Securities Market

Question 1

Securities

Answer 1

Financial instruments that represent ownership (equity securities) or debt obligations (debt securities) issued by governments, corporations, or other entities.

Question 2

Primary market (2)

Answer 2

Companies sell new stocks and bonds for the first time. new securities are issued and sold directly by the issuers to investors in order to help companies raise capital for expansion or other financial needs.

Question 3

Secondary market (2)

Answer 3

previously issued securities are bought and sold among investors without the involvement of the issuing companies.

Securities are traded AFTER being offered in Teh private market or being listed in Teh stock exchange.

Question 4

Primary market ( why - purpose and how )

Answer 4

In order to raise funds securities are issued to investors with teh help of merchant bankers

Question 5

Merchant bankers definition (2)

Answer 5

Merchant bankers help businesses raise money by advising on the best way to do it and connecting them with investors. They also promise to buy any unsold stocks or bonds, reducing the risk for the business.

Question 6

Who givernment and regulates actives in the primary market

Answer 6

SEBI ( securities and exchange board of India )

Question 7

Primary market issuance types

Answer 7

Public issue and private placement

Question 8

Public issue vs private placement

Answer 8

Companies act 2013 : an issue is referred to as public if it results in allotment of securities to 50+ people (excluding qualified situational buyers and employee stock options)

Question 9

Hwo does the secondary market work ?

Answer 9

Once the security is listed on teh stock exchange, investors can buy and sell the securities from each other with the help of intermediaries

Question 10

Secondary Amir,teh comprises of ? (3)

Answer 10

Equity, derivatives , debt

Question 11

Secondary market is operated through how many mediums and what are they ?

Answer 11

Two mediums. Over the counter market and exchange traded market.

Question 12

Over the counter market

Answer 12

Informal markets where trades are negotiated privately between teh parties to teh transaction

Question 13

Exchange traded market definition

Answer 13

Formal systematic market where standardized trades are executed through an exchange

Question 14

5 differences between primary and secondary markets

Answer 14

1. Primary : direct contact between issuer and investor
   Secondary : contact between investor and investor
2. Primary : aim to increase capital for issuer
   Secondary : aim is appreciation of capital fro investor
3. Primary : flow of money from investor to issuer
   Secondary m flow of money from investor to investor
4. Primary : merchant banker is main intermediary
   Secondary : broker is main intermediary
5. Primary : purchase is outside stock exchange
   Secondary : trading happens on stock exchange only

Question 15

Wholesale debt market vs capital market (what do tehy trade)?

Answer 15

Wholesale debt market is a trading market for debt securities . Capital market ( november 1994)(offers a fully automated screen based trading system, known as the National Exchange for Automated Trading (NEAT) system) equity shares, warrants and debentures are traded on this system

Question 16

What does teh futures and options segments do ?

Answer 16

Provides trading in derivatives instruments like index futures, index options, stock futures/options

Question 17

Currency derivatives segments

Answer 17

Currency Derivatives are futures and options contract where you can buy or sell specific quantities of a particular currency pair at a pre-determined future date.

Question 18

Share (definition)

Answer 18

Shares are an indivisible unit of a companies capital

Question 19

Hat are teh three diffent types of issues

Answer 19

Public, rights and preferential

Question 20

Face value of shares

Answer 20

Original cost of stock shown on the certificate for shares

Question 21

Face value of bonds

Answer 21

Amounts paid to the holder at maturity (par value)

Question 22

Face value of debt security

Answer 22

Face value is teh amount repaid to teh investor when the bond matures

Question 23

What is public issue

Answer 23

Public issue is an offer to teh public to subscribe to teh share capital of a company.

Question 24

Why do companies need to sell shares

Answer 24

Promoters capital and the company borrowings may not be sufficient for setting up or running buisness over a long term

Question 25

PreferentiL issue of shares definition

Answer 25

Is an issue of shares by listed companies to a select group of perple (section 62 companies 2013)

Question 26

Rights issue (definition)

Answer 26

Proposal of issuing fresh securities to its (listed company’s) existing shareholders as on a record date ( usually offered in particular ratio - raise capital without diluting stake of existing capital )

Question 27

Dilutive vs non-dilutive offering of shares

Answer 27

In summary, a dilutive offering involves issuing additional shares ( increases teh number of shares in Teh market), which reduces the ownership percentage of existing shareholders, while a non-dilutive offering allows a company to raise capital without creating new shares and affecting ownership percentages.

Question 28

Issue price of shares

Answer 28

Issue price is teh price at which a companies shares are offered initially in Teh lrimary market

Question 29

What is an FPO

Answer 29

Follow on offering : when a listed company makes either a fresh issue of securities or offfer of sale to teh public

Question 30

Free pricing since when (india)

Answer 30

1992, free pricing and no price formula stipulated by SEBI ( but teh issuer and merchant banker should give full disclosure of all considered payments when arriving at the chosen price)

Question 31

Price discovery through book building process

Answer 31

This process of discovering the price by providing the investors with a price range and then asking them to bid on it is called the book building process. It is considered to be one of the most efficient mechanisms of pricing securities in the primary market.

Question 32

Foxed price ( deciding price of an issue )

Answer 32

Company and lead merchant banker fox a price together

Question 33

What is listing of securities

Answer 33

Listing of securities is when a company decides to make its ownership shares or financial instruments available for trading on a stock exchange.

Question 34

What are teh two main ways in which Indian companies can raise foreign capital ?

Answer 34

FCCB’s - Foreign currency convertible bonds - and ADRs/GDRs Global Depository Receipts (GDRs) and American Depository Receipts (ADRs)

Question 35

WhT are FCCBs

Answer 35

When the company issues FCCBs, it’s actually borrowing money from investors, usually in a foreign currency like US dollars or euros. The interesting part is that these bonds can be converted into the company’s shares at a later date, usually at a pre-set price.

Question 36

AdvNtcges of FCCBs ( investors and companies )

Answer 36

Investors who buy FCCBs get regular interest payments, just like regular bonds. But when the conversion time comes, they can choose to convert their bonds into shares of the company. If the company’s share price goes up, this can be a good deal for the investor because they can get shares at a lower price than the market price.

For the company, FCCBs provide a way to raise funds in foreign currency without immediately diluting its ownership like it would with regular equity shares. If investors convert their bonds into shares, the company’s share capital increases, which can help the company in the long term.

Question 37

What are ADRs ?

Answer 37

ADRs are certificates issued by a US bank that represent a specific number of a foreign company’s shares. These certificates are traded on US stock exchanges just like regular stocks. ADRs provide a way for foreign companies to reach American investors and raise capital in the US market.

Question 38

What are ADSs(2)

Answer 38

ADSs, are the actual shares of a foreign company that are traded on a US stock exchange in the form of certificates. Unlike ADRs, which represent a specific number of shares, ADSs are the shares themselves but traded in a form that’s convenient for US investors

Question 39

What is teh DOD ? (2)

Answer 39

Information regarding the past and present performance of the promoters of a company is typically given in the “Offer Document” or “Prospectus” during the time of an Initial Public Offering (IPO) or any public offering of securities. The Offer Document is a detailed report that provides potential investors with information about the company’s financials, operations, management team, and other relevant details.