Ebook- Certified investment banking

Capital Market

A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments

Two types of Capital Market

Primary Market

What Is a Primary Market?

A primary market is a source of new securities. Often on an exchange, it’s where companies, governments, and other groups go to obtain financing through debt-based or equity-based securities.

Primary markets are facilitated by underwriting groups consisting of investment banks that set a beginning price range for a given security and oversee its sale to investors

Secondary Market

What Is a Secondary Market?

The secondary market is where investors buy and sell securities they already own. It is what most people typically think of as the “stock market,” though stocks are also sold on the primary market when they are first issued.

The national exchanges, such as BSE (Bombay stock exchange) and the NSE( (National stock exchange), are secondary markets.

What Are Stock Exchanges?

A stock exchange does not own shares. Instead, it acts as a market where stock buyers connect with stock sellers

Primary Market

A primary market is a source of new securities. Often on an exchange, it’s where companies, governments, and other groups go to obtain financing through debt-based or equity-based securities.

Primary markets are facilitated by underwriting groups consisting of investment banks that set a beginning price range for a given security and oversee its sale to investors

Secondary Market

The secondary market is where investors buy and sell securities they already own. It is what most people typically think of as the “stock market,” though stocks are also sold on the primary market when they are first issued.

The national exchanges, such as BSE (Bombay stock exchange) and the NSE( (National stock exchange), are secondary markets.

Difference between Primary and Secondary market

           Category

Primary market

Secondary market

Also called as

New Issue Market (NIM)

After Issue Market (AIM)

Role of the market

Market where stocks are issued for the first time

Market where stocks are traded once issued

Intermediaries

Investment banks

Brokers

Sale of securities

Directly by companies to investors

Sold and purchased amongst investors and traders

Price of shares

Fixed at par value

Changes depending on the supply and demand of shares

Capital Market Instruments

Equities

This is where shares of various stocks are traded through exchanges. They are accounted as the most essential part of the market economy as companies are exposed to capital and investors.

In equity platform, buyers and sellers trade securities which are either public stock or private stock that are traded through dealers.

Commodities

Unlike in Equity trading, in Commodity Markets, physical substances like gold, copper, crude, etc. are traded on a contract basis.

Commodities can be an important way to diversify the trader’s portfolio beyond traditional securities, either for the long term or as a place to park cash

Derivatives

Derivative trading is a contract based trading between two or more parties and its price is formed from variations in the underlying asset. Some of the common assets in derivative trading are bonds, commodities, currencies etc. where all these are purchased through brokerages

Foreign exchange

Foreign Exchange is where one currency is changed into another for commercial reasons, especially for foreign trades across the world. There is no central market place for foreign exchange as the currency is traded electronically, known as OTC (Over the Counter). The foreign exchange market is open 24/7 and currencies are traded worldwide

Different types of capital market instruments

What is IPO

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. An IPO allows a company to raise capital from public investors.

The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment as it typically includes a share premium for current private investors

Who are the top credit rating agencies?

FAQ on Credit Rating Agencies

A credit rating agency does assessment of the financial strength of companies and other government entities. They help investors identify the companies ability to pay debts and their level of risk
A credit rating is given to a company, organisation or a government body by calculating its ability to repay the debt and to predict the likelihood of default. On the other hand, a credit score is given to an individual after taking a look at his credit history and repayment behaviour
All the credit rating agencies in India are regulated by Securities and Exchanges Board of India (SEBI). The credit rating agencies are monitored and reviewed by SEBI
Rating is denoted by a simple alphanumeric symbol, for e.g. AA+, A-, etc.
Credit Rating is a long process and takes around 3-4 weeks to complete from the date of receipt

What is methodology in credit rating?

 Manufacturing Companies

Financial Services Companies

Structured Obligations

Industry Risk

Capital Adequacy

Structured borrowing arrangements

Company’s industry and market position

Asset Quality

legal and tax structure

Operating efficiencies

Management

Ability and
willingness of the services 

Accounting Quality

Earnings

Securitization transforms illiquid assets

Financial flexibility Fixed at par 

Liquidity

overall risk
profile and monitoring

Earnings protection

Systems and Control

pool and the cash flows

Role of Capital Market Intermediaries

What are the roles of capital market ?

The role of intermediaries makes the market vibrant, and to function smoothly and continuously. Intermediaries
possess professional expertise and play a promotional role in organising a perfect match between the supply
and demand for capital in the market.

What market intermediaries are involved in secondary market ?

What is ISIN CUSIP and SEDOL ?

ISIN

International Securities Identification Number
to identify securities that are traded and settled internationally like Asian markets
It contains twelve alphanumeric characters
includes a two character country code which is provided by the ISO
It has nine alphanumeric characters which are the national security identifier
check digits that are located at the end of the code
ISIN check digit is derived by converting letters to numbers by adding their position in the alphabet to nine
INE467B01029

CUSIP

Committee on Uniform Security Identification Purposes
used in securities that are traded, cleared, and settled in North America particularly in the United States
It contains nine alphanumeric characters
CUSIP does not have country code
has six characters that identify the issuer and two characters that identify the issue
check digits that are located at the end of the code
they are converted by assigning them their ordinal positions in the alphabet

037833100

SEDOL

Stock Exchange Daily Official List
are used for unit trusts, investment trusts, insurance-linked securities that trade on the London Stock Exchange
It is a seven-character identification code assigned to securities
the first six characters are an alphanumeric code
the seventh character is a trailing check digit
the seventh character is a trailing check digit
The check digit for the SEDOL code is selected in order to make the weighted sum of all seven characters a multiple of 10

B1XH2C0