Introduction to Securities Market in India

Market Segments

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

or premium.

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

Products

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.

Participants

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.