SECONDARY MARKET/STOCK MARKET EXCHANGE (SE)

The Secondary market deals in Old/existing securities which were ranted

stock exchange listing. SE provides liquidity to investments. It has a physical
existence and in located in a particular geographical area.

The second stage is when an investor or dealer makes the shares, bought
from a company treasury, available for sale to other investors on the secondary
market. In the secondary market, the trading of shares is between investors. This
trading usually takes place through a stock exchange, such as the Toronto, New
York, Montreal or CDNX Stock Exchange.

New Brunswick regulates the secondary market only indirectly by requiring

the dealers and salespeople who sell investments to be registered. The Securities
Administration Branch is a repository of registration information. Investors can
find out if their dealer or salesperson is registered and whether there has ever been
disciplinary action against the dealer or salesperson.

Investment dealers frequently buy initial offerings on the primary market

and resell the securities on the secondary market.

Secondary Market refers to the network is system for the subsequent sale
and purchase of securities. Investors can apply and get allotment a specified
number of securities by the issuing company in the primary market. However once
allotted, the securities can there after be sole and purchased in the secondary
market only security emerges or takes birth in the primary market but its
subsequent movement take place in secondary market.
 In India, the secondary market represented by the stock exchange network is
more than 100 years old when in 1875, the first stock exchanges started operations
in Mumbai. Gradually stock exchanges at other places have been established and at
present there are 24 stock exchanges operating in India.
The Secondary market in India got a boost when the over the counter
exchange of India. (OTCEI) and the NATIONAL STOCK EXCHANGE (NSE)
were established.

Out of 24 stock exchanges, the other 21 stock exchanges are operating at

Mumbai, Calcutta, Ahmedabad, Delhi, Indore, Bangalore, Hyderabad, Cochin,
Kanpur, Guwahati, Mangalore, Patna, Jaipur, Rajkot, Trivandrum besides there is
on ices established by 14 regional stock exchanges the latest stock exchanges to be
recognized and registered with SEBI is Trivendrum which got its registration w.e.f
August 19, 1999 for a period of 3 years.

Out of 24 stock exchanges, only 2 i.e. the NSI and the OTCEI been
established by the India financial institutions while other stock exchanges are
operating as associations.

The secondary market functions follows:

 1. The Secondary market allows investors to sell to other investors the
securities they by in the primary market, this provides the liquidity that allows
investors to purchase securities without having to hold them indefinitely or unit
maturity.
2. The Secondary market helps firms to price the securities they are
going to sell in the primary market.
3. The Secondary market widens the ownership of a firm’s securities
when investors make direct purchases in the secondary market as appeased to
depositing funds with the mutual funds banks etc.
4. The price of a firm’s security in the secondary market has a direct
impact on the wealth of the shareholders and it is directly depend on the profit of
firms.

TRADING PROCEDURE AT THE STOCK EXCHANGES:

Securities can be traded at a stock exchanges only if it is listed at the stock

exchange or any other stock exchange, the listing is a procedure under which the
issuing company has to enter into an agreement called the listing agreement (which
has been prescribed by the SEBI) with a stock exchange and has to thereby abide
by various clauses of the ‘listing agreement’ regarding disclosure of information
payment of listing fee, redresser of investors grievance, etc, once listed at any
stock exchange the security require that the security must be listed on at least one
regional stock exchange.

The transaction (i.e. sale and purchases) in securities at the stock exchange
can be undertaken only through the registration share brokers so investor desiring
to enter into a transaction has to place an order with one or the other share broker
in the cut-cry system.

The deals are generally confirmed (i.e. the transaction has taken place) after
a time gap a few hours but in the screen based (i.e. computer based on line) system
the deals are confirmed immediately, the investor will then give delivery of
securities (in case of sale) or will make the payment (in case of purchases) to the
stock broker.

The stock broker in turn will make the payment for the securities certificate
purchased on the completion the settlement program of the stock exchange.
Generally it takes 15 to 20 days for the completion of a transaction (i.e. between
the date of transaction and the data of delivery/payment to the investors).

But the SEBI has formulated on January 10th, 2000 the system rolling
settlement or the daily settlement the transaction can be squired up only on Sunday
and if not, then the delivery takes place on next days per SEBI directive.

At present in India there are only two nation-wide stock exchanges. Over the
Counter Exchange of India (OTCEI) and National Stock Exchange (NSE). All the
other exchange is regional. OTCEI and NSE are both totally computerized and
totally dependent on the telecommunication links.

OTCEI was incorporated in October 1990, under section 25 of the

companies Act 1956. With an objective of setting up a national, ring less screen-
based, automated stock exchange.
 DEPOSITORIES AND SCRIPLESS TRADING:

A major reform of the Indian Stock market has been the introduction of the
depository system and scripless trading mechanism since 1996. The depositories
system enables the conversion of physical securities (i.e. the certificate) into
electronic form through a process of dematerialization of certificate. The investors
can get his shares converted from depository made to physical mode through the
process of Rematerialization.

DEVELOPMENTS IN THE SECONDARY MARKET

In the recent years, many steps were taken to reform the stock markets.
These measures were taken too broken the market and make it function with
greater transparency and in the best interest of investors. The steps taken are

a) Continuous Monitoring of Stock Market Operations:

SEBI monitors the operation of stock exchanges with a view to ensuring that
the dealings are conducted in the best interest of the financial environment in the
country. Any violations of rules and regulations on the part of the stock exchange
or the trading members involve penalties.

b) Change in the Management Structure:

In the earlier periods, the boards’ o stocks exchanges were dominated by
brokers whose decisions were self-centered and served their own interests.
According to the recent SEBI guidelines.
 50 percent of the directors must be not broker directors or Government
representatives and a non member professional shall be appointed as the executive
director.

c) Safe guarding the interest of investors:

Stock exchanges are instructed to take timely action for the redresser of
investor’s grievances. It is mandatory for stock exchanges to have an “investor’s
service cell” to look into the complaints of investors and take appropriate action
against the guilty.
Investors have been permitted to form associations and register them under
the SEBI. These associations are expected to promote the interest of investors and
create awareness about various investment avenues dealings in stock exchange,
illegal transactions etc.

d) Transparency of Accounting Practices:

To ensure correct pricing mechanism and wider participation, all attempts
are being taken to achieve transparency in trading and accounting procedures.

e) Prohibition of Insider Trading:

The ban on insider trading has prevented any insider from dealing in
securities of any listed from dealing in securities of any listed company on the
basis of any unpublished price sensitive information

f) Prevention of Price Rigging:

SEBI has grater powers to curb price rigging on stock exchanges SEBI has
powers to curb price rigging on stock exchanges SEBI has taken stringent action
against the brokers who indulge in price rigging. Thus all efforts are being made to
protect the interest of genuine investors.

g) Discouraging Price Manipulations:

The SEBI is taking all steps to prevent price manipulations in all stocks
exchanges. It has instructed all stock exchanges to keep special margins in addition
to the normal ones on the scrip’s, which are subject to wide price fluctuations.
The stock exchanges have been directed to suspend trading in scrip in case
any one of the stock exchanges suspends trading in that scrip for more than a day
due to price manipulation of fluctuation.

h) Introduction of Electronic Trading:

The OTCEI, BSE and NSE started trading through electronic medium.
Under this system, investment counters can be spread throughout the country under
the electronic network. This has created a national market, with no physical
location, no trading ring, no stocks exchange building, no hustle and bustle scenes
etc. Which are common sights in a conventional exchange with a trading-ring.

i) Introduction of Depository Systems:

A depository is an organization where the securities of a shareholder are
held in the electronic form through a process of dematerialization. The physical
transfer of shares is substituted through electronic media. Since the operations are
computer linked, they are transparent, speedier and cost effective. The introduction
of depository system has avoided bad deliveries, forgery, theft and delay in
settlement.

j) Buy back of Share:

 To strike a balance between the demand and supply of shares in the market,
companies are permitted to buy back their own shares. It is expected that the idle
cash in the hands of one company will be channeled to another company having a
pressing need and it will be used to correct the valuation of their stock.

k) Trading in Derivatives:
Dr. L.C.Gupta committee has recommended introducing trading in index
future and options. The starting of derivatives trading has opened a new chapter in
the history of stock exchange.

l) Rolling Settlement:
The start with, SEBI has started rolling statement on a T+5 cycle which is
now reduced to T+3. It means that transactions on a stock exchange have to be
settled 3 days after the trade day. The trades are now settled irrespective of any
default by a member and the exchange follow up the defaulting member for the
recovery of his dues. At a later stage the settlement may be further reduced to T+2
and T+1 cycle.

THE SECONDAY FUNDS OF FUNDS:

  Description: The Secondary markets date back to the global
economic crisis of the early 1990s, which produced a large lack of liquidity among
lots of financial and corporate institutions, especially those with ‘illiquid’ assets
such as private equity. This situation created new activities in the private equity
market: secondary funds of funds.

Different types of intervention. There are two main types of transactions.

The first one is based on auctions. The seller or its intermediary organizes the sale
of a portfolio of interests in private equity approaching a certain number of
potential buyers, pre selected or not. These transactions concern mega transactions
involving hundreds of millions of euros. These transactions are often linked to
mergers, a total change in investment strategy or corporations focusing on their
core activities.

The second type of intervention is the detection of secondary investment

opportunities. This concern more limited transactions in size. Thus, Fond invest
Capital, a Secondary player specialized in mid-market transactions world wide,
invests in secondary transactions on a proprietary deal flow basis that is to say
technical expertise in valuation transactions, and seniority in relationships with
general partners, limited partners and a high degree of confidentiality.

 The reasons for success

Acquisition of secondary positions offers the following advantages:
 1. Secondary market positions can usually be purchased with discount on
re-evaluated net assets, especially if the purchaser is experienced and has
developed a proprietary deal flow.
2. Investments in secondary acquisitions are made in funds with significant
amounts already invested, which eliminates the risk of ‘blind’ investments.
3. It offers acceleration of financial returns, which gives more liquidity and
security to the investor.

 The selection of secondary opportunities

A secondary fund of funds manager bases its analysis for objectives based
on performance – IRR and cash on cash multiple – but also on the notion of return
on cash in a shorter period (for example when 100 percent of the commitment of
the fund has already been returned to investors).

Thus secondary acquisitions require a deep analysis of each underlying

company, which is made to compare the value with the one, communicated by the
general partner and allows the evaluation of the possible year of exit and the
expected amount of exit.

The quality of the general partner is also of prime importance: the quality
and experience of the management teams is estimated, with the profile of each
professional, and their capacity to work together.

Investment decisions in secondary funds are based on:

  A demonstrated expertise in direct private equity, including a
systematic approach to evaluating underlying companies.
 Experience in having dealt with a large number of transactions.
 Experience in having secured its secondary transactions with a high
degree of confidentially.
 The ability to deliver proposals on a short-term basis and proven
flexibility in negotiating with the seller.

Confidentially, expertise in direct investments, flexibility and non-

competitive acquisitions are the basis of successful secondary funds of funds.
Appropriate Situations for Borrowing Secondary Credit
Secondary Credit is subject to a higher level of lending administration than
primary credit. Examples of appropriate uses of secondary credit include:
Tight money markets or undue market volatility.
 Addressing an overnight overdraft.
 Meeting a need for back up funding, including a short-term liquidity
demand.
 Inability to obtain funding form normal sources.
 To assist the primary regulator in prompt closure of a troubled
institution.
 Inappropriate Situations for Borrowing Secondary Credit.
 Arbitrage opportunities.
 To facilitate balance sheet expansion.

For Bank Examiners

 The primary credit program marks a fundamental shift – from administration
to pricing in the Federal Reserve’s approach to Discount Window lending.
Notably, eligible depository institutions may obtain short-term primary credit
without exhausting or even seeking funds from alternative sources.

Minimal administration of and restrictions on the use of primary credit will

make it a more reliable back up funding source than was adjustment credit. Being
prepared to borrow primary credit – like access to any other back up liquidity
facility – enhances an institution’s liquidity.

For examiners, the Federal Reserve’s new primary credit program requires a
shift in thinking about the role the Discount Window can play in depository
institutions’ liquidity management and contingency funding arrangements. The
primary credit program may play a larger role in generally sound institutions’ plans
than did adjustment credit. Bank examiners should view occasional use of primary
credit as appropriate and unexceptional. Please see the Interagency Advisory on
the Use of the Federal Reserve’s primary Credit Program in Effective Liquidity
Management for more information.

For the General Public

 The Discount Window functions as a safety valve in relieving pressures in
reserve markets; extensions of credit can help relieve liquidity strains in a
depository institution an in the banking system as a whole.

By supplying liquidity during times of systemic stress, the Discount

Window also helps to assure the basic stability of the payments system more
generally. When the Federal Reserved System was established in 1913, lending
reserve funds through the Discount Window was intended as the principal
instrument of central banking operations.

Although the Discount Window was long ago superseded by open market
operations as the most important tool of monetary policy, it still plays a
complementary role. Banks and other depository institutions traditionally have
borrowed from the Federal Reserve’s Discount Window when they face a
temporary, unexpected, need for funds.

Historically, the Federal Reserve lent “adjustment credit” to meet such

needs. Reserve Banks relied on two basic principles in administering adjustment
crisis:

 Borrowers had to have an appropriate reason for seeking a Discount

Window loan.
 Borrowers had to fully use other reasonable available sources of funds
before turning to the Discount Window.

Banks and others saw the Federal Reserve’s administration of adjustment

credit as a burden and as varying in consistency. Also, institutions that borrowed
adjustment credit to meet routine, short-term needs expressed concern that banking
supervisors and others might see borrowing as a sing of financial weakness.
These factors contributed to the nation of a “stigma” associated with
borrowing from the Discount Window. That stigma deterred some institutions from
using adjustment credit when doing so would have been appropriate.

Secondary market refers to a market where securities are traded after being
initially offered to the public in the primary market and/or listed on the Stock
Exchange. Majority of the trading is done in the secondary market. Secondary
market comprises of equity markets and the debt markets.

For the general investor, the secondary market provides an efficient platform
for trading of his securities. For the management of the company, Secondary
equity markets serve as a monitoring and control conduit – by facilitating value –
enhancing control activities, enabling implementation of incentive-based
management contracts, and aggregating information (via price discovery) that
guides management decisions.

PRODUCTS OF SECONDARY MARKET

 Following are the main financial products/instruments deal in the Secondary
market.
Equity: The ownership interest in a company of holders of its common and
preferred stock. The various kinds of equity shares are as follows –
 Equity Shares: An equity share, commonly referred to as ordinary
share also represents the form of fractional ownership in which a shareholder, as a
fractional owner, undertakes the maximum entrepreneurial risk associated with a
business venture. The holders of such shares are member of the company and have
voting rights. A company may issue such shares with differential rights as to
voting, payment of dividend etc.

 Rights Issue/Rights Shares: The issue of new securities to existing

shareholders at a ratio to those already held.

 Bonus Shares: Shares issued by the companies to their shareholders

free of cost by capitalization of accumulated reserves from the profits earned in the
earlier years.

 Preferred Stock / Preference Shares: Owners of this kind of shares

are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid
regularly before dividend can be paid in respect of equity share.

They also enjoy priority over the equity shareholders in payment of surplus.
But in the event of liquidation, their claims rank below the claims of the
company’s creditors, bondholders / debenture holders.
  Cumulative Preference Shares: A type of preference shares on
which dividend accumulates if remains unpaid. All arrears of preference dividend
have to be paid out before paying dividend on equity shares.

 Cumulative Convertible Preference Shares: A type of preference

shares where the dividend payable on the same accumulates, if not paid. After a
specified date, these shares will be converted into equity capital of the company.

 Participating Preference Share: The right of certain preference

shareholders to participate in profits after a specified fixed dividend contracted for
is paid. Participation right is linked with the quantum of dividend paid on the
equity shares over and above particular specified level.

 Bond: A negotiable certificate evidencing indebtedness. It is normally

unsecured. A company, municipality or government agency generally issues a debt
security. A bond investor lends money to the issuer and in exchange, the issuer
promises to repay the loan amount on a specified maturity date. The issuer usually
pays the bondholder periodic interest payments over the life of the loan. The
various types of bonds are as follows –
 Zero Coupon Bond: Bond issued at a discount and repaid at a face
value. No periodic interest is paid. The difference between the issue price and
redemption price represents the return to the holder. The buyer of these bonds
receives only one payment, at the maturity of the bond.

 Convertible Bond: A bond giving the investor the option to convert

the bond into equity at a fixed conversion price.
  Debentures: Bond issued by a company bearing a fixed rate of
interest usually payable half yearly on specific dates and principal amount
repayable on particular date on redemption of the debentures. Debentures are
normally secured/charged against the asset of the company in favor of debenture
holder.

 Commercial Paper: A short-term promise to repay a fixed amount

that is placed on the market either directly or through a specialized intermediary. It
is usually issued by companies with a high credit standing in form of a promissory
note redeemable at par to the holder on maturity and therefore doesn’t require any
guarantee. Commercial paper is a money market instrument issued for the tenure of
90 days.

 Coupons: Token for payment of interest attached to bearer securities.

 Treasury Bills: Short-term (up to one year) bearer discounts security

issued by government as a means of financing their cash requirements.

TRADING IN SECONDARY MARKETS

Trading in secondary market is done through a broker. An individual can

contact a broker or a sub broker registered with SEBI for carrying out your
transactions pertaining to the capital market. A broker is a member of a recognized
stock exchange, who is permitted to do trades on the floor of the exchange.

He is enrolled as a member with the concerned exchange and is registered

with SEBI. A sub broker is a person is registered with SEBI as such and is
affiliated to a member of a recognized stock exchange. The identity of the broker
or sub broker can be confirmed by verifying the registration certificate issued by
SEBI. A broker’s registration number begins with the letters “INB” and that of a
sub broker with the letters “INS”.

An interested individual have to sign the “Member – Client agreement” /

“Sub broker – client Agreement” for the purpose of engaging a broker to execute
trades on your behalf from time to time and furnish details relating to yourself for
enabling the member to maintain client registration form.

The Model Agreement between broker-client / Sub Broker client and Know
your client Form can be viewed from SEBI website at www.sebi.gov.in. The
Model Agreement has to be executed on the non-judicial stamp paper. The
Agreement contains clauses defining the rights and responsibility of Client vis a
vis broker /sub broker. The Broker/Sub broker can also add further clauses in the
Model Agreement as per their requirement.

Details to be maintained by brokers:

The brokers have to maintain a database of their clients, for which you have
to fill client registration form. In case of individual client registration, you have to
broadly provide following information:
  Your name, address, educational qualifications, occupation,
residential status (Residential Indian/NRI/others).
 Particulars of bank account.
 Income tax no (PAN/GIR) which also serves as unique client code.
 If you are registered with any other broker, then the name of broker
and concerned Stock exchange and Client Code Number.
 Proof of identity submitted either as Passport number / Driving license
/ Ration card / Voters identity card.
 Each client has to use one registration form. Incase of joint names /
family members, a separate form has to be submitted form each person.
Incase of Corporate Client, following information has to be provided:

 Name, address of the Company / Firm.

 Date of incorporation and date of commencement of business.
 Copy of Memorandum and articles of Associated/Partnership deed.
 Details of Promoters/Partners/Key managerial Personnel the Company
/ Firm in specified format.
 Copies of annual report of last three years.
 Net worth of the company.
 Particulars of the Bank account.
 Income tax number of the company.
 Annual income in last three years and market value of portfolio.
 If you are registered with any other broker, then the name of broker
and concerned Stock exchange and Client Code Number.
 In order to facilitate maintaining database of their clients, it is mandatory for
all brokers to use unique client code, which will act as an exclusive identification
for the client. For this purpose, PAN number/passport number/driving
License/Voters ID number/ration card number coupled with the frequently used
bank account number and the depository beneficiary account can be used for
identification, in the given order, based on availability.

Placing an order

You can either go to the brokers/sub brokers’ office or place an order on the
phone/internet or as defined in the Model Agreement given above. On receiving
the order the Stock Exchanges assign a Unique Order Code Number to each
transaction.

Which does broker to his client intimate and once the order is executed this
order number is printed on the contract note. The broker member has to also
maintain the record of time when the client has placed order and reflect the same in
the contract note along with the execution of the order.

Execution of order

You have to ensure receipt of the following documents for any trade
executed on the Exchange:

a) Contract note in Form A to be given within stipulated time.

b) Purchase/sale not or confirmation memo in the case of a sub broker. It is
the contract note / purchase or sale note (confirmation memo) that gives rise to
contractual rights and obligations of parties of the trade. Hence you should insist
on contract note from stockbroker and purchase/sale note (confirmation memo)
from sub broker. The contract note displays the order number, order time and
unique trade number. The Exchange can verify the quantity and the price of the
trade executed at the exchange. The contract note also contains arbitration clause
for raising dispute with the Arbitrators as per the byelaws of the Exchange.

Contract Note:

A broker has to issue a contract note to clients for all transactions in the form
specified by the stock exchange. The contract note inter-alias should have
following:

 Name, address and SEBI Registration number of the Member broker.

 Name of the partner/proprietor/Authorized Signatory.
 Dealing Office Address/Tel No/Fax No. Code number of the member
given by the Exchange.
 Contract number, date of issue of contract note,. Settlement number
and time period for settlement.
 Constituent (Client) name/Code Number.
 Order number and order time corresponding to the trades.
 Trade number and Trade time.
 Quantity and kind of Security brought/sold by the client.
 Brokerage and Purchase/Sale rate are given separately.
 Service tax rates and any other charges levied by the broker.
  Appropriate stamps have to be affixed on the original contract note or
it is mentioned that the consolidated stamp duly is paid.
 Signature of the Stockbroker / Authorized Signatory.

Incase of purchase and sale note provided the sub broker provides following
additional information:

 Name and SEBI Registration no. of Sub broker.

 Name of affiliating trading member.
 Purchase/sale note number.
 Corresponding contract note issued by the broker for relevant trade
number along with the date of contract.

Both contract note and purchase / sale note provide for the recourse to the
system of arbitrators for settlement of disputes arising out of transactions.

SETTLEMENT MODE

There are tow modes of settlement of transaction Pay in day and Pay out
day. Pay in day is the day when the brokers shall make payment or delivery of
securities to the exchange. Pay out day is the day when the exchange makes
payment or delivery of securities to the broker. Since settlement cycle has been
reduced from T+3 rolling settlement to T+2 w.e.f. April 01, 2003, the exchanges
have to ensure that the broker does the pay out of funds and securities to the clients
within 24 hours of the payout. The Exchangers will have to issue press release
immediately after pay out.
 The investors/clients can get direct delivery of shares in their beneficiary
accounts. To avail this facility, you have to give details of your beneficiary account
and the DP-ID to your broker along with the Standing Instructions for ‘Delivery-
In’ to your Depository participant for accepting shares in your beneficiary account.

Given these details, the Clearing Corporation/Clearing House shall send pay
out instructions to the depositories so that you receive pay out of securities directly
into the beneficiary account.

The payment for the shares purchased is required to be done prior to the pay
in date for the relevant settlement or as otherwise provided in the Rules and
Regulations of the Exchange. The delivery of shares has to be done prior to the pay
in date for the relevant settlement or as otherwise provided in the Rules and
Regulations of the Exchange and agreed with the broker/sub broker in writing.

Brokerage
The maximum brokerage that can be charged by a broker is decided by the
sock Exchanges as per the Exchange Regulations. The SEBI (Stock Brokers and
Sub brokers), 1992 stipulates that sub broker cannot charge from his clients a
commission which is more than 1.5% of the value mentioned in the respective
purchase or sale note.

The trading member can charge:

1. Brokerage charged by member broker

2. Penalties arising on specific default on behalf of client (Investors)
 3. Service tax as stipulated.

The brokerage and service tax is indicated separately in the contract note.

In case of purchase on your behalf, the member broker has the liberty to
close out transactions by selling securities in case you fail to make full payment to
the broker for the execution of contract before pay in day as fixed by Stock
Exchange for the concerned settlement period unless you already have an
equivalent credit with the Broker.

Similarly, in case of sale of shares on your behalf, the member broker has
the liberty to close out the contract by effecting purchases if you fail to deliver the
securities sold with valid transfer documents, if any before delivery day as fixed by
Stock Exchange for the concerned settlement period. In both the cases, any loss in
transactions will be deductible from the margin money paid by you.

The shortages are met through auction process and the difference in price
indicated in contract note and member pays price received through auction to the
Exchange, which is then liable to be recovered from the client. If the shares could
not be bought in the auction i.e. if shares are not offered for sale in the auction, the
transactions are closed out as per SEBI guidelines.

The guidelines stipulate that “the close out price will be the highest price
recorded in the scrip on the exchange in the settlement in which the concerned
contract was entered into and up to the date of auction/close out OR 20% above the
official closing price on the exchange on the day on which auction offers are called
for (and in the event of there being no such closing price on that day, then the
official closing price on the immediately preceding trading day on which there was
an official closing price), whichever is higher”.

Delay in payment by broker

In case a broker fails to deliver to you in namely and proper payment of

money/shares or you has complaint against conduct of the stockbroker, you can file
a complaint with the respective stock exchange. The exchange is required to
resolve all the complaints. To resolve the disputes, the complaint can also resort
arbitration as provided on the reverse of contract note/purchase or sales note.

However, if complaint is not addressed by the Stock Exchanges or is unduly

delayed, then the complaints along with supporting documents may be forwarded
to Secondary Market Department of SEBI. Your complaint would be followed up
with the exchanges for expeditious redressal. In case of complaint against a sub
broker, the complaint may be forwarded to the concerned broker with whom the
sub broker is affiliated for redressal.

Sources of Redressal of Grievances

You have the following resources available.
 Investor Grievances Redressal Cell (IGG): You can lodge
complaint with IGG cell of SEBI against companies for delay, non-receipt of
shares, refund orders etc and with stock exchanges against brokers on certain trade
disputes or non-receipt of payment/securities.
 Arbitration: If no amicable settlement could be reached, then you
can make application for reference to Arbitration under the Bye Laws of concerned
Stock Exchange.
 SECONDARY MARKET INTERMEDIARIES

The stockbrokers and sub-brokers and forgone brokers are the major
intermediaries in the secondary corporate securities market.

 Stock brokers:
A stockbroker is a recognized stock exchange who buys, sells or deals in
securities certificate of registration from the SEBI is empowered to impose
conditions while granting the certificates a member of a stock exchange.

 Registrations:
A broker registration with the SEBI has to apply through the stock exchange
of which he is a member. The application must be forwarded by the date of receipt
the SEBI check whether or not he is eligible to be a member of a stock exchange,
has the necessary infrastructure including manpower to effectively discharge his
activities, and has past experience in the business of buying selling or dealing in
securities.
  Payment of fee:
Every registration broker has to pay the SEBI a specified registration fee
based on the annual turnover that is the aggregate of the sale and purchase prices of
securities received and receivable by the stockbroker during any financial year. If
an annual turnover upped Rs.1 crore, assume of Rs.5, 000 is to paid as fee to the
SEBI. For an annual turnover in excel of Rs.1 crore, the hundred of one percent of
the turnover in excess of Rs.1 crore, for each financial year.

 Sub-broker:
A sub-broker acts on behalf of a stock broker as an agent or otherwise for
assisting investors in buying-selling or dealing in securities thought such brokers,
but his is not a member of a stock exchange, the sub broker’s act as sub-brokers a
certificate of registration from the SEBI is required. IT grants a registration
certificate to a sub-broker subject to the condition that he:

 Pays the prescribed fee.

 Takes adequate steps for redressed of investors grievances within one
month of the receipt of the complaint.
 Is authorized in writing by a broker for affiliation in buying selling or
dealing in securities.

REGISTRATION OF SUB-BROKERS:

According to the SEBI regulations currently in force sub-broker is required

to submit along with the application.
 1. A recommendation from a stock broker with whom he will be
affiliated and
2. Two references, including one from his banker the application has to
be submitted to the concerned stock exchange, which has to verify the information
contained in it. It has also to certify that the applicant is eligible for registration as
per the specified eligibility criteria, mainly an individual applicant is not less than
21 years of age, has passed the equivalent of at least 12’11 standard examination
from a recognized institution and is a fit and proper person.

PAYMENT FEE: The annual fee payable by a sub-broker is Rs.1000 for an

initial period of five years, after the expiry of five years an annual fee Rs.500 is
payable as long as the certificate remains in force.

III) FOREIGN BROKERS:

Foreign institutional investors (FIT’S) now play a significant sole in stock

markets. With a view to helping the FIT’S to follow the procedure and encourage
them to invest in India, the SEBI has issued a different of guidelines for foreign
brokers.

REGISTRATION WITH THE SEBI:

A foreign broker has to Inter-alia, disclose to the SEBI name (s)/registration

number(s) of the overseas stock exchanges where he is registered in the capacity of
a broker-dealer together with an undertaking that he would operate and assist only
on behalf of registered FIT’S and would not deal in securities on advice from the
SEBI.

The RBI would accord approval to him to open (a) a foreign currency
denominated bank account and a rupee account with a designated bank branch and
(b) Multiple custodian accounts with the approval custodian of all registered FIT’S
whom he may be assisting or on whose behalf he would be placing orders with a
member of the Indian Stock Exchange.

COMPARISON AMONG PRIMARY AND SECONDARY FUNDS OF

FUNDS:

Pure primary and pure secondary funds of funds are very different one from
one other in terms of philosophy. The primary markets require long-term
investments from eight to 12 years generally. In that case, the fund of funds
manager overbids a specific management team, often specialized in a particular
market or geographic is, in a specific sector.

The investment process requires time and capital calls are spread over a
period of four to five years. On the other hand, the secondary markets can be
considered as an opportunist market. Emphasis is put on performance and speed
with which cash is returned as the investment horizon is generally below eight
years.

Unlike the primary funds of funds, secondary opportunities require

adaptability and quick decision-making. Usually, capital calls are limited to a two
to three year period. In terms of performance, primary funds of funds usually often
high multiple and IRR levels as secondary funds of funds offer high IRR levels
with lower multiple levels as emphasis is put on quick returns.

ANSWERS TO INVESTORS OBJECTIVES:

The institutional investor who decides to invest capital in a private equity

fund of funds first of all seeks a large diversification of risks. Moreover, he
chooses the fund of funds management team able to offer high performance thanks
to its seniority, its experience and the consistency of its track record.

Then the investor has to specify a horizon and major objectives in terms of
performances: IRR or multiple, and speed with which cash is returned. If the global
asset structure allows long-term liquidity (Insurance companies or pension funds),
the primary funds of funds are able to provide an answer based on a high multiple
levels. On the other hand, if the global asset structure allows a shorter-term
liquidity (banks for example), the secondary funds of funds are able to provide an
answer based on quick returns and high level IRR.
 However, a certain number of investors with long-term management
horizons may mix these two types of funds of funds in order to answer short-term
priorities.

THE PRIMARY & SECONDARY LENDING PROGRAMS

1.OVERVIEW:
The Federal Reserve’s Discount Window serves many purposes for
depositing institutions and economy:
 Acts as a safety value in relieving pressures in reserve markets.
 Helps to relieve liquidity strains in individual depository institutions or
the banking system as a whole.
 Helps to assure the basic stability of the payments system.
On October 31, 2002 the Board of Governors approved revisions to the
Federal Reserve’s Discount Window programs that took effect on January 9, 2003.
The new Discount Window is designed to enhance the Federal Reserve’s lending
function; the changes do not represent a change in monetary policy. Effective
January 9, 2003, the Federal Reserve introduced two new Discount window
programs.
 The “Primary Credit” program is now the principal safety valve for ensuring
adequate liquidity in the banking system; it is a backup source of short-term funds
for sound depository institutions.
Priced slightly higher, “Secondary Credit” is available to depository
institutions not eligible for primary credit. Priced at a rate above he FOMC’s target
for the federal funds rate, primary credit is available to depository institutions in
sound overall condition to meet short-term, backup funding needs.
Normally, primary credit will be granted on a “no-questions-asked”,
minimally, administered basis. There are no restrictions on borrowers’ use of
primary credit. Priced slightly higher, secondary credit is available to depository
institutions not eligible for primary credit.

TERMS & FEATURES:

To access the Discount Window, eligible depository institutions first must
execute the necessary documentation and pledge collateral to the Federal Reserve.

Feature Primary Credit Secondary Credit

Rate Above the FOMC,s target Primary credit rate plus 50
for the federal funds rate. basis points.
Term Short-term usually Short-term usually
overnight, but can also be overnight. Can be extended
extended ordinarily to for a longer term if such
very small institutions-for credit would facilitate a
up to a few weeks if such timely return to reliance on
credit cannot be otherwise market funding or an orderly
obtained in the market on resolution of a failing
reasonable terms. institution, subject to
 statutory requirements
(FDICIA restrictions).
Eligibility Depository institutions in Depository institutions that
generally sound financial do not qualify for primary
condition; same as credit.
eligibility for daylight
credit.

Use Generally no restrictions. As a backup source of

May be used to fund sales funding on a very short-term
of federal funds. basis, or to facilitate an
orderly resolution of serious
financial difficulties.

Administratio Ordinarily no questions Reserve Banks will collect

n asked. information necessary to
confirm that borrowing is
consistent with regulatory
requirements.

Eligibility

Examination Rating Capital Designation Generally Eligible for

(CAMELS or
equivalent)
1,2 or 3 Adequately or well Primary credit
 capitalized
4 or 5 Any Secondary credit

Any Less than adequately Secondary credit

capitalized

Depository institutions to which the law grants access to the Discount

Window and which the Federal Reserve deems generally sound are eligible to
obtain primary credit. Reserve Banks determine eligibility on an ongoing basis
using supervisory ratings and capitalization data; supplementary information, when
available, may also be used.

For Depository Institutions

The new Discount Window lending programs represent an additional back

up funding option for eligible institutions seeking to supplement their funding
sources. For many depository institutions, particularly those with more limited
access to wholesale funding markets, the new lending programs will also eliminate
the need to bid for funds in the market place when available funds are light.

Certainly the high cost of primary credit, initially 100 basis points above the
target federal funds rate, will ration its use. Nonetheless, the minimal
administration of the new program makes it a convenient and ready source of back
up funding for qualifying institutions faced with situations such as an unexpected
increase in loan demand, loss of deposits, or reserve account shortfall.

Common Borrowing Situations

 The new Discount Window programs offer an enhanced opportunity for
eligible depository institutions seeking an efficient solution to meet unexpected,
short-term funding needs.

Likely situations for Borrowing Primary Credit

Generally, there are no restrictions on borrowers’ use of primary credit. Here

are some examples of common borrowing situations:
 Tight money markets or undue market volatility.
 Preventing an overnight overdraft
 Meeting a need for backup funding, including a short-term liquidity
demand that may arise from unexpected deposit withdrawals or a spike in loan
demand.
 Arbitrage opportunities.

The primary credit program, in contrast, minimizes the administration of and

restrictions on the use of Discount Window credit. Moreover, only generally sound
institutions are eligible to borrow primary credit, so borrowing primary credit
should not be seen a sign of financial weakness. Thus, the primary credit program
should reduce depository institutions reluctance to borrow, thereby making the
Discount Window a more effective policy instrument.

Secondary Credit entails a higher level of administration. Adjustment and

extended credit are no longer offered; the seasonal credit program remains
unchanged.
 DIFFERENCE BETWEEN PRIMARY AND SECONDARY CAPITAL
MARKET

In the primary market, securities are offered to public for subscription for the
purpose of raising capital or fund. Secondary market is an equity-trading venue in
which already existing/pre-issued securities are traded among investors. Secondary
market could be either auction or dealer market. While stock exchange is the part
of an auction market. Over-the-Counter (OTC) is a part of the dealer market.

Capital Market for corporation securities we can note the prominent position
held by certain financial institution in moving funds from the savings sector to the
investment sector via three main avenues a public issue, a privileged subscription,
and a private placement. Investment bankers, financial intermediaries, and the
secondary market are key institution that enhances the movement of funds.