Sunday, April 6, 2008
How is a depository similar to a bank?
A Depositoryhey check out can be compared with a bank, which holds the funds for
depositors.hey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outThere are two depositories in India which provide dematerialization of
securities. The National Securities Depository Limited (NSDL) and Central
Securities Depository Limited (CSDL).
can be compared with a bank, which holds the funds fordepositors.hey check out
hey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outhey check outThere are two depositories in India which provide dematerialization ofsecurities. The National Securities Depository Limited (NSDL) and Central
Securities Depository Limited (CSDL).
Saturday, April 5, 2008
What is meant by ‘Listing of Securities’?
Listing means admission of securities of an issuer to trading privileges
(dealings) on a stock exchange through a formal agreement. The prime
objective of admission to dealings on the exchange is to provide liquidity
and marketability to securities, as also to provide a mechanism for effective
control and supervision of trading.
(dealings) on a stock exchange through a formal agreement. The prime
objective of admission to dealings on the exchange is to provide liquidity
and marketability to securities, as also to provide a mechanism for effective
control and supervision of trading.
What is an ‘Abridged Prospectus’?
‘Abridged Prospectus’ is a shorter version of the Prospectus and contains all
the salient features of a Prospectus. It accompanies the application form of
public issues.
the salient features of a Prospectus. It accompanies the application form of
public issues.
What does one mean by ‘Lock-in’?
‘Lock-in’ indicates a freeze on the sale of shares for a certain period of time.
SEBI guidelines have stipulated lock-in requirements on shares of promoters
mainly to ensure that the promoters or main persons, who are controlling
the company, shall continue to hold some minimum percentage in the
company after the public issue.
SEBI guidelines have stipulated lock-in requirements on shares of promoters
mainly to ensure that the promoters or main persons, who are controlling
the company, shall continue to hold some minimum percentage in the
company after the public issue.
What does ‘Draft Offer document’ mean?
‘Offer document’ means Prospectus in case of a public issue or offer for sale
and Letter of Offer in case of a rights issue which is filed with the Registrar
of Companies (ROC) and Stock Exchanges (SEs). An offer document covers
all the relevant information to help an investor to make his/her investment
decision.
‘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 ROC/SEs. SEBI may specify changes, if any, in the
draft Offer Document and the issuer or the lead merchant banker shall carry
out such changes in the draft offer document before filing the Offer
Document with ROC/SEs. The Draft Offer Document is available on the SEBI
website for public comments for a period of 21 days from the filing of the
Draft Offer Document with SEBI.
and Letter of Offer in case of a rights issue which is filed with the Registrar
of Companies (ROC) and Stock Exchanges (SEs). An offer document covers
all the relevant information to help an investor to make his/her investment
decision.
‘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 ROC/SEs. SEBI may specify changes, if any, in the
draft Offer Document and the issuer or the lead merchant banker shall carry
out such changes in the draft offer document before filing the Offer
Document with ROC/SEs. The Draft Offer Document is available on the SEBI
website for public comments for a period of 21 days from the filing of the
Draft Offer Document with SEBI.
Friday, April 4, 2008
What is the role of the Secondary Market?
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.
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.
What is meant by Secondary market?
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.
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.
What is an ADS?
An American Depositary Share ("ADS") is a U.S. dollar denominated form of
equity ownership in a non-U.S. company. It represents the foreign shares of
the company held on deposit by a custodian bank in the company's home
country and carries the corporate and economic rights of the foreign shares,
subject to the terms specified on the ADR certificate.
One or several ADSs can be represented by a physical ADR certificate. The
terms ADR and ADS are often used interchangeably.
ADSs provide U.S. investors with a convenient way to invest in overseas
securities and to trade non-U.S. securities in the U.S. ADSs are issued by a
depository bank, such as JPMorgan Chase Bank. They are traded in the
same manner as shares in U.S. companies, on the New York Stock Exchange
(NYSE) and the American Stock Exchange (AMEX) or quoted on NASDAQ
and the over-the-counter (OTC) market.
Although ADSs are U.S. dollar denominated securities and pay dividends in
U.S. dollars, they do not eliminate the currency risk associated with an
investment in a non-U.S. company.
equity ownership in a non-U.S. company. It represents the foreign shares of
the company held on deposit by a custodian bank in the company's home
country and carries the corporate and economic rights of the foreign shares,
subject to the terms specified on the ADR certificate.
One or several ADSs can be represented by a physical ADR certificate. The
terms ADR and ADS are often used interchangeably.
ADSs provide U.S. investors with a convenient way to invest in overseas
securities and to trade non-U.S. securities in the U.S. ADSs are issued by a
depository bank, such as JPMorgan Chase Bank. They are traded in the
same manner as shares in U.S. companies, on the New York Stock Exchange
(NYSE) and the American Stock Exchange (AMEX) or quoted on NASDAQ
and the over-the-counter (OTC) market.
Although ADSs are U.S. dollar denominated securities and pay dividends in
U.S. dollars, they do not eliminate the currency risk associated with an
investment in a non-U.S. company.
american depository
An American Depositary Share ("ADS") is a U.S. dollar denominated form of
equity ownership in a non-U.S. company. It represents the foreign shares of
the company held on deposit by a custodian bank in the company's home
country and carries the corporate and economic rights of the foreign shares,
subject to the terms specified on the ADR certificate.
One or several ADSs can be represented by a physical ADR certificate. The
terms ADR and ADS are often used interchangeably.
ADSs provide U.S. investors with a convenient way to invest in overseas
securities and to trade non-U.S. securities in the U.S. ADSs are issued by a
depository bank, such as JPMorgan Chase Bank. They are traded in the
same manner as shares in U.S. companies, on the New York Stock Exchange
(NYSE) and the American Stock Exchange (AMEX) or quoted on NASDAQ
and the over-the-counter (OTC) market.
Although ADSs are U.S. dollar denominated securities and pay dividends in
U.S. dollars, they do not eliminate the currency risk associated with an
investment in a non-U.S. company.
equity ownership in a non-U.S. company. It represents the foreign shares of
the company held on deposit by a custodian bank in the company's home
country and carries the corporate and economic rights of the foreign shares,
subject to the terms specified on the ADR certificate.
One or several ADSs can be represented by a physical ADR certificate. The
terms ADR and ADS are often used interchangeably.
ADSs provide U.S. investors with a convenient way to invest in overseas
securities and to trade non-U.S. securities in the U.S. ADSs are issued by a
depository bank, such as JPMorgan Chase Bank. They are traded in the
same manner as shares in U.S. companies, on the New York Stock Exchange
(NYSE) and the American Stock Exchange (AMEX) or quoted on NASDAQ
and the over-the-counter (OTC) market.
Although ADSs are U.S. dollar denominated securities and pay dividends in
U.S. dollars, they do not eliminate the currency risk associated with an
investment in a non-U.S. company.
Can companies in India raise foreign currency resources?
Yes. Indian companies are permitted to raise foreign currency resources
through two main sources: a) issue of foreign currency convertible bonds
more commonly known as ‘Euro’ issues and b) issue of ordinary shares
through depository receipts namely ‘Global Depository Receipts
(GDRs)/American Depository Receipts (ADRs)’ to foreign investors i.e. to the
institutional investors or individual investors.
through two main sources: a) issue of foreign currency convertible bonds
more commonly known as ‘Euro’ issues and b) issue of ordinary shares
through depository receipts namely ‘Global Depository Receipts
(GDRs)/American Depository Receipts (ADRs)’ to foreign investors i.e. to the
institutional investors or individual investors.
What is meant by ‘Listing of Securities’?
Listing means admission of securities of an issuer to trading privileges
(dealings) on a stock exchange through a formal agreement. The prime
objective of admission to dealings on the exchange is to provide liquidity
and marketability to securities, as also to provide a mechanism for effective
control and supervision of trading.
(dealings) on a stock exchange through a formal agreement. The prime
objective of admission to dealings on the exchange is to provide liquidity
and marketability to securities, as also to provide a mechanism for effective
control and supervision of trading.
What does ‘Draft Offer document’ mean?
‘Offer document’ means Prospectus in case of a public issue or offer for sale
and Letter of Offer in case of a rights issue which is filed with the Registrar
of Companies (ROC) and Stock Exchanges (SEs). An offer document covers
all the relevant information to help an investor to make his/her investment
decision.
‘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 ROC/SEs. SEBI may specify changes, if any, in the
draft Offer Document and the issuer or the lead merchant banker shall carry
out such changes in the draft offer document before filing the Offer
Document with ROC/SEs. The Draft Offer Document is available on the SEBI
website for public comments for a period of 21 days from the filing of the
Draft Offer Document with SEBI.
and Letter of Offer in case of a rights issue which is filed with the Registrar
of Companies (ROC) and Stock Exchanges (SEs). An offer document covers
all the relevant information to help an investor to make his/her investment
decision.
‘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 ROC/SEs. SEBI may specify changes, if any, in the
draft Offer Document and the issuer or the lead merchant banker shall carry
out such changes in the draft offer document before filing the Offer
Document with ROC/SEs. The Draft Offer Document is available on the SEBI
website for public comments for a period of 21 days from the filing of the
Draft Offer Document with SEBI.
What is a Prospectus?
A large number of new companies float public issues. While a large number
of these companies are genuine, quite a few may want to exploit the
investors. Therefore, it is very important that an investor before applying for
any issue identifies future potential of a company. A part of the guidelines
issued by SEBI (Securities and Exchange Board of India) is the disclosure of
23
information to the public. This disclosure includes 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’
which also includes information regarding the size of the issue, the current
status of the company, its equity capital, its current and past performance,
the promoters, the project, cost of the project, means of financing, product
and capacity etc. It also contains lot of mandatory information regarding
underwriting and statutory compliances. This helps investors to evaluate
short term and long term prospects of the company.
of these companies are genuine, quite a few may want to exploit the
investors. Therefore, it is very important that an investor before applying for
any issue identifies future potential of a company. A part of the guidelines
issued by SEBI (Securities and Exchange Board of India) is the disclosure of
23
information to the public. This disclosure includes 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’
which also includes information regarding the size of the issue, the current
status of the company, its equity capital, its current and past performance,
the promoters, the project, cost of the project, means of financing, product
and capacity etc. It also contains lot of mandatory information regarding
underwriting and statutory compliances. This helps investors to evaluate
short term and long term prospects of the company.
What is the role of a ‘Registrar’ to an issue?
The Registrar finalizes the list of eligible allottees after deleting the invalid
applications and ensures that the corporate action for crediting of shares to
the demat accounts of the applicants is done and the dispatch of refund
orders to those applicable are sent. The Lead Manager coordinates with the
Registrar to ensure follow up so that that the flow of applications from
collecting bank branches, processing of the applications and other matters
till the basis of allotment is finalized, dispatch security certificates and
refund orders completed and securities listed.
applications and ensures that the corporate action for crediting of shares to
the demat accounts of the applicants is done and the dispatch of refund
orders to those applicable are sent. The Lead Manager coordinates with the
Registrar to ensure follow up so that that the flow of applications from
collecting bank branches, processing of the applications and other matters
till the basis of allotment is finalized, dispatch security certificates and
refund orders completed and securities listed.
Who decides the Price Band?
It may be understood that the regulatory mechanism does not play a role in
setting the price for issues. It is up to the company to decide on the price or
the price band, in consultation with Merchant Bankers.
setting the price for issues. It is up to the company to decide on the price or
the price band, in consultation with Merchant Bankers.
What is a Price Band in a book built IPO?
The prospectus may contain either the floor price for the securities or a price
band within which the investors can bid. The spread between the floor and
the cap of the price band shall not be more than 20%. In other words, it
means that the cap should not be more than 120% of the floor price. The
price band can have a revision and such a revision in the price band shall be
widely disseminated by informing the stock exchanges, by issuing a press
release and also indicating the change on the relevant website and the
terminals of the trading members participating in the book building process.
In case the price band is revised, the bidding period shall be extended for a
further period of three days, subject to the total bidding period not
exceeding ten days.
band within which the investors can bid. The spread between the floor and
the cap of the price band shall not be more than 20%. In other words, it
means that the cap should not be more than 120% of the floor price. The
price band can have a revision and such a revision in the price band shall be
widely disseminated by informing the stock exchanges, by issuing a press
release and also indicating the change on the relevant website and the
terminals of the trading members participating in the book building process.
In case the price band is revised, the bidding period shall be extended for a
further period of three days, subject to the total bidding period not
exceeding ten days.
What is Cut-Off Price?
In a Book building issue, the issuer is required to indicate either the price
band or a floor price in the prospectus. 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”. The issuer and lead manager decides this after
considering the book and the investors’ appetite for the stock.
band or a floor price in the prospectus. 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”. The issuer and lead manager decides this after
considering the book and the investors’ appetite for the stock.
Who decides the price of an issue?
Indian primary market ushered in an era of free pricing in 1992. Following
this, the guidelines have provided that the issuer in consultation with
Merchant Banker shall decide the price. There is no price formula stipulated
by SEBI. SEBI does not play any role in price fixation. The company and
merchant banker are however required to give full disclosures of the
parameters which they had considered while deciding the issue price. There
are two types of issues, one where company and Lead Merchant Banker fix a
price (called fixed price) and other, where the company and the Lead
Manager (LM) stipulate a floor price or a price band and leave it to market
forces to determine the final price (price discovery through book building
process).
this, the guidelines have provided that the issuer in consultation with
Merchant Banker shall decide the price. There is no price formula stipulated
by SEBI. SEBI does not play any role in price fixation. The company and
merchant banker are however required to give full disclosures of the
parameters which they had considered while deciding the issue price. There
are two types of issues, one where company and Lead Merchant Banker fix a
price (called fixed price) and other, where the company and the Lead
Manager (LM) stipulate a floor price or a price band and leave it to market
forces to determine the final price (price discovery through book building
process).
What is an Initial Public Offer (IPO)?
An Initial Public Offer (IPO) is the selling of securities to the public in the
primary market. It is when an unlisted company makes either a fresh issue
of securities or an offer for sale of its existing securities or both for the first
time to the public. This paves way for listing and trading of the issuer’s
securities. The sale of securities can be either through book building or
through normal public issue.
primary market. It is when an unlisted company makes either a fresh issue
of securities or an offer for sale of its existing securities or both for the first
time to the public. This paves way for listing and trading of the issuer’s
securities. The sale of securities can be either through book building or
through normal public issue.
precautions
Here are some useful pointers to bear in mind before you invest in the
markets:
§ Make sure your broker is registered with SEBI and the exchanges and
do not deal with unregistered intermediaries.
§ Ensure that you receive contract notes for all your transactions from
your broker within one working day of execution of the trades.
§ All investments carry risk of some kind. Investors should always
know the risk that they are taking and invest in a manner that
matches their risk tolerance.
§ Do not be misled by market rumours, luring advertisement or ‘hot
tips’ of the day.
§ Take informed decisions by studying the fundamentals of the
company. Find out the business the company is into, its future
prospects, quality of management, past track record etc Sources of
knowing about a company are through annual reports, economic
magazines, databases available with vendors or your financial
advisor.
markets:
§ Make sure your broker is registered with SEBI and the exchanges and
do not deal with unregistered intermediaries.
§ Ensure that you receive contract notes for all your transactions from
your broker within one working day of execution of the trades.
§ All investments carry risk of some kind. Investors should always
know the risk that they are taking and invest in a manner that
matches their risk tolerance.
§ Do not be misled by market rumours, luring advertisement or ‘hot
tips’ of the day.
§ Take informed decisions by studying the fundamentals of the
company. Find out the business the company is into, its future
prospects, quality of management, past track record etc Sources of
knowing about a company are through annual reports, economic
magazines, databases available with vendors or your financial
advisor.
Contract Note
Contract Note is a confirmation of trades done on a particular day on behalf
of the client by a trading member. It imposes a legally enforceable
relationship between the client and the trading member with respect to
purchase/sale and settlement of trades. It also helps to settle
disputes/claims between the investor and the trading member. It is a
prerequisite for filing a complaint or arbitration proceeding against the
trading member in case of a dispute. A valid contract note should be in the
prescribed form, contain the details of trades, stamped with requisite value
and duly signed by the authorized signatory. Contract notes are kept in
duplicate, the trading member and the client should keep one copy each.
After verifying the details contained therein, the client keeps one copy and
returns the second copy to the trading member duly acknowledged by him.
of the client by a trading member. It imposes a legally enforceable
relationship between the client and the trading member with respect to
purchase/sale and settlement of trades. It also helps to settle
disputes/claims between the investor and the trading member. It is a
prerequisite for filing a complaint or arbitration proceeding against the
trading member in case of a dispute. A valid contract note should be in the
prescribed form, contain the details of trades, stamped with requisite value
and duly signed by the authorized signatory. Contract notes are kept in
duplicate, the trading member and the client should keep one copy each.
After verifying the details contained therein, the client keeps one copy and
returns the second copy to the trading member duly acknowledged by him.
Stock Trading
What is Screen Based Trading?
The trading on stock exchanges in India used to take place through open
outcry without use of information technology for immediate matching or
recording of trades. This was time consuming and inefficient. This imposed
limits on trading volumes and effic iency. In order to provide efficiency,
liquidity and transparency, NSE introduced a nationwide, on-line, fullyautomated
screen based trading system (SBTS) where a member can punch
into the computer the quantities of a security and the price at which he
would like to transact, and the transaction is executed as soon as a
matching sale or buy order from a counter party is found.
What is NEAT?
NSE is the first exchange in the world to use satellite communication
technology for trading. Its trading system, called National Exchange for
Automated Trading (NEAT), is a state of-the-art client server based
application. At the server end all trading information is stored in an inmemory
database to achieve minimum response time and maximum system
availability for users. It has uptime record of 99.7%. For all trades entered
into NEAT system, there is uniform response time of less than one second.
The trading on stock exchanges in India used to take place through open
outcry without use of information technology for immediate matching or
recording of trades. This was time consuming and inefficient. This imposed
limits on trading volumes and effic iency. In order to provide efficiency,
liquidity and transparency, NSE introduced a nationwide, on-line, fullyautomated
screen based trading system (SBTS) where a member can punch
into the computer the quantities of a security and the price at which he
would like to transact, and the transaction is executed as soon as a
matching sale or buy order from a counter party is found.
What is NEAT?
NSE is the first exchange in the world to use satellite communication
technology for trading. Its trading system, called National Exchange for
Automated Trading (NEAT), is a state of-the-art client server based
application. At the server end all trading information is stored in an inmemory
database to achieve minimum response time and maximum system
availability for users. It has uptime record of 99.7%. For all trades entered
into NEAT system, there is uniform response time of less than one second.
Demutualisation
Demutualisation refers to the legal structure of an exchange whereby the
ownership, the management and the trading rights at the exchange are
segregated from one another.
How is a demutualised exchange different from a mutual
exchange?
In a mutual exchange, the three functions of ownership, management and
trading are concentrated into a single Group. Here, the broker members of
the exchange are both the owners and the traders on the exchange and
they further manage the exchange as well. This at times can lead to conflicts
of interest in decision making. A demutualised exchange, on the other hand,
has all these three functions clearly segregated, i.e. the ownership,
management and trading are in separate hands.
Currently are there any demutualised stock exchanges in
India?
Currently, two stock exchanges in India, the National Stock Exchange (NSE)
and Over the Counter Exchange of India (OTCEI) are demutualised.
ownership, the management and the trading rights at the exchange are
segregated from one another.
How is a demutualised exchange different from a mutual
exchange?
In a mutual exchange, the three functions of ownership, management and
trading are concentrated into a single Group. Here, the broker members of
the exchange are both the owners and the traders on the exchange and
they further manage the exchange as well. This at times can lead to conflicts
of interest in decision making. A demutualised exchange, on the other hand,
has all these three functions clearly segregated, i.e. the ownership,
management and trading are in separate hands.
Currently are there any demutualised stock exchanges in
India?
Currently, two stock exchanges in India, the National Stock Exchange (NSE)
and Over the Counter Exchange of India (OTCEI) are demutualised.
Stock Exchange
What is the role of a Stock Exchange in buying and selling
shares?
The stock exchanges in India, under the overall supervision of the regulatory
authority, the Securities and Exchange Board of India (SEBI), provide a
trading platform, where buyers and sellers can meet to transact in
securities. The trading platform provided by NSE is an electronic one and
there is no need for buyers and sellers to meet at a physical location to
trade. They can trade through the computerized trading screens available
with the NSE trading members or the internet based trading facility provided
by the trading members of NSE.
shares?
The stock exchanges in India, under the overall supervision of the regulatory
authority, the Securities and Exchange Board of India (SEBI), provide a
trading platform, where buyers and sellers can meet to transact in
securities. The trading platform provided by NSE is an electronic one and
there is no need for buyers and sellers to meet at a physical location to
trade. They can trade through the computerized trading screens available
with the NSE trading members or the internet based trading facility provided
by the trading members of NSE.
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