Introduction to Securities Market in IndiaInvestment
Introduction to Securities Market in India
Securities markets provide a channel for allocation of savings to those who have a productive
need for them. The securities market has two interdependent and inseparable segments:
(i) primary market and (ii) secondary market.
i) Primary Market
Primary market provides an opportunity to the issuers of securities, both Government and
corporations, to raise resources to meet their requirements of investment. Securities, in the
form of equity or debt, can be issued in domestic/international markets at face value, discount
The primary market issuance is done either through public issues or private placement. Under
Companies Act, 1956, an issue is referred as public if it results in allotment of securities to 50
investors or more. However, when the issuer makes an issue of securities to a select group
of persons not exceeding 49 and which is neither a rights issue nor a public issue it is called
a private placement.
ii) Secondary Market
Secondary market refers to a market where securities are traded after being offered to the
public in the primary market or listed on the Stock Exchange. Secondary market comprises
of equity, derivatives and the debt markets. The secondary market is operated through two
mediums, namely, the Over-the-Counter (OTC) market and the Exchange-Traded market.
OTC markets are informal markets where trades are negotiated.
Products and Participants
Financial markets facilitate reallocation of savings from savers to entrepreneurs. Savings are
linked to investments by a variety of intermediaries through a range of complex financial
products called “securities”. Under the Securities Contracts (Regulation) Act [SC(R)A], 1956,
“securities” include (i) shares, bonds, scrips, stocks or other marketable securities of like
nature in or of any incorporate company or body corporate, (ii) government securities, (iii)
derivatives of securities, (iv) units of collective investment scheme, (v) interest and rights in
securities, and security receipt or any other instruments so declared by the central government.
Broadly, securities can be of three types - equities, debt securities and derivatives.
The securities market has essentially three categories of participants (i) the investors, (ii) the
issuers, (iii) the intermediaries. These participants are regulated by the Securities
and Exchange Board of India (SEBI), Reserve Bank of India (RBI), Ministry of Corporate
Affairs (MCA) and the Department of Economic Affairs (DEA) of the Ministry of Finance.
Market Segments and their Products
The Exchange (NSE) provides trading in four different segments - Wholesale Debt Market,
Capital Market, Futures and Options and Currency Derivatives Segment.
(i) Wholesale Debt Market (WDM) Segment: This segment at NSE commenced its
operations in June 1994. It provides the trading platform for wide range of debt
securities which includes State and Central Government securities, T-Bills, PSU Bonds,
Corporate debentures, Commercial Papers, Certificate of Deposits etc.
(ii) Capital Market (CM) Segment: This segment at NSE commenced its operations in
November 1994. It offers a fully automated screen-based trading system, known as the
National Exchange for Automated Trading (NEAT) system. Various types of securities
e.g. equity shares, warrants, debentures etc. are traded on this system.
(iii) Futures & Options (F&O) Segment: This segment provides trading in derivatives
instruments like index futures, index options, stock options, and stock futures, and
commenced its operations at NSE in June 2000.
(iv) Currency Derivatives Segment (CDS) Segment: This segment at NSE commenced its
operations on August 29, 2008, with the launch of currency futures trading in US
Dollar-Indian Rupee (USD-INR). Trading in other currency pairs like Euro-INR, Pound
Sterling-INR and Japanese Yen-INR was further made available for trading in February
2010. ‘Interest rate futures’ was another product made available for trading on this
segment with effect from August 31, 2009.