NCERT Textbook: Securities | Financial Literacy for Class 10 PDF Download

 Page 1


SECURITIES
Chapter 2
What is meant by ‘Securities’?
What is the function of Securities Market?
Which are the securities one can invest in?
Why does Securities Market need Regulators?
Who regulates the Securities Market?
What is SEBI and what is its role?
The definition of ‘Securities’ as per the Securities Contracts Regulation Act (SCRA), 1956, 
includes instruments such as shares, bonds, scrips, stocks or other marketable securities of 
similar nature in or of any incorporate company or body corporate, government securities, 
derivatives of securities, units of collective investment scheme, interest and rights in securities, 
security receipt or any other instruments so declared by the Central Government.
Securities Markets is a place where buyers and sellers of securities can enter into transactions to 
purchase and sell shares, bonds, debentures etc. Further, it performs an important role of 
enabling corporates, entrepreneurs to raise resources for their companies and business ventures 
through public issues. Transfer of resources from those having idle resources (investors) to 
others who have a need for them (corporates) is most efficiently achieved through the securities 
market. Stated formally, securities markets provide channels for reallocation of savings to 
investments and entrepreneurship. Savings are linked to investments by a variety of 
intermediaries, through a range of financial products, called ‘Securities’.
Shares
Government Securities
Derivative products
Units of Mutual Funds etc., are some of the securities investors in the securities market 
can invest in.
The absence of conditions of perfect competition in the securities market makes the role of the 
Regulator extremely important. The regulator ensures that the market participants behave in a 
desired manner so that securities market continues to be a major source of finance for corporate 
and government and the interest of investors are protected.
The responsibility for regulating the securities market is shared by Department of Economic 
Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) and Securities 
and Exchange Board of India (SEBI).
The Securities and Exchange Board of India (SEBI) is the regulatory authority in India 
established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of 
¦
¦
¦
¦
2.1 Regulator
Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the 
interests of investors in securities (b) promoting the development of the securities market and (c) 
regulating the securities market. Its regulatory jurisdiction extends over corporates in the 
issuance of capital and transfer of securities, in addition to all intermediaries and persons 
associated with securities market. SEBI has been obligated to perform the aforesaid functions by 
such measures as it thinks fit. In particular, it has powers for:
Regulating the business in stock exchanges and any other securities markets
Registering and regulating the working of stock brokers, sub-brokers etc.
Promoting and regulating self-regulatory organizations
Prohibiting fraudulent and unfair trade practices
Calling for information from, undertaking inspection, conducting inquiries and audits of 
the stock exchanges, intermediaries, self-regulatory organizations, mutual funds and 
other persons associated with the securities market.
The securities market essentially has three categories of participants, namely, the issuers of 
securities, investors in securities and the intermediaries, such as merchant bankers, brokers etc. 
While the corporates and government raise resources from the securities market to meet their 
obligations, it is households that invest their savings in the securities market.
It is advisable to conduct transactions through an intermediary. For example you need to transact 
through a trading member of a stock exchange if you intend to buy or sell any security on stock 
exchanges. You need to maintain an account with a depository if you intend to hold securities in 
demat form. You need to deposit money with a banker to an issue if you are subscribing to 
public issues. You get guidance if you are transacting through an intermediary. Chose a SEBI 
registered intermediary, as he is accountable for its activities. The list of registered 
intermediaries is available with exchanges, industry associations etc.
The securities market has two interdependent segments: the primary (new issues) market and 
the secondary market. The primary market provides the channel for sale of new securities while 
the secondary market deals in securities previously issued.
¦
¦
¦
¦
¦
2.2    Participants
Who are the participants in the Securities Market?
Is it necessary to transact through an intermediary?
What are the segments of Securities Market?
Introduction to Financial Markets
9
Page 2


SECURITIES
Chapter 2
What is meant by ‘Securities’?
What is the function of Securities Market?
Which are the securities one can invest in?
Why does Securities Market need Regulators?
Who regulates the Securities Market?
What is SEBI and what is its role?
The definition of ‘Securities’ as per the Securities Contracts Regulation Act (SCRA), 1956, 
includes instruments such as shares, bonds, scrips, stocks or other marketable securities of 
similar nature in or of any incorporate company or body corporate, government securities, 
derivatives of securities, units of collective investment scheme, interest and rights in securities, 
security receipt or any other instruments so declared by the Central Government.
Securities Markets is a place where buyers and sellers of securities can enter into transactions to 
purchase and sell shares, bonds, debentures etc. Further, it performs an important role of 
enabling corporates, entrepreneurs to raise resources for their companies and business ventures 
through public issues. Transfer of resources from those having idle resources (investors) to 
others who have a need for them (corporates) is most efficiently achieved through the securities 
market. Stated formally, securities markets provide channels for reallocation of savings to 
investments and entrepreneurship. Savings are linked to investments by a variety of 
intermediaries, through a range of financial products, called ‘Securities’.
Shares
Government Securities
Derivative products
Units of Mutual Funds etc., are some of the securities investors in the securities market 
can invest in.
The absence of conditions of perfect competition in the securities market makes the role of the 
Regulator extremely important. The regulator ensures that the market participants behave in a 
desired manner so that securities market continues to be a major source of finance for corporate 
and government and the interest of investors are protected.
The responsibility for regulating the securities market is shared by Department of Economic 
Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) and Securities 
and Exchange Board of India (SEBI).
The Securities and Exchange Board of India (SEBI) is the regulatory authority in India 
established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of 
¦
¦
¦
¦
2.1 Regulator
Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the 
interests of investors in securities (b) promoting the development of the securities market and (c) 
regulating the securities market. Its regulatory jurisdiction extends over corporates in the 
issuance of capital and transfer of securities, in addition to all intermediaries and persons 
associated with securities market. SEBI has been obligated to perform the aforesaid functions by 
such measures as it thinks fit. In particular, it has powers for:
Regulating the business in stock exchanges and any other securities markets
Registering and regulating the working of stock brokers, sub-brokers etc.
Promoting and regulating self-regulatory organizations
Prohibiting fraudulent and unfair trade practices
Calling for information from, undertaking inspection, conducting inquiries and audits of 
the stock exchanges, intermediaries, self-regulatory organizations, mutual funds and 
other persons associated with the securities market.
The securities market essentially has three categories of participants, namely, the issuers of 
securities, investors in securities and the intermediaries, such as merchant bankers, brokers etc. 
While the corporates and government raise resources from the securities market to meet their 
obligations, it is households that invest their savings in the securities market.
It is advisable to conduct transactions through an intermediary. For example you need to transact 
through a trading member of a stock exchange if you intend to buy or sell any security on stock 
exchanges. You need to maintain an account with a depository if you intend to hold securities in 
demat form. You need to deposit money with a banker to an issue if you are subscribing to 
public issues. You get guidance if you are transacting through an intermediary. Chose a SEBI 
registered intermediary, as he is accountable for its activities. The list of registered 
intermediaries is available with exchanges, industry associations etc.
The securities market has two interdependent segments: the primary (new issues) market and 
the secondary market. The primary market provides the channel for sale of new securities while 
the secondary market deals in securities previously issued.
¦
¦
¦
¦
¦
2.2    Participants
Who are the participants in the Securities Market?
Is it necessary to transact through an intermediary?
What are the segments of Securities Market?
Introduction to Financial Markets
9
SECURITIES
Chapter 2
What is meant by ‘Securities’?
What is the function of Securities Market?
Which are the securities one can invest in?
Why does Securities Market need Regulators?
Who regulates the Securities Market?
What is SEBI and what is its role?
The definition of ‘Securities’ as per the Securities Contracts Regulation Act (SCRA), 1956, 
includes instruments such as shares, bonds, scrips, stocks or other marketable securities of 
similar nature in or of any incorporate company or body corporate, government securities, 
derivatives of securities, units of collective investment scheme, interest and rights in securities, 
security receipt or any other instruments so declared by the Central Government.
Securities Markets is a place where buyers and sellers of securities can enter into transactions to 
purchase and sell shares, bonds, debentures etc. Further, it performs an important role of 
enabling corporates, entrepreneurs to raise resources for their companies and business ventures 
through public issues. Transfer of resources from those having idle resources (investors) to 
others who have a need for them (corporates) is most efficiently achieved through the securities 
market. Stated formally, securities markets provide channels for reallocation of savings to 
investments and entrepreneurship. Savings are linked to investments by a variety of 
intermediaries, through a range of financial products, called ‘Securities’.
Shares
Government Securities
Derivative products
Units of Mutual Funds etc., are some of the securities investors in the securities market 
can invest in.
The absence of conditions of perfect competition in the securities market makes the role of the 
Regulator extremely important. The regulator ensures that the market participants behave in a 
desired manner so that securities market continues to be a major source of finance for corporate 
and government and the interest of investors are protected.
The responsibility for regulating the securities market is shared by Department of Economic 
Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) and Securities 
and Exchange Board of India (SEBI).
The Securities and Exchange Board of India (SEBI) is the regulatory authority in India 
established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of 
¦
¦
¦
¦
2.1 Regulator
Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the 
interests of investors in securities (b) promoting the development of the securities market and (c) 
regulating the securities market. Its regulatory jurisdiction extends over corporates in the 
issuance of capital and transfer of securities, in addition to all intermediaries and persons 
associated with securities market. SEBI has been obligated to perform the aforesaid functions by 
such measures as it thinks fit. In particular, it has powers for:
Regulating the business in stock exchanges and any other securities markets
Registering and regulating the working of stock brokers, sub-brokers etc.
Promoting and regulating self-regulatory organizations
Prohibiting fraudulent and unfair trade practices
Calling for information from, undertaking inspection, conducting inquiries and audits of 
the stock exchanges, intermediaries, self-regulatory organizations, mutual funds and 
other persons associated with the securities market.
The securities market essentially has three categories of participants, namely, the issuers of 
securities, investors in securities and the intermediaries, such as merchant bankers, brokers etc. 
While the corporates and government raise resources from the securities market to meet their 
obligations, it is households that invest their savings in the securities market.
It is advisable to conduct transactions through an intermediary. For example you need to transact 
through a trading member of a stock exchange if you intend to buy or sell any security on stock 
exchanges. You need to maintain an account with a depository if you intend to hold securities in 
demat form. You need to deposit money with a banker to an issue if you are subscribing to 
public issues. You get guidance if you are transacting through an intermediary. Chose a SEBI 
registered intermediary, as he is accountable for its activities. The list of registered 
intermediaries is available with exchanges, industry associations etc.
The securities market has two interdependent segments: the primary (new issues) market and 
the secondary market. The primary market provides the channel for sale of new securities while 
the secondary market deals in securities previously issued.
¦
¦
¦
¦
¦
2.2    Participants
Who are the participants in the Securities Market?
Is it necessary to transact through an intermediary?
What are the segments of Securities Market?
8
Page 3


SECURITIES
Chapter 2
What is meant by ‘Securities’?
What is the function of Securities Market?
Which are the securities one can invest in?
Why does Securities Market need Regulators?
Who regulates the Securities Market?
What is SEBI and what is its role?
The definition of ‘Securities’ as per the Securities Contracts Regulation Act (SCRA), 1956, 
includes instruments such as shares, bonds, scrips, stocks or other marketable securities of 
similar nature in or of any incorporate company or body corporate, government securities, 
derivatives of securities, units of collective investment scheme, interest and rights in securities, 
security receipt or any other instruments so declared by the Central Government.
Securities Markets is a place where buyers and sellers of securities can enter into transactions to 
purchase and sell shares, bonds, debentures etc. Further, it performs an important role of 
enabling corporates, entrepreneurs to raise resources for their companies and business ventures 
through public issues. Transfer of resources from those having idle resources (investors) to 
others who have a need for them (corporates) is most efficiently achieved through the securities 
market. Stated formally, securities markets provide channels for reallocation of savings to 
investments and entrepreneurship. Savings are linked to investments by a variety of 
intermediaries, through a range of financial products, called ‘Securities’.
Shares
Government Securities
Derivative products
Units of Mutual Funds etc., are some of the securities investors in the securities market 
can invest in.
The absence of conditions of perfect competition in the securities market makes the role of the 
Regulator extremely important. The regulator ensures that the market participants behave in a 
desired manner so that securities market continues to be a major source of finance for corporate 
and government and the interest of investors are protected.
The responsibility for regulating the securities market is shared by Department of Economic 
Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) and Securities 
and Exchange Board of India (SEBI).
The Securities and Exchange Board of India (SEBI) is the regulatory authority in India 
established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of 
¦
¦
¦
¦
2.1 Regulator
Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the 
interests of investors in securities (b) promoting the development of the securities market and (c) 
regulating the securities market. Its regulatory jurisdiction extends over corporates in the 
issuance of capital and transfer of securities, in addition to all intermediaries and persons 
associated with securities market. SEBI has been obligated to perform the aforesaid functions by 
such measures as it thinks fit. In particular, it has powers for:
Regulating the business in stock exchanges and any other securities markets
Registering and regulating the working of stock brokers, sub-brokers etc.
Promoting and regulating self-regulatory organizations
Prohibiting fraudulent and unfair trade practices
Calling for information from, undertaking inspection, conducting inquiries and audits of 
the stock exchanges, intermediaries, self-regulatory organizations, mutual funds and 
other persons associated with the securities market.
The securities market essentially has three categories of participants, namely, the issuers of 
securities, investors in securities and the intermediaries, such as merchant bankers, brokers etc. 
While the corporates and government raise resources from the securities market to meet their 
obligations, it is households that invest their savings in the securities market.
It is advisable to conduct transactions through an intermediary. For example you need to transact 
through a trading member of a stock exchange if you intend to buy or sell any security on stock 
exchanges. You need to maintain an account with a depository if you intend to hold securities in 
demat form. You need to deposit money with a banker to an issue if you are subscribing to 
public issues. You get guidance if you are transacting through an intermediary. Chose a SEBI 
registered intermediary, as he is accountable for its activities. The list of registered 
intermediaries is available with exchanges, industry associations etc.
The securities market has two interdependent segments: the primary (new issues) market and 
the secondary market. The primary market provides the channel for sale of new securities while 
the secondary market deals in securities previously issued.
¦
¦
¦
¦
¦
2.2    Participants
Who are the participants in the Securities Market?
Is it necessary to transact through an intermediary?
What are the segments of Securities Market?
Introduction to Financial Markets
9
SECURITIES
Chapter 2
What is meant by ‘Securities’?
What is the function of Securities Market?
Which are the securities one can invest in?
Why does Securities Market need Regulators?
Who regulates the Securities Market?
What is SEBI and what is its role?
The definition of ‘Securities’ as per the Securities Contracts Regulation Act (SCRA), 1956, 
includes instruments such as shares, bonds, scrips, stocks or other marketable securities of 
similar nature in or of any incorporate company or body corporate, government securities, 
derivatives of securities, units of collective investment scheme, interest and rights in securities, 
security receipt or any other instruments so declared by the Central Government.
Securities Markets is a place where buyers and sellers of securities can enter into transactions to 
purchase and sell shares, bonds, debentures etc. Further, it performs an important role of 
enabling corporates, entrepreneurs to raise resources for their companies and business ventures 
through public issues. Transfer of resources from those having idle resources (investors) to 
others who have a need for them (corporates) is most efficiently achieved through the securities 
market. Stated formally, securities markets provide channels for reallocation of savings to 
investments and entrepreneurship. Savings are linked to investments by a variety of 
intermediaries, through a range of financial products, called ‘Securities’.
Shares
Government Securities
Derivative products
Units of Mutual Funds etc., are some of the securities investors in the securities market 
can invest in.
The absence of conditions of perfect competition in the securities market makes the role of the 
Regulator extremely important. The regulator ensures that the market participants behave in a 
desired manner so that securities market continues to be a major source of finance for corporate 
and government and the interest of investors are protected.
The responsibility for regulating the securities market is shared by Department of Economic 
Affairs (DEA), Department of Company Affairs (DCA), Reserve Bank of India (RBI) and Securities 
and Exchange Board of India (SEBI).
The Securities and Exchange Board of India (SEBI) is the regulatory authority in India 
established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of 
¦
¦
¦
¦
2.1 Regulator
Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the 
interests of investors in securities (b) promoting the development of the securities market and (c) 
regulating the securities market. Its regulatory jurisdiction extends over corporates in the 
issuance of capital and transfer of securities, in addition to all intermediaries and persons 
associated with securities market. SEBI has been obligated to perform the aforesaid functions by 
such measures as it thinks fit. In particular, it has powers for:
Regulating the business in stock exchanges and any other securities markets
Registering and regulating the working of stock brokers, sub-brokers etc.
Promoting and regulating self-regulatory organizations
Prohibiting fraudulent and unfair trade practices
Calling for information from, undertaking inspection, conducting inquiries and audits of 
the stock exchanges, intermediaries, self-regulatory organizations, mutual funds and 
other persons associated with the securities market.
The securities market essentially has three categories of participants, namely, the issuers of 
securities, investors in securities and the intermediaries, such as merchant bankers, brokers etc. 
While the corporates and government raise resources from the securities market to meet their 
obligations, it is households that invest their savings in the securities market.
It is advisable to conduct transactions through an intermediary. For example you need to transact 
through a trading member of a stock exchange if you intend to buy or sell any security on stock 
exchanges. You need to maintain an account with a depository if you intend to hold securities in 
demat form. You need to deposit money with a banker to an issue if you are subscribing to 
public issues. You get guidance if you are transacting through an intermediary. Chose a SEBI 
registered intermediary, as he is accountable for its activities. The list of registered 
intermediaries is available with exchanges, industry associations etc.
The securities market has two interdependent segments: the primary (new issues) market and 
the secondary market. The primary market provides the channel for sale of new securities while 
the secondary market deals in securities previously issued.
¦
¦
¦
¦
¦
2.2    Participants
Who are the participants in the Securities Market?
Is it necessary to transact through an intermediary?
What are the segments of Securities Market?
8
Unit Code: 3 Unit  Title: Primary Market
Session-1 : New Issue Market
Location:
Class Room,
Stock
Exchange,
FMM Lab,
Learning 
Outcome
Knowledge 
Evaluation
Performance 
Evaluation
Teaching and 
Training Method
·
·
Who can bring 
new issue.
Role of Primary 
Market
· Different rates 
to bring new 
issue (Face 
value, 
premium, 
discount)
Interactive lecture: 
Discuss IPO Form.
Activity: 
Visit in Stock 
Exchange to collect 
Reports and IPO 
Forms.
·
·
·
Need for issue
Market 
Capitalization
Public Vs 
Private 
Placement
·
·
Pricing of new 
issue
Subscription
· Parties 
involved in 
new issues
Interactive lecture:
Procedure 
Discussion
Activity:
Learn how to fill 
IPO
Session-2 : Issue of Shares
·
·
·
Draft offer 
documents
Listing 
agreement
SEBI role
· Distinguish 
between 
Abridged 
Prospectus 
and Red 
Herring 
Prospectus
Interactive lecture:
Highlights of 
Prospectus
Activity:
Bring prospectus 
from the Stock 
Exchange
Session-3 : Saturated Prospectus
· Causes to 
bring issue 
on Face 
Value and 
Premium 
and 
Discount 
respectively.
·
·
Abridged 
Prospectus
Red-Herring 
Prospectus
What is the role of the ‘Primary Market’?
What is meant by Face Value of a share/debenture?
What do you mean by the term Premium and Discount in a Security Market?
Why do companies need to issue shares to the public?
What are the different kinds of issues?
The primary market provides the channel for sale of new securities. Primary market provides 
opportunity to issuers of securities; Government as well as corporates, to raise resources to meet 
their requirements of investment and/or discharge some obligation.
They may issue the securities at face value, or at a discount/premium and these securities may 
take a variety of forms such as equity, debt etc. They may issue the securities in domestic market 
and/or international market.
The nominal or stated amount (in Rs.) assigned to a security by the issuer. For shares, it is the 
original cost of the stock shown on the certificate; for bonds, it is the amount paid to the holder 
at maturity. Also known as par value or simply par. For an equity share, the face value is usually 
a very small amount (Rs.5, Rs.10) and does not have much bearing on the price of the share, 
which may quote higher in the market, at Rs.100 or Rs.1000 or any other price. For a debt 
security, face value is the amount repaid to the investor when the bond matures (usually, 
Government securities and corporate bonds have a face value of Rs.100). The price at which the 
security trades depends on the fluctuations in the interest rates in the economy.
Securities are generally issued in denominations of 5, 10 or 100. This is known as the Face Value 
or Par Value of the security as discussed earlier. When a security is sold above its face value, it is 
said to be issued at a Premium and if it is sold at less than its face value, then it is said to be 
issued at a Discount.
Most companies are usually started privately by their promoter(s). However, the promoters’ 
capital and the borrowings from banks and financial institutions may not be sufficient for setting 
up or running the business over a long term. So companies invite the public to contribute 
towards the equity and issue shares to individual investors. The way to invite share capital from 
the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to 
subscribe to the share capital of a company. Once this is done, the company allots shares to the 
applicants as per the prescribed rules and regulations laid down by SEBI.
Primarily, issues can be classified as a Public, Rights or Preferential issues (also known as private 
placements). While public and rights issues involve a detailed procedure, private placements or 
preferential issues are relatively simpler. The classification of issues is illustrated below:
3.1    Issue of Shares
PRIMARY MARKET
Chapter 3
Introduction to Financial Markets
11