main aim of issuing right shares is to raise additional funds by offering shares to the existing shareholders in the portion of their holdings rather than making a fresh issue . 

Composite Issue 

 It refers to an issue in which an already listed company offers shares on the public - cum - right basis and makes concurrent allotment of shares . 

Bonus shares 

It means that it is a free additional share distributed to the current shareholders in the proportion of the fully paid up equity shares held by them on a particular date. The issue of these shares is made out of the company free reserves or securities premium account . 

Private Placement

If a company offers shares to a selected group of investors which can be mutual funds, banks, insurance companies, pension funds and so forth, to raise capital, is called private placement.

Preferential Issue

Preferential allotment is one in which a publicly listed enterprise allots shares to a selected group of investors such as individuals, venture capitalists, companies on preferential basis.

Qualified Institutional Placement (QIP)

If a listed organization offers equity shares or non-convertible securities to a qualified institutional buyer for sale to raise capital. Here qualified institutional buyers include mutual funds, venture capital funds, public financial institutions, insurance funds, scheduled commercial banks, pension funds, etc.

Institutional Placement Programme (IPP)

 If a publicly listed company makes a follow-on offer of equity shares or the promoters offers shares for sale, wherein the shares are allotted to the QIB’s only, with the aim of achieving minimum public shareholding.

The company issues share in order to raise funds from the general public, so as to apply these funds in business operations. 

However, they can also be issued to serve other purposes also, as the money can be utilized in repaying debts, funding a new project, acquiring another company.

 

 

Secondary Market 

The secondary market , also known as the aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold. 

The term secondary market is also used for any used goods or assets , or an alternative use for an existing product or assets where the customer base is the second market stock exchange over the counter markets .