Q. 1. What is meant by ‘New Issue Market’? Explain the various methods of flotation of new securities issues in this market. [Delhi Comptt. Set-I, II, III 2018]
Ans. New Issue Market is a market in which new securities are issued for the first time to the investors. The various methods of floatation of new securities in this market are:
(i) Offer through Prospectus
(ii) Offer for Sale
(iii) Private Placement
(iv) Rights Issue
(v) E-IPO (If an examinee has not given the headings as above but has given the correct explanations, full credit should be given)
Detailed Answer : The primary market is also known as the new issues market. It deals with new securities being issued for the first time. The essential function of a primary market is to facilitate the transfer of investment funds from savers to entrepreneurs seeking to establish new enterprises or to expand existing ones through the issue of securities for the first time. The investors in this market are banks, financial institutions, insurance companies, mutual funds and individuals.
Q. 2. Explain the trading procedure on a stock exchange. [Delhi Comptt. Set II 2014; SQP 2013]
Ans. Trading procedure on a stock exchange is as follows :
(i) Selection of a Broker : A SEBI registered broker, who is a member of a stock exchange, is selected to buy/sell securities on behalf of the investor. The broker can be an individual, partnership firm or corporate.
(ii) Opening a Demat Account : There are two depositories in India - NSDL (National Securities Depositories Ltd.) and CDSL (Central Depository Services Ltd.). A demat account is opened by the investor with depositary participant (bank stock broker) to trade in listed securities in electronic form and maintain the balance of securities with depositories.
(iii) Placing the order : The order to buy or sell specific security is to be communicated to the broker either personally or through telephone, e-mail, etc.
(iv) Executing the order : The broker buys or sells the specified securities as instructed by the investor and they issue a contract note. It contains the name & prices of securities, details of the parties, brokerage charged, etc.
(v) Settlement : A T+2 rolling settlement cycle is followed in Indian stock market. Delivery of shares is made in dematerialised form and each exchange has its own clearing house which assumes all settlement risk.
Q. 3. “To promote orderly and healthy growth of the securities market and protection of the investors, Securities and Exchange Board of India was set up.” With reference to this statement, explain the objectives of Securities and Exchange Board of India. [Outside Delhi Set II 2011]
Ans. Objectives of SEBI are :
(i) To regulate stock exchanges and the securities industry to promote their orderly functioning.
(ii) To protect the rights and interests of the investors, particularly individual investors and to guide and educate them.
(iii) To prevent trading malpractices and achieve a balance between self-regulation and statutory regulation.
(iv) To regulate and develop a code of conduct and fair practices by intermediaries like brokers, merchant bankers, etc. with a view to making them competitive and professional.
(v) To provide a market place in which the issuers can raise finances in an easy, fair and efficient manner.
Q. 4. What does the abbreviation ‘SEBI’ stand for? Explain the term Sensex. How many shares are included in the Sensex? [SQP 2011]
Ans. SEBI : Securities and Exchange Board of India. Sensex : Sensex stands for Sensitivity Index. Sensex is the benchmark index of BSE. It is a useful guide for investors in the stock market. If the Sensex rises, it indicates that the market is doing well and investors become optimistic of the future performance of the economy. Sensex includes shares of thirty companies, most actively traded.
Q. 5. State any five regulatory functions of Securities and Exchange Board of India. [Delhi Set I, II, Outside Delhi 2010]
Ans. Regulatory functions of Securities and Exchange Board of India are :
(i) It registers brokers and sub-brokers and other players in the market.
(ii) It registers collective investment schemes and mutual funds.
(iii) It regulates stock brokers, portfolio exchanges, underwriters and merchant bankers.
(iv) It regulates takeover bids by the companies.
(v) It calls for information by undertaking inspection, conducting enquiries and audit of stock exchanges and intermediaries
(vi) It levies fee or other charges for carrying out the purposes of the SEBI Act, 1992.
(vii) It performs and exercises such powers under Securities Contract (Regulation) Act, 1956 as may be delegated by the Government of India.