📘 6.1 Primary Markets

🔧 6.1.1 Functions of the Primary Market

🌐 Access to Wider Markets

Primary markets allow companies to reach new investors beyond private funding sources, enabling scale and independence from restrictive borrowing.

💸 Transparent Pricing

Public issues use auction/book-building methods for fair price discovery based on demand, fundamentals, and investor confidence.

📊 Ownership Diversification

Brings in broad-based public investors, separates management from ownership, and improves governance standards.

🔍 Better Disclosures

Issuers must provide accurate, updated disclosures as per SEBI norms — enabling informed investment decisions.

🧠 Investor Evaluation

Market scrutiny from analysts, media, and investors adds credibility and accountability to the issuer.

🚪 Exit for Early Investors

Founders and early-stage VCs can exit partially via IPOs, unlocking value and providing liquidity.

💧 Liquidity for Securities

Post-listing, securities can be freely traded — improving liquidity and market access for all investors.

🛡️ Regulatory Supervision

Primary market activity is governed by SEBI, Companies Act, and listing rules — ensuring investor protection and transparency.

📦 6.1.2 Types of Issues

🌍 Public Issue

Open to all investors; includes IPOs and FPOs.

🔐 Private Placement

Issued to select institutional investors; faster but less liquid.

🎯 Preferential Issue

Listed companies offer shares to select persons; SEBI regulated.

🏦 QIP

Qualified Institutional Placement to QIBs — institutional route under SEBI ICDR.

🎁 Rights & Bonus

Rights: issued at discount to existing holders. Bonus: free shares from reserves.

🏢 6.1.3 Types of Issuers

🏛️ Governments

Issue G-Secs, T-Bills, SDLs for funding expenditure.

🏗️ PSUs

Disinvestment or bond issuance for infra/project funding.

🏢 Private Companies

Issue equity, preference shares, or bonds for growth capital.

🏦 Banks & NBFCs

Raise funds via debt and equity for lending operations.

📊 Mutual Funds

Issue NFOs to raise corpus for schemes.

🏬 REITs & InvITs

Raise capital via unit offerings for real estate/infrastructure.

🧳 AIFs

Privately pooled investment vehicles — no public invitation allowed.

👥 6.1.4 Types of Investors

  • Retail Individuals & HUFs
  • NRIs, PIOs, Trusts, Companies
  • Banks, FIs, LLPs, FPIs
  • Partnership Firms, Societies

📘 6.2 Role and Function of the Secondary Market

🔄 6.2.1 Functions of Secondary Markets

💧 Liquidity

Enables investors to buy/sell previously issued securities. Ensures marketability, timely exit, and flexibility in portfolio management.

📈 Price Discovery

Prices reflect demand-supply and investor perception. Aids fair valuation for future issues and corporate actions.

📡 Information Signalling

Market prices instantly reflect new information, forcing companies to stay efficient and transparent.

📊 Economic Indicator

Indices and trading trends reflect the overall economy’s strength or slowdown — acting as financial barometers.

🏛️ Corporate Control

Low market valuation may invite takeovers — ensuring better governance and accountability by management.

🏗️ 6.2.2 Market Structure & Participants

  • Market Infrastructure: Stock exchanges, clearing corporations, depositories
  • Investors: Individuals, institutions, FPIs
  • Issuers: Listed companies
  • Intermediaries: Brokers, banks, custodians
  • Regulators: SEBI and exchange compliance teams

📊 6.2.3 Market Information

🏷️ Market Capitalisation

Total value = share price × outstanding shares. Used to classify stocks (large, mid, small cap) and track market-to-GDP ratio.

💹 Market Turnover

Total trading volume/value. Indicates liquidity. Higher turnover = more active and efficient market.

📈 Market Indices

Representative benchmarks (Sensex, Nifty) track price movement of key stocks or sectors. Used for tracking, benchmarking, and forecasting.

🛡️ 6.2.4 Risk Management in Secondary Markets

📊 Capital Adequacy

Members must maintain minimum capital and net worth to absorb risks and meet obligations.

💼 Margins

Upfront payment by traders to reduce default risk. Collected on both buy and sell orders based on volatility.

🚦 Circuit Breakers

Auto-trading halts on abnormal index movements. Prevents panic and extreme volatility.

🔐 Settlement Guarantee

Clearing corporations ensure every trade settles — even if one party defaults.

🖥️ Online Monitoring

Real-time surveillance systems flag suspicious trades, large exposures, and unusual price/volume behavior.

📉 Price Monitoring

Exchanges monitor order books, unusual bids, and act against manipulation attempts.

📚 Book Inspection

Exchange/SEBI audits of brokers and trading firms to ensure compliance with all norms and investor protection rules.

📘 6.3 Corporate Actions

📌 Overview:
Corporate actions are decisions taken by a company that affect its shareholders — such as bonus issues, dividends, buybacks, and mergers. They impact stock price, capital structure, or ownership, and are regulated by SEBI and the Companies Act【225:0†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.

📝 6.3.1 Rights Issue

New shares offered to existing shareholders at a fixed ratio and price. Avoids dilution of holding. Traded as RE in demat form【225:1†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.

🎁 6.3.2 Bonus Issue

Free shares issued from company’s reserves. Increases number of shares, no cash flow involved. Improves market perception and liquidity【225:3†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.

💰 6.3.3 Dividend

Share of profits paid to shareholders. Can be interim or final. Must be declared from earned profits; not allowed if company is in loss or has defaulted【225:3†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.

📉 6.3.4 Stock Split

Face value of shares reduced, increasing number of shares held. Makes high-priced shares more affordable and increases market liquidity【225:3†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.

🔙 6.3.5 Share Buyback

Company repurchases its own shares from open market using surplus funds. Reduces share capital, boosts EPS, and signals financial health【225:3†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.

🚫 6.3.6 Delisting

Permanent removal of shares from stock exchange. Can be voluntary (reverse book building) or compulsory (non-compliance)【225:3†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.

🔗 6.3.7 Mergers & Acquisitions

Changes shareholding pattern. SEBI regulations protect minority shareholders by providing exit opportunities【225:3†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.

📤 6.3.8 Offer for Sale

Existing investors (promoters, institutions) sell shares to the public. No fresh capital is raised. Used to meet minimum public shareholding norms【225:3†NISM Series X-A-Investment Adviser Level 1 2025-2.pdf】.

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