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E. Gordon

E. , Professor and Head,Dept. of Commerce, College, K. , , Principal, College, Director, Management Studies,Sri Kaliswari College, MARKETSANDSERVICESMUMBAI NEW DELHI NAGPUR BENGALURU HYDERABAD CHENNAI PUNE LUCKNOW AHMEDABAD ERNAKULAM BHUBANESWAR KOLKATA AuthorsNo part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or byany means, electronic, mechanical, photocopying, recording and/or otherwise without the prior writtenpermission of the Edition:1999 Reprint:2001 Second Revised Edition:2003 Third Revised Edition:2006 Fourth Revised Edition:2007 Fifth Revised Edition:2008 Sixth Revised Edition:2010 Seventh Revised Edition:2011 Eighth Revised Edition:2012 Reprint:2013 Ninth Revised Edition:2014 Tenth Revised Edition:2016 Published by:Mrs. Meena Pandey for Himalaya Publishing House Pvt.

FINANCIAL SECTOR which comprises of financial markets, financial institutions and financial services. Financial markets have been increasingly influenced in recent times by financial innovations in terms of products and instruments, adoption of modern technologies, opening up of the market to the global economy, streamlining of

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1 E. , Professor and Head,Dept. of Commerce, College, K. , , Principal, College, Director, Management Studies,Sri Kaliswari College, MARKETSANDSERVICESMUMBAI NEW DELHI NAGPUR BENGALURU HYDERABAD CHENNAI PUNE LUCKNOW AHMEDABAD ERNAKULAM BHUBANESWAR KOLKATA AuthorsNo part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or byany means, electronic, mechanical, photocopying, recording and/or otherwise without the prior writtenpermission of the Edition:1999 Reprint:2001 Second Revised Edition:2003 Third Revised Edition:2006 Fourth Revised Edition:2007 Fifth Revised Edition:2008 Sixth Revised Edition:2010 Seventh Revised Edition:2011 Eighth Revised Edition:2012 Reprint:2013 Ninth Revised Edition:2014 Tenth Revised Edition:2016 Published by:Mrs. Meena Pandey for Himalaya Publishing House Pvt.

2 Ltd., Ramdoot , Dr. Bhalerao Marg, Girgaon, Mumbai - 400 : 022-23860170/23863863, Fax: 022-23877178E-mail: Website: Offices:New Delhi: Pooja Apartments , 4-B, Murari Lal Street, Ansari Road, Darya Ganj,New Delhi - 110 002. Phone: 011-23270392, 23278631;Fax: 011-23256286 Nagpur:Kundanlal Chandak Industrial Estate, Ghat Road, Nagpur - 440 : 0712-2738731, 3296733; Telefax: 0712-2721215 Bengaluru:Plot No. 91-33, 2nd Main Road Seshadripuram, Behind Nataraja Theatre,Bengaluru-560020. Phone: 08041138821, 9379847017, 9379847005 Hyderabad:No. 3-4-184, Lingampally, Besides Raghavendra Swamy Matham,Kachiguda, Hyderabad - 500 027. Phone: 040-27560041, 27550139;Mobile: 09390905282 Chennai:New-20, Old-59, Thirumalai Pillai Road, T. Nagar, Chennai - 600 : 9380460419 Pune:First Floor, "Laksha" Apartment, No. 527, Mehunpura, Shaniwarpeth,(Near Prabhat Theatre), Pune - 411 030.

3 Phone: 020-24496323/24496333;Mobile: 09370579333 Lucknow:House No 731, Shekhupura Colony, Near Convent School, Aliganj,Lucknow - 226 022. Mobile: 09307501549 Ahmedabad:114, SHAIL , 1st Floor, Opp. Madhu Sudan House, Road, NavrangPura,Ahmedabad - 380 009. Phone: 079-26560126;Mobile: 09377088847 Ernakulam:39/176 (New No: 60/251) 1st Floor, Karikkamuri Road, Ernakulam,Kochi- 682011, Phone: 0484-2378012, 2378016; Mobile: 09344199799 Bhubaneswar:5 Station Square, Bhubaneswar - 751 001 (Odisha). Phone: 0674-2532129,Mobile: 09338746007 Kolkata:108/4, Beliaghata Main Road, Near ID Hospital, Opp. SBI Bank,Kolkata - 700 010, Phone: 033-32449649,Mobile: 09883055590, 07439040301 DTP by:Sudhakar Shetty (HPH Pvt. Ltd., Bhandup)Printed at:Geetanjali Press Pvt. Ltd., Nagpur, on behalf of TO THE TENTH REVISED EDITIONWe have great pleasure in presenting this tenth revised edition in the handsof our esteemed measures have been taken in recent times by regulatory bodies sothat the financial markets may function efficiently and in a transparent mannerso as to protect the interest of all categories of investors.

4 Again, a variety ofinnovative financial products and services have been introduced with thebacking of appropriate legistative measures to make the financial markets activeand vibrant. All these aspects have been duly covered in this edition. Specialattention has been given to provide the latest data in all chapters. Recentdevelopments like reforms introduced in both primary and secondary marketsto give a wider retail base and greater liquidity, recent reforms in the derivativemarkets etc., establishment of financial Markets Regulation Departmentrebranding etc. NSE indices, etc. have been added to this edition to make it up-to-date. It is hoped that the present edition will fully meet the requirements ofstudents and are indebted to all the members of the Himalaya Publishing HousePvt. Ltd. for bringing out this edition in for improving the content of this book are most GordonMay, 2016K.

5 NatarajanPREFACE TO THE FIRST EDITIONC onsequent upon the restructuring of commerce and managementcurricula by many Universities and autonomous colleges, many new subjectson thrust areas have recently been introduced. One such broad area is theFINANCIAL SECTOR which comprises of financial markets, financialinstitutions and financial markets have been increasingly influenced in recent times byfinancial innovations in terms of products and instruments , adoption of moderntechnologies, opening up of the market to the global economy, streamlining ofthe regulatory framework and so on. Similarly, many innovative financialproducts are introduced to cater to the varied requirements of both corporateand individual customers. In the aftermath of this changing financial scenario,students of commerce and management are badly in need of a suitable textbookcovering all these aspects incorporating the latest developments in the the imperative need to bring out a suitable book on FinancialMarkets and Services tailored to meet the specific requirements of studentsof many universities, a modest attempt has been made to present this editionin the hands of the academic community.

6 The speciality of this volume is thatall matters are presented in a lucid manner and in simple language,notwithstanding the technical nature of the subject. All latest developmentshave been covered and above all it is most student-friendly. We are confidentthat this book will serve as a beacon light to the student community who pursuehigher education in the discipline of commerce and the convenience of students, the present work is divided into twosections Section A dealing with financial markets and Section B dealing withfinancial services. This book owes its consummation to various distinguishedpersonalities who have expressed their views on this subject in different books,journals, magazines and are greatly indebted to all our well-wishers for their constantencouragement and valuable suggestions. Our publishers deserve special thanksfor their wholehearted support and cooperation in bringing out this editionelegantly and in comments and constructive suggestions for the improvement ofthis book are most welcome and will be greatly wish to express thanks to Mr.

7 K. Sivadasan, Area Representative andmembers of Himalaya Publishing House Pvt. Ltd. for their GordonK. NatarajanSECTION A: financial financial System in India3 Market32 Issue Market74 Market106 and Exchange Board of India175 Protection199 , NSE and BSE211 System227 242 SECTION B: financial Services245 Banking270 Purchase289 Capital316 Funds336 , Factoring and Forfaiting372 of Debt401 Rating450 Cards467 in Stock market Operations484 491 CONTENTSDETAILED CONTENTSSECTION A: financial financial SYSTEM IN INDIA3 31 Functions of the financial System financial Concepts FinancialAssets financial Intermediaries financial Markets Importance ofCapital market Money market Foreign Exchange market FinancialRates of Return financial instruments Development of FinancialSystem in India financial Markets Regulation Department (FMRD) financial System and Economic Development Weaknesses ofIndian financial System MARKET32 73 Definition Money market vs.

8 Capital market Features of a MoneyMarket Characteristic Features of a Developed Money market Importance of Money market Composition of Money market CallMoney market Commercial Bills market or Discount market BillMarket Scheme Treasury Bill market Money market instruments Commercial Papers Certificate of Deposit (CD) Inter-bankParticipation Certificate Repo instruments Structure of Indian MoneyMarket Features or Deficiencies of Indian Money market RecentDevelopments Discount and Finance House of India (DFHI) ISSUE MARKET74 105 Meaning Stock Exchange Distinction between New Issue Marketand Stock Exchange Relationship between New Issue market andStock Exchange Functions of New Issue market Methods of FloatingNew Issues General Guidelines for New Issue Principal Steps ofPrivate Placement Principal Steps Involved in the Case of Offer-for-Sale SEBI s Guidelines for IPOs instruments of Issue Players inthe New Issue market Recent Trends in New Issue market Performance of the Primary market during 2015-16 Anchor Investors Major Reforms in the Primary market (2014-15)

9 Major Reformsduring 2914-15 Advantages of Primary market Suggestions MARKET106 174 Introduction Functions/Services of Stock Exchanges Recognitionof Stock Exchanges Procedure Organisation of Stock Exchangesin India Listing of Securities Listing Procedure Registration ofStock Brokers Functions of Brokers Registration of Sub-brokers Kinds of Brokers and their Assistants Methods of Trading in a StockExchange Current Settlement Procedure of Trading Transactions Online Trading BSE-BOLT System Mobile Trading Algo Trading Merits of Online Trading Types of Stock market Orders (NSE-NEATS ystem) Carry Over or Badla Transactions Genuine Trading Trading Kinds of Speculators Speculative Transactions Stock Indices Indices of NSE Defects of Indian Stock/CapitalMarket Recent Developments Securities Lending (SLB) RecentReforms Major Reforms in the Secondary market (2014-15) AND EXCHANGE BOARD OF INDIA175 198 Controller of Capital Issues (CCI) Securities Contracts (Regulations)Act Malpractices in Securities market Deficiencies in the market Securities and Exchange Board of India (SEBI) SEBI Guidelines Prohibition of Unfair Trade Practices Recent Guidelines PROTECTION199 210 Need for Investors Protection Factors Affecting Investors Interest Investors Protection Measures , NSE AND BSE211 226 Over The Counter Exchange of India (OTCEI) Trading in OTCE xchange National Stock Exchange (NSE)

10 Of India Bombay StockExchange (BSE) SYSTEM227 242 Definition and Meaning Objectives of a Depository Activities of theDepository Interacting Institutions Depository Process Trading ina Depository System Depositories in the International market Depository System in India SEBI (Depositories and Participants)Regulation Act, 1996 Depository Process in India Benefits ofDepository System National Securities Depository Ltd. (NSDL) Central Depository Services (India) Ltd. (CDSL) Drawbacks Remedial Measures B: financial SERVICES245 269 Meaning, Scope and Innovations Meaning of financial Services Features of financial Services Importance of financial Services Classification of financial Service Industry Scope of FinancialServices Causes for financial Innovation financial Services andPromotion of Industries New financial Products and Services Innovative financial instruments Classification of Equity Shares Challenges Facing the financial Service Sector Present Scenario BANKING270 288 Introduction Definition Origin Merchant Banking in India MerchantBanks and Commercial Banks Services of Merchant Banks Merchant Bankers as Lead Managers Qualities Required for MerchantBankers Guidelines for Merchant Bankers Merchant Bankers'Commission Merchant Bankers in the market -making Process Progress of Merchant Banking in India Problems of


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