Securities Markets

01. Securities Market: Meaning, Role & Structure

The securities market connects issuers seeking capital with investors willing to bear risk and trade transferable financial claims. It includes equity, debt, fund units and regulated derivatives. Price discovery, capital formation, liquidity and risk transfer are core functions.

Applied learning: A share sale between two investors in the secondary market normally does not give the issuing company new funds.

02. Primary Market versus Secondary Market

The primary market is used to issue securities through public offers, rights issues, private placements and other authorised routes. The secondary market allows existing securities to be bought and sold, generally through recognised exchanges or permitted platforms.

Applied learning: An IPO is a primary issuance or offer; trading the listed share afterward on NSE or BSE is a secondary transaction.

03. Indian Securities Market: Institutional Architecture

SEBI oversees the securities market under its statutory mandate, supported by exchanges, clearing corporations, depositories, market intermediaries and listed issuers. RBI regulates specified money-market and government-securities segments under its own framework.

Applied learning: SEBI is not the operator of NSE or BSE; it regulates securities markets and registered intermediaries.

04. SEBI: Powers, Functions & Regulatory Framework

The SEBI Act, 1992 establishes the regulator. Related laws include the Securities Contracts (Regulation) Act, 1956 and Depositories Act, 1996; applicable regulations govern disclosure, intermediaries, conduct, insider trading and takeover activity.

Applied learning: Not every rule is a standalone parliamentary Act: regulations, circulars and exchange rules also shape compliance.

05. Recognised Stock Exchanges: NSE, BSE & Trading Segments

A recognised stock exchange provides an organised platform for eligible securities transactions and market surveillance. Cash equities, debt and derivatives have different products, risk systems, trading hours and settlement processes.

Applied learning: The index is not the exchange: Nifty 50 is an index; NSE is an exchange and market infrastructure institution.

06. Market Intermediaries & Registration

Stockbrokers execute client orders, merchant bankers manage permitted issues, registrars maintain issue records, custodians safeguard assets, and investment advisers or research analysts have their own regulatory obligations.

Applied learning: A SEBI-registered broker is not automatically a SEBI-registered investment adviser authorised to provide personalised advice.

07. Demat Accounts, Trading Accounts & Depositories

A demat account holds securities in electronic form with a depository through a DP. A trading account connects an investor with a broker for order placement; the linked bank account handles relevant money flows.

Applied learning: Holding shares in demat is different from entering a buy order through a broker's trading account.

08. KYC, PAN, Nomination & Investor Onboarding

Intermediaries apply regulatory KYC, identity, tax and risk-disclosure requirements. Account mandates, demat nomination choices, beneficial ownership, FATCA/CRS where applicable and client authorisations must be interpreted separately.

Applied learning: Never share trading passwords, OTPs or depository credentials with a person claiming to process KYC.

09. IPO Process, Book Building & Allotment

Public offerings typically involve draft and final offer documents, price-band or fixed-price mechanisms, application, bid validation, allotment, refunds or unblocking, and listing. Eligibility and processing rules depend on the issue type and current requirements.

Applied learning: A retail applicant's bid is not a guarantee of allotment; oversubscription involves allocation rules.

10. Equity Shares & Shareholder Rights

Equity represents residual ownership subject to a company's share class and legal rights. Dividends are discretionary subject to law and profitability; share prices fluctuate and may fall sharply.

Applied learning: Owning 100 shares does not make dividends or capital gains guaranteed; voting rights depend on the security class.

11. Preferred Shares, Rights, Bonus & Corporate Actions

Preference shares carry specified economic or voting terms; rights issues raise funds from eligible holders; bonus issues capitalise reserves; splits alter the unit count and face value subject to approvals.

Applied learning: In a 1:2 bonus issue, a holder of 100 eligible shares receives 50 bonus shares; total holdings become 150.

12. Stock Indices, Nifty, Sensex & Market Capitalisation

Broad or thematic indices track selected securities according to published rules. Market capitalisation equals price multiplied by outstanding shares, while free-float indices use an adjusted eligible share base.

Applied learning: An index rising does not imply that every component stock has appreciated.

13. Equity Valuation: EPS, P/E, P/B & Dividend Yield

Common valuation measures compare price to earnings, book value or dividends. Each depends on accounting assumptions, cycles, business risk and forward expectations; no ratio is a universal buy signal.

Applied learning: Illustration: price ₹240 and EPS ₹20 gives a P/E of 12; that alone cannot establish whether the stock is cheap.

14. Bonds, Debentures & Corporate Debt

Debt securities create contractual cash-flow obligations and expose investors to issuer credit risk, interest-rate risk and liquidity risk. Secured status, seniority, covenants, ratings and trustee arrangements influence recovery.

Applied learning: A listed bond is not a bank fixed deposit and is not automatically insured by DICGC.

15. Government Securities & Treasury Bills

Government securities include Treasury Bills and dated securities issued under the applicable debt framework. T-bills are typically discount instruments; dated securities can pay coupons. Market values fluctuate with yields.

Applied learning: An investor selling a government bond before maturity may realise a capital loss even if contractual repayments remain due.

16. Bond Pricing, YTM, Duration & Interest-Rate Risk

The price of a fixed-coupon bond generally moves inversely to market yield, holding other factors constant. YTM is a rate equating price with discounted cash flows; modified duration approximates small price sensitivity.

Applied learning: If modified duration is 5, a +1 percentage-point yield move approximates a 5% price decline before convexity and other effects.

17. Money Market Instruments & Repos

Short-term securities and collateralised funding instruments include Treasury Bills, commercial paper, certificates of deposit and repurchase agreements. Eligibility, tenor, issuer and regulatory framework vary across instruments.

Applied learning: Commercial paper is a short-term debt instrument, not an equity share or a recurring deposit.

18. Mutual Funds, AMCs, NAV & Units

A mutual fund pools investor money under a scheme mandate and invests through an asset management company and regulated service providers. NAV represents scheme net assets divided by applicable units; returns vary with portfolio performance.

Applied learning: An NFO at ₹10 NAV is not necessarily cheaper than an existing scheme with NAV ₹100: NAV is not a share valuation multiple.

19. SIPs, ETFs, Index Funds & REITs

SIPs are investment methods rather than a separate guaranteed-return asset class. ETFs trade on exchanges, index funds track benchmarks subject to tracking error, and REITs/InvITs provide regulated access to specified assets.

Applied learning: A SIP does not eliminate market risk; it automates periodic investing into the chosen scheme.

20. Futures, Options & Derivatives Basics

Derivatives obtain value from an underlying asset or reference. Futures create contractual obligations under settlement rules; options convey rights to the buyer and obligations to the seller when exercised under the contract.

Applied learning: A call option buyer risks the premium paid under a simple long-option position; selling naked options can involve much larger loss exposure.

21. Derivatives Payoffs, Margin & Risk Controls

Derivatives involve leverage, margining, mark-to-market losses and exchange-imposed safeguards. Options premiums, intrinsic value, time value and settlement mechanics differ from futures contracts.

Applied learning: For a long call with strike ₹100, premium ₹8 and expiry spot ₹120, intrinsic payoff is ₹20 and profit is ₹12 per unit before charges.

22. Trading Orders, Bid–Ask Spread & Liquidity

A market order prioritises execution but not a fixed price; a limit order defines the worst acceptable trade price but may remain unfilled. Liquidity, market impact and volatility matter to execution.

Applied learning: With best bid ₹99 and ask ₹101, the quoted spread is ₹2; buying instantly may mean paying near the ask, not mid-price.

23. Clearing, Settlement, T+1 & Optional T+0

Following execution, clearing determines obligations and settlement transfers securities and funds according to applicable segment rules. Cash equity generally uses T+1; optional T+0 exists for eligible securities/participants under specified arrangements.

Applied learning: T is trade day, not calendar day; do not claim all Indian equity trades settle T+0 or that every instrument shares one timetable.

24. Short Selling, Securities Lending & Settlement Obligations

Permitted short sales involve selling securities not currently held, with delivery and applicable settlement requirements. Securities lending and borrowing arrangements may facilitate eligible delivery, subject to segment and participant rules.

Applied learning: An uncovered delivery obligation is not the same as an unrestricted right to default on settlement.

25. Insider Trading, Market Manipulation & Surveillance

Market integrity rules prohibit trading on unpublished price-sensitive information under applicable insider-trading provisions, and prohibit manipulative practices such as fictitious trades or deceptive market activity.

Applied learning: Rumours and unsolicited stock tips are not reliable substitutes for exchange disclosures; avoid circulating unverified price-sensitive claims.

26. Takeovers, Open Offers & Shareholding Disclosures

Acquisitions of significant voting rights or control can trigger disclosures and open-offer obligations under SEBI's takeover regulations. Thresholds and exceptions must be read from the current applicable provisions.

Applied learning: A takeover offer is not the same thing as an issuer's voluntary share buyback.

27. Foreign Portfolio Investors & Capital Flows

Foreign Portfolio Investors participate in eligible Indian securities subject to SEBI registration, investment limits, beneficial ownership and relevant foreign-exchange rules. FPI flows differ conceptually from direct investment in control or long-term operations.

Applied learning: Portfolio investment in listed securities is not automatically FDI; the legal classification depends on the transaction and rules.

28. Investor Protection, SCORES & ODR

Investors should first contact the concerned listed entity or registered intermediary. Eligible unresolved securities grievances can move to SEBI's SCORES system; a separate market-infrastructure ODR mechanism covers qualifying disputes. Documentation and timelines matter.

Applied learning: SCORES facilitates grievance redressal; it does not guarantee compensation or replace all courts and tribunals.

29. Applied Securities Case Studies & Numericals

Exam problems often test percentage returns, equity valuation, rights/bonus issues, bond-price sensitivity, market capitalisation and option payoffs. Always state whether brokerage, taxes and corporate actions are ignored.

Applied learning: Illustration: 200 shares purchased at ₹150 and sold at ₹165 gives gross capital gain ₹3,000, or 10%, excluding costs and dividends.

30. Market Risk, Diversification & Investor Due Diligence

Securities investors face market, liquidity, credit, operational, concentration and behavioural risks. Diversification reduces exposure to a single issuer or security but cannot remove systematic market risk. Due diligence includes offer documents, audited financials, costs, product suitability and recognised intermediary status.

Applied learning: A portfolio holding five shares from one industry is not necessarily well diversified; common economic shocks can affect all five.

31. Frequently Asked Questions

The revision section addresses account types, IPOs, SEBI, depositories, settlement cycles, market risk, bond yields, funds and investor complaints. Operational limits and tax outcomes need source-date checking.

Applied learning: Keep a distinction between a concept's stable definition and an exchange or SEBI rule that may be revised.

32. Official Sources & Exam Learning Path

Students should verify changing requirements through SEBI circulars and investor pages, NSE/BSE notices, NSDL/CDSL depository resources and official RBI material for G-secs. Always distinguish explanatory examples from investment advice.

Applied learning: A dated revision note should accompany changes to margins, settlement, investor grievance timings, offer rules and product classifications.

1. SEBI — laws, regulations and circulars
2. SEBI Investor — primary and secondary markets
3. SEBI SCORES — investor grievance redressal
4. NSE — trading and settlement
5. BSE — market information
6. NSDL — depository information
7. CDSL — depository information
8. RBI — government securities and money-market frameworks