MBA 3rd Semester

INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT(KMBNFM01)

UNIT-1
 Overview of Capital Market: Market of securities
 Stock Exchange- Nature and Functions
 New Issue Markets - their nature, structure, functioning and limitations
 Trading of securities: equity and debentures/ bonds
 Regularity systems for equity markets
 Type of investors
 Aim & Approaches of Security analysis
 Types of orders and margin trading facility
 Clearing and Settlement procedures

Overview of Capital Market: Market of securities

A capital market is a financial market where individuals, institutions, and governments trade
financial securities, such as stocks, bonds, and derivatives. It plays a crucial role in the
overall functioning of the economy by facilitating the allocation of capital from investors to
businesses and governments in need of funding. Here is an overview of capital market:
1. Primary Market:
The primary market is where newly issued securities are initially offered to the public. This is
where companies and governments raise capital by selling stocks, bonds, or other financial
instruments to investors. The primary market includes:
Initial Public Offerings (IPOs): Companies go public by issuing shares for the first time.
Private Placements: Securities are sold directly to a select group of institutional investors.

2. Secondary Market:
The secondary market is where existing securities are bought and sold among investors. It
provides liquidity and allows investors to trade securities they already own. The secondary
market includes:
Stock Exchanges: These are organized markets where equities (stocks) are traded, such as
the New York Stock Exchange (NYSE) and NASDAQ.
Bond Markets: Secondary markets for trading existing bonds, including government,
corporate, and municipal bonds.
Over-the-Counter (OTC) Market: Securities that are not traded on formal exchanges are
bought and sold directly between parties, often facilitated by brokers.
3. Regulators and Oversight:
Capital markets are typically subject to government oversight and regulation to ensure fair
and transparent trading practices. Regulatory bodies, like the U.S. Securities and Exchange
Commission (SEC) in the United States, play a crucial role in monitoring and enforcing
market rules.
4. Intermediaries:
Various intermediaries facilitate the functioning of the capital market. These include:
Stockbrokers and Brokerage Firms: They act as intermediaries between investors and the
market, executing buy and sell orders on behalf of clients.
Market Makers: These entities provide liquidity by quoting buy and sell prices for
securities, ensuring that trading can occur smoothly.
Investment Banks: They play a role in underwriting new securities and often assist with
IPOs, mergers and acquisitions, and other financial services.
Clearinghouses and Settlement Systems: These institutions handle the processing and
settlement of trades, ensuring that securities and funds are delivered to the correct parties.
5. Investors:
Investors are the lifeblood of the capital market. They include individuals, institutional
investors (such as pension funds, mutual funds, and insurance companies), and government
entities. Investors buy and sell securities to achieve various financial goals, including wealth
accumulation, income generation, and risk management.
6. Market Indices:
Market indices, such as the S&P 500 or Dow Jones Industrial Average, provide benchmarks
that track the performance of various segments of the capital market. They are used to gauge
overall market health and provide a basis for investment analysis.
7. Financial Instruments:
A wide range of financial instruments is traded in the capital market. These include:
Equity Securities: Stocks representing ownership in a company.
Debt Securities: Bonds, notes, and other fixed-income instruments that represent loans to
governments and corporations.
Derivatives: Financial contracts derived from underlying assets, including options, futures,
and swaps.
Commodities: Physical and derivative contracts for trading commodities like gold, oil, and
agricultural products.
8. Investor Relations:
Investor relations departments within companies maintain communication with shareholders
and potential investors, providing financial information and updates on company
performance.

Q: Make the Structure of Securities market.

Q: Write the difference between Money market and Capital market.

Stock Exchange- Nature and Functions

A stock exchange is a regulated marketplace where buyers and sellers come together to trade
financial instruments, primarily stocks, bonds, and other securities. These exchanges play a
crucial role in the global financial system by facilitating the efficient allocation of capital,
enabling companies to raise funds, and providing investors with a platform to buy and sell
financial assets. Here are the nature and functions of a stock exchange:

Nature of a Stock Exchange:

Regulated Platform: Stock exchanges are highly regulated entities operated by regulatory
authorities to ensure fair and transparent trading. They set rules, standards, and listing
requirements that companies and participants must adhere to.
Electronic and Physical Trading: While many stock exchanges have transitioned to
electronic trading, some still offer physical trading floors where brokers interact in person.
Electronic trading has become the dominant mode due to its efficiency and speed.
Market Participants: Stock exchanges have a wide range of participants, including
individual investors, institutional investors (such as mutual funds and pension funds), traders,
market makers, and listed companies.
Listed Securities: Stock exchanges list a variety of financial instruments, with common
stock shares being the most prominent. Other instruments may include bonds, exchange-
traded funds (ETFs), derivatives, and more.

Functions of a Stock Exchange:

Facilitating Capital Formation: One of the primary functions of a stock exchange is to help
companies raise capital by issuing and selling shares to the public. This initial public offering
(IPO) process allows companies to fund their growth and expansion.
Providing Liquidity: Stock exchanges provide liquidity to investors by offering a platform
for buying and selling securities. This liquidity makes it easier for investors to enter and exit
positions, enhancing the attractiveness of investing in stocks.
Price Discovery: Stock exchanges play a crucial role in determining the fair market price of
securities. Through the continuous trading of securities, the forces of supply and demand help
establish market prices, which reflect the collective assessment of market participants.
Transparency and Regulation: Stock exchanges implement and enforce rules and
regulations to ensure fair and transparent trading. This includes setting listing standards,
trading rules, and surveillance mechanisms to prevent fraud and market manipulation.
Risk Mitigation: Stock exchanges often offer risk management tools, such as options and
futures contracts, which allow investors to hedge their positions and manage risk in their
portfolios.
Market Information: Stock exchanges provide real-time market information, including
price quotes, trade volumes, and other data that help investors make informed decisions.
Ownership Transfer: Stock exchanges facilitate the transfer of ownership in publicly traded
companies. When investors buy or sell shares, the exchange records and verifies these
transactions, ensuring that ownership rights are transferred accurately.
Promoting Investment: Stock exchanges play a crucial role in encouraging individuals and
institutions to invest in the financial markets, which, in turn, helps channel savings into
productive investments and economic growth.

New Issue Markets - their nature, structure, functioning and limitations

New issue markets, also known as primary markets or IPO (Initial Public Offering) markets,
are crucial components of the financial system where companies raise capital by issuing new
securities, such as stocks and bonds, to investors for the first time. These markets play a
significant role in the growth and development of businesses, as well as in the broader
economy. Here, I'll provide an overview of their nature, structure, functioning, and
limitations:

Nature of New Issue Markets:

Purpose: New issue markets are designed for companies to raise capital. These markets
facilitate the transfer of funds from investors to companies seeking to finance their
operations, expansion, or other financial needs.
Securities Issued: Companies issue various types of securities in these markets, including
common stocks, preferred stocks, corporate bonds, and other financial instruments.
Regulation: These markets are typically subject to stringent regulatory oversight to protect
investors and ensure transparency and fairness in the issuance process.

Structure of New Issue Markets:

Participants: The primary market consists of several key participants, including issuers
(companies raising funds), underwriters (investment banks or financial institutions that
facilitate the issuance), and investors (individuals, institutions, or funds).
Exchanges and OTC Markets: New issue markets can be organized through stock
exchanges (e.g., NYSE, NASDAQ) or through over-the-counter (OTC) markets. Exchanges
have specific listing requirements and provide a centralized platform for trading, whereas
OTC markets offer more flexibility and are often used for smaller and less-established
companies.

Functioning of New Issue Markets:

Issuance Process: The process typically begins with the company and underwriter deciding
on the terms of the offering, such as the number of shares, offering price, and the timing. The
underwriter helps market the offering to potential investors.
IPOs: Initial Public Offerings (IPOs) are a common way for private companies to become
publicly traded. During an IPO, a private company's shares are made available to the public
for the first time.
Secondary Offerings: Companies may also issue additional shares or bonds after the IPO to
raise more capital, which is known as secondary offerings.

Limitations of New Issue Markets:

Uncertain Pricing: Determining the appropriate offering price can be challenging, and there
is often uncertainty about the market's reception to new issues. If the price is set too high, it
may deter investor interest, while setting it too low could mean leaving money on the table.
Under pricing: To generate demand, issuers often underprice their securities, which can
result in immediate capital loss for early investors.
High Costs: The process of going public and issuing new securities can be expensive due to
underwriting fees, legal and accounting expenses, and ongoing compliance costs.
Information Asymmetry: There can be information asymmetry between issuers and
investors, as companies may have more knowledge about their financial health and prospects,
potentially leading to information disadvantages for investors.
Hence, New issue markets are essential for companies to raise capital and fuel economic
growth. However, they come with challenges, including pricing uncertainties, high costs, and
potential information disparities. Regulatory oversight and transparency measures are in
place to mitigate these limitations and ensure fair and efficient functioning of new issue
markets.

Trading of securities: equity and debentures/ bonds

Trading of securities, such as equity and debentures/bonds, is an essential part of the financial
markets. These securities represent ownership or debt instruments issued by corporations,
governments, or other entities. Here's an overview of how trading in these securities works:
Equity Trading:
Equity represents ownership in a company. When you own shares of a company's stock, you
own a portion of that company.
Equity trading typically takes place on stock exchanges, such as BSE and NSE in India, The
New York Stock Exchange (NYSE) or NASDAQ in the United States. In other countries,
there are different stock exchanges.
Investors buy and sell shares of a company's stock through brokerage accounts. These
transactions are executed electronically, and prices are determined by supply and demand in
the market.
The two primary types of orders for equity trading are market orders and limit orders. Market
orders are executed at the current market price, while limit orders specify a price at which the
trader is willing to buy or sell.
Equity trading can be conducted during regular trading hours and in some cases during
extended hours, although the latter often comes with higher volatility and less liquidity.

Q- Difference Between Equity and Preference shares.

Q- Explain various types of preference shares.

Debentures/Bond Trading:
Debentures and bonds represent debt securities issued by corporations, governments, or other
entities to raise capital. Investors who buy these securities are essentially lending money to
the issuer in exchange for regular interest payments and the return of the principal at maturity.
The trading of debentures and bonds primarily takes place in the bond market, which includes
both primary and secondary markets. The primary market involves the initial issuance of
bonds, while the secondary market involves the trading of existing bonds.
The bond market is more decentralized compared to the stock market, with various platforms
and dealers facilitating bond trading. It's important to note that the bond market can be less
transparent and more complex than the equity market.
Bonds have different maturities, coupon rates, and credit ratings. These factors influence their
trading and pricing in the secondary market.
Bond trading can be done through brokerage accounts and institutional trading platforms.
Prices in the secondary market can vary based on factors like interest rates, creditworthiness
of the issuer, and market conditions.
Both equity and bond trading involve market participants such as individual investors,
institutional investors, market makers, and dealers. Additionally, trading in these securities is
influenced by various factors, including economic conditions, company performance, interest
rates, and investor sentiment.

Q: Types of Bonds and Debentures.

Q: Difference between Share and Debenture.
 Regulatory system for Equity markets

Securities and Exchange Board of India (SEBI) is the regulatory authority responsible for
overseeing and regulating the securities and capital markets in India. Here are some key
features about SEBI:
Establishment: SEBI was established on April 12, 1992, as an autonomous and statutory
regulatory body by the Government of India. It was created to promote and regulate the
securities markets in India.
Regulatory Authority: SEBI is the primary regulatory authority for the Indian securities
markets. Its role is to protect the interests of investors, promote market integrity, and facilitate
the growth and development of the securities market.
Legal Framework: SEBI derives its powers from the SEBI Act, 1992, which provides the
legal framework for its regulatory functions and activities.
Market Oversight: SEBI regulates various segments of the financial markets, including
equities, bonds, derivatives, mutual funds, and alternative investment funds (AIFs).
Investor Protection: One of SEBI's primary objectives is to safeguard the interests of
investors by ensuring transparency, fair practices, and adequate disclosures by market
participants.
Issuer Regulations: SEBI sets regulations and guidelines for companies that wish to raise
funds from the public through initial public offerings (IPOs) or other securities issuances. It
defines disclosure requirements and listing criteria for stock exchanges.
Intermediaries Regulation: SEBI regulates market intermediaries, such as stockbrokers,
depository participants, and investment advisors, to ensure compliance with established
norms and ethical conduct.
Market Surveillance: SEBI monitors market activities and employs various surveillance
systems to detect and prevent market manipulation, insider trading, and fraudulent activities.
Enforcement and Adjudication: SEBI has the authority to investigate and take enforcement
actions against violations of securities laws. It can impose fines, penalties, and sanctions on
market participants found to be in breach of regulations.
Regulatory Reforms: SEBI continuously reviews and updates its regulations to adapt to
changing market conditions and promote innovation in the Indian securities market.

FUNCTIONS OF SEBI
Protective Functions:
(A) Investor Protection: SEBI aims to protect the interests of investors in the securities
markets. It enforces rules and regulations to ensure investors are provided with
accurate and timely information, safeguarding them from fraud and malpractices.
 (B) Fair and Transparent Market: SEBI works to maintain fair and transparent trading
practices in the market, which includes regulating insider trading and market
manipulation to ensure a level playing field for all participants.
(C) Disclosure Requirements: SEBI mandates companies to disclose material
information to investors, ensuring that investors can make informed decisions. This
includes disclosure norms for public offerings, periodic financial reporting, and
corporate governance.
Development Functions:
(D) Market Development: SEBI promotes the development of securities markets by
introducing reforms and initiatives aimed at improving market infrastructure,
liquidity, and investor participation.
(E) Regulatory Framework: SEBI continually reviews and updates its regulatory
framework to align with international best practices and adapt to evolving market
dynamics.
(F) Innovation: SEBI encourages innovation in financial products and services to
diversify investment options and attract a broader range of investors
(G) Education and Awareness: SEBI undertakes educational and awareness campaigns
to enhance financial literacy among investors and market participants.
Regulatory Functions:
a. Registration and Regulation: SEBI registers and regulates various market intermediaries,
including stockbrokers, merchant bankers, and mutual funds, to ensure they adhere to
regulatory norms and maintain ethical standards.
b. Market Surveillance: SEBI conducts surveillance of the securities markets to detect and
prevent market manipulation, insider trading, and fraudulent activities.
c. Enforcement: SEBI has the authority to investigate and take enforcement actions against
violations of securities laws, including imposing fines, penalties, and sanctions on market
participants found in breach of regulations.
d. Adjudication: SEBI has the power to adjudicate and pass orders in matters related to
violations of securities laws and regulations.
e. Promoting Corporate Governance: SEBI promotes corporate governance by setting
guidelines for boards of directors and management of listed companies, ensuring
transparency, accountability, and responsible management practices.
SEBI's functions are designed to create a well-regulated and investor-friendly environment in
India's securities markets, which helps attract domestic and international investments.

BOMBAY STOCK EXCHANGE

The Bombay Stock Exchange (BSE) is one of the oldest and most prominent stock exchanges
in Asia. Established in 1875, it is located in Mumbai, India, and serves as a key player in the
country's financial market. Here's a short note on BSE along with its functions:
Bombay Stock Exchange (BSE):
The BSE is a crucial institution in India's financial landscape, providing a platform for buying
and selling of securities such as stocks, bonds, and other financial instruments. It operates
under the regulatory framework set by the Securities and Exchange Board of India (SEBI)
and plays a vital role in facilitating capital formation and investment.
Functions of BSE:
Listing of Securities: BSE provides a platform for companies to list their securities, enabling
them to raise capital by issuing stocks and bonds to the public. The listing process involves
meeting certain regulatory and financial requirements.
Trading Platform: BSE serves as a marketplace where buyers and sellers can trade various
financial instruments. It utilizes an electronic trading system to ensure efficiency,
transparency, and fairness in the trading process.
Market Indices: BSE is known for benchmark indices such as the Sensex and the BSE 500,
which provide a snapshot of the overall market performance. These indices are crucial for
investors, policymakers, and analysts to gauge the health of the stock market.
Regulatory Compliance: The exchange ensures that listed companies comply with
regulatory requirements and corporate governance standards. This helps in maintaining
transparency and protecting the interests of investors.
Market Surveillance: BSE employs advanced technology for market surveillance to detect
and prevent market manipulation, fraud, and other irregularities. This contributes to the
integrity of the financial markets.
Investor Education: BSE plays a role in educating investors about financial markets,
investment strategies, and risk management. This is done through various programs,
seminars, and publications.
Derivatives Trading: BSE facilitates the trading of derivative products such as futures and
options, allowing investors to hedge risks and speculate on market movements.
Clearing and Settlement: The exchange ensures the smooth settlement of trades by
providing a secure and efficient clearing and settlement system. This includes the process of
transferring ownership of securities and funds between buyers and sellers.

National Stock Exchange

The National Stock Exchange of India (NSE) is one of the leading stock exchanges in India.
Established in 1992, it has played a pivotal role in the development of the Indian financial
market. NSE facilitates electronic trading, providing a transparent and efficient platform for
buying and selling financial instruments. Here's a brief note on NSE and its functions:
National Stock Exchange of India (NSE):
Overview: The NSE is headquartered in Mumbai and operates as a fully automated
electronic exchange. It has gained prominence for its modern infrastructure, advanced
technology, and commitment to maintaining high standards of corporate governance.
Functions of NSE:
Equity Trading:
NSE facilitates the trading of a wide range of equities, including stocks of companies listed
on the exchange. Investors can buy and sell shares electronically through a network of
brokers.
Derivatives Trading:
NSE is a pioneer in introducing and popularizing derivative trading in India. It offers various
derivative products such as futures and options on indices and individual stocks, providing
investors with tools for risk management and speculation.
Indices:
NSE manages and calculates benchmark indices like the Nifty 50, Nifty Bank, and others.
These indices serve as indicators of market performance and are widely used by investors,
fund managers, and analysts.
Listing of Securities:
Companies looking to raise capital through the issuance of securities can get listed on the
NSE. The exchange plays a crucial role in providing a platform for companies to access funds
from the capital market.
Investor Education and Awareness:
NSE is actively involved in educating investors and promoting awareness about financial
markets. It conducts various programs and initiatives to enhance financial literacy among
market participants.
Risk Management:
The exchange employs robust risk management mechanisms to ensure the stability and
integrity of the market. This includes measures such as margin requirements and surveillance
systems to monitor trading activities.
Market Surveillance:
NSE employs sophisticated technology for market surveillance to detect and prevent market
manipulation, ensuring fair and transparent trading practices.
Clearing and Settlement:
NSE provides a clearing and settlement mechanism to ensure the timely and secure transfer
of funds and securities between buyers and sellers, reducing counterparty risk.
Over the Counter Exchange of India
The Over-The-Counter Exchange of India (OTCEI) was established in 1990 as the first
screen-based nationwide stock exchange in India. It aimed to provide a platform for trading
in unlisted securities, allowing small and medium-sized enterprises (SMEs) to raise capital
through the issuance of securities. Here is a short note on OTCEI and its functions:
Overview of OTCEI:
Establishment: OTCEI was incorporated in 1990 and commenced operations in 1992. It was
promoted by leading financial institutions, public sector banks, and other entities.
Objective: The primary objective of OTCEI was to create a transparent and efficient market
for unlisted securities, catering to the financing needs of small and medium-sized enterprises.
Market Structure: OTCEI operates as a ringless, order-driven, and screen-based exchange.
It facilitates electronic trading in securities, providing a more efficient and accessible
platform for investors.
Functions of OTCEI:
Listing of Securities: OTCEI allows unlisted companies to list their securities on the
exchange, providing them with an opportunity to raise capital from the public.
Electronic Trading: The exchange facilitates electronic trading of securities, promoting
transparency, efficiency, and faster execution of trades. Investors can place buy or sell orders
through a computerized system.
Market Making: OTCEI introduced the concept of market makers to enhance liquidity in
the market. Market makers are entities that quote both buy and sell prices for a security,
ensuring that there is a ready market for trading.
Screen-Based Trading System: OTCEI adopted a screen-based trading system, eliminating
the need for physical presence on the trading floor. This promotes accessibility for investors
across different locations.
Regulatory Compliance: OTCEI adheres to the regulatory framework set by the Securities
and Exchange Board of India (SEBI) and ensures that listed companies comply with the
necessary disclosure and governance norms.
Investor Protection: The exchange takes measures to protect the interests of investors by
promoting transparency, providing timely information, and enforcing regulations that
safeguard the integrity of the market.
Capital Formation for SMEs: One of the key functions of OTCEI is to facilitate capital
formation for small and medium-sized enterprises, allowing them to raise funds through the
issuance of securities and contributing to their growth.

Q: Write the difference between BSE, NSE and OTCEI.

 Type of investors

Investors can be classified into various types based on their investment goals, risk tolerance,
time horizon, and investment strategies. Here are some common types of investors:
1. Individual Investors:
Conservative Investors: Prefer low-risk investments and prioritize capital preservation over
high returns.
Moderate Investors: Seek a balance between risk and return, typically opting for a mix of
stocks and bonds.
Aggressive Investors: Willing to take on higher risks in pursuit of potentially higher returns,
often investing heavily in stocks.
2. Institutional Investors:
Pension Funds: Manage funds to provide retirement benefits for employees.
Mutual Funds: Pool money from multiple investors to invest in a diversified portfolio of
stocks, bonds, or other securities.
Hedge Funds: Typically open to accredited investors and employ various strategies to achieve
high returns.
Insurance Companies: Invest premiums collected from policyholders to generate returns.
3. Professional Investors:
Financial Planners: Provide investment advice and financial planning services.
Investment Advisors: Manage investment portfolios on behalf of clients.
4. Speculative Investors:
Willing to take significant risks in the hope of making substantial profits, often trading in
highly volatile assets.
5. Socially Responsible Investors (SRI):
Consider environmental, social, and governance (ESG) factors in their investment decisions
to align with ethical or socially responsible values.
6. Angel Investors:
Individuals who provide capital for start-ups in exchange for ownership equity or convertible
debt.
7. Venture Capitalists:
Invest in early-stage companies with high growth potential in exchange for equity.
8. Private Equity Investors:
Invest in private companies, often with the goal of acquiring, restructuring, and eventually
selling them for a profit.

Parties involved in Investment Process:

Individuals, institutions, or entities providing capital with the expectation of financial return.
They could be individuals, mutual funds, pension funds, or other organizations.
Banks and Financial Institutions:
These entities often act as intermediaries, facilitating the flow of capital between investors
and borrowers. They may offer investment products, loans, and other financial services.
Stock Exchanges:
Platforms where buyers and sellers come together to trade securities such as stocks and
bonds. Examples include the New York Stock Exchange (NYSE) and NASDAQ.
Brokers:
Individuals or firms that facilitate the buying and selling of financial securities on behalf of
investors. They may work for brokerage firms or operate as independent agents.
Investment Advisors:
Professionals or firms that provide investment advice to clients, helping them make informed
decisions about their investment portfolios.
Asset Managers:
Entities responsible for managing and overseeing investment portfolios. They may handle
mutual funds, hedge funds, or other investment vehicles.
Regulatory Bodies:
Government agencies that regulate financial markets and ensure fair and transparent
practices. Examples include the Securities and Exchange Commission (SEC) in the United
States.
Companies and Issuers:
Entities that issue stocks, bonds, or other securities to raise capital. Investors buy these
securities, becoming partial owners (in the case of stocks) or lenders

Aim of Security analysis

The aim of security analysis is to assess and evaluate the security posture of a system,
organization, or environment in order to identify vulnerabilities, assess potential risks, and
develop strategies to mitigate or manage those risks effectively. Security analysis is a crucial
component of overall cybersecurity efforts and is conducted to safeguard information, assets,
and systems from unauthorized access, disclosure, disruption, modification, or destruction.
Key objectives of security analysis include:
Identifying Vulnerabilities: Security analysis aims to identify weaknesses, flaws, or
vulnerabilities in the design, implementation, and operation of systems, networks, and
applications. This involves examining various components such as software, hardware,
configurations, and human factors that could be exploited by malicious actors.
Assessing Risks: Once vulnerabilities are identified, security analysts assess the potential
risks associated with these vulnerabilities. This involves determining the likelihood of
exploitation and the impact that a successful attack could have on the confidentiality,
integrity, and availability of information and resources.
Prioritizing Threats: Security analysts prioritize threats based on their potential impact and
the likelihood of occurrence. This helps organizations focus their resources on addressing the
most critical and high-risk vulnerabilities first.
Developing Mitigation Strategies: Security analysis aims to propose effective strategies and
measures to mitigate or manage identified risks. This may involve implementing technical
controls, adopting best practices, developing security policies and procedures, and educating
personnel on security awareness.
Compliance and Regulatory Adherence: Security analysis often involves ensuring that the
organization complies with relevant laws, regulations, and industry standards pertaining to
information security. This is crucial for maintaining legal and regulatory compliance.
Incident Response Planning: Security analysis contributes to the development of incident
response plans. This involves preparing for and responding to security incidents in a
systematic and organized manner to minimize the impact of security breaches.
Continuous Improvement: Security analysis is an ongoing process. Regular assessments
and reviews help organizations stay proactive in the face of evolving security threats.
Continuous improvement involves adapting security measures to address emerging risks and
vulnerabilities.
Building a Security Culture: Security analysis contributes to building a culture of security
within an organization. This involves fostering awareness, training employees, and instilling
a sense of responsibility for security at all levels of the organization.

Approaches of Security analysis

Security analysis is a critical aspect of investment decision-making, and various approaches

have been developed to assess the value of securities. Here's a brief overview of the three
major i.e fundamental approach, technical approach, and the efficient market theory.
 1. Fundamental Approach:
Focus: This approach centers on analyzing the intrinsic value of a security by examining
fundamental factors related to the issuer, such as financial statements, management quality,
industry trends, and economic indicators.
Methodology: Investors using the fundamental approach evaluate a company's financial
health, growth prospects, and competitive position to estimate its true worth. Common tools
include financial ratios, discounted cash flow (DCF) analysis, and earnings per share (EPS)
forecasts.
Long-Term Orientation: Fundamental analysis is often associated with a long-term
investment horizon, as it aims to identify securities that are undervalued or overvalued
relative to their intrinsic value.
2. Technical Approach:
Focus: The technical approach is concerned with analyzing historical market data and price
movements to predict future price trends. It assumes that historical price and volume patterns
can provide insights into potential future price movements.
Methodology: Technical analysts use charts, technical indicators, and statistical tools to
identify trends, support and resistance levels, and other patterns in price and volume data.
Common techniques include moving averages, relative strength indicators (RSI), and chart
patterns like head and shoulders or double bottoms.
Short-Term Orientation: Technical analysis is often associated with shorter investment
horizons, as it aims to exploit short-term price movements and trends.
3. Efficient Market Theory (EMT):
Hypothesis: Efficient Market Theory posits that financial markets are efficient and
incorporate all available information into security prices. It suggests that it is impossible to
consistently achieve above-average returns by analyzing and trading on public information
since prices already reflect that information.
Implications: According to EMT, it is challenging to outperform the market consistently
through either fundamental or technical analysis. This theory has three forms: weak form
(past prices and volumes are already reflected in current prices), semi-strong form (all public
information is reflected), and strong form (all information, including insider information, is
reflected).
Investment Strategy: Given the efficient market hypothesis, proponents of EMT often
advocate for passive investment strategies, such as index investing, as actively seeking
mispriced securities is considered futile in an efficient market.
In practice, investors may use a combination of these approaches based on their investment
goals, risk tolerance, and market conditions. While fundamental analysis focuses on the
underlying value of securities, technical analysis looks at historical price trends, and the
efficient market theory challenges the effectiveness of actively trying to beat the market
consistently.
Types of orders

In the context of business, finance, and trading, there are various types of orders that
investors and traders can use to execute transactions in financial markets. Here are some
common types of orders:
Market Order: A market order is an order to buy or sell a security immediately at the best
available current market price. It guarantees execution but does not guarantee a specific price.
Limit Order: A limit order is an order to buy or sell a security at a specific price or better. It
ensures a specific price but does not guarantee execution.
Stop Order (Stop-Loss Order): A stop order is an order to buy or sell a security once the
price reaches a specified level, known as the "stop price." It is often used as a risk
management tool to limit losses or protect profits.
Stop-Limit Order: This order combines features of a stop order and a limit order. It involves
setting two prices: a stop price and a limit price. When the stop price is reached, the order
becomes a limit order, and it will only be executed at the specified limit price or better.
Market on Close (MOC) Order: An order to buy or sell a security at the market price at the
close of trading.
Market on Open (MOO) Order: An order to buy or sell a security at the market price at the
opening of the trading day.
Good 'til Cancelled (GTC) Order: An order that remains in effect until it is either executed
or canceled by the investor. GTC orders do not expire at the end of the trading day.
Day Order: An order that is only valid for the current trading day. If not executed by the
close of the market, it is automatically canceled.
Fill or Kill (FOK) Order: A type of order that must be executed immediately in its entirety;
otherwise, it is canceled ("killed").
Immediate or Cancel (IOC) Order: Similar to FOK, an IOC order is one that must be
executed immediately. However, any part of the order that cannot be filled is canceled.
Trailing Stop Order: A stop order that is set at a fixed percentage or dollar amount away
from the current market price, adjusting as the price moves in the desired direction.
These orders provide investors and traders with a range of tools to manage risk, control the
price at which they enter or exit a trade, and adapt to various market conditions. The specific
types of orders available may vary depending on the trading platform and financial
instruments being traded.

Margin trading facility

Margin trading refers to the practice of borrowing funds to trade financial instruments, such
as stocks or cryptocurrencies. It allows investors to increase their buying power and
potentially amplify their returns. The funds borrowed are often provided by a broker, and the
investor uses their existing capital as well as the borrowed funds to make larger trades than
they could with their own money alone.
The key concept in margin trading is the "margin," which is the amount of money or
collateral that an investor needs to deposit with their broker to open a margin trade. The
margin is typically a percentage of the total trade value. The rest of the funds for the trade are
borrowed from the broker.
While margin trading can magnify profits, it also involves increased risk. If the value of the
assets purchased with borrowed funds declines, the investor may be required to deposit
additional funds to cover the losses, known as a margin call. If the investor is unable to meet
a margin call, the broker may liquidate the assets to recover the borrowed funds.
It's important for investors engaging in margin trading to have a good understanding of the
risks involved and to use caution. It's a strategy that requires careful monitoring of positions
and market conditions. Different financial markets and brokers may have specific rules and
requirements for margin trading, so it's essential to be aware of the terms and conditions
associated with margin accounts.

Features:

Leverage:
Margin trading allows traders to leverage their capital by borrowing funds to increase the size
of their positions.
Leverage amplifies both gains and losses, making it a high-risk, high-reward strategy.
Borrowing Funds:
Traders can borrow funds from a broker to buy additional assets, such as stocks or
cryptocurrencies, beyond what they could afford with their own capital.
Margin Account:
To engage in margin trading, traders need to open a margin account with a broker, which is
distinct from a regular cash account.
Margin Maintenance:
Brokers require traders to maintain a certain amount of equity in their margin account, known
as the margin maintenance requirement. If the account's equity falls below this level, the
trader may face a margin call.
Margin Call:
A margin call occurs when the account's equity falls below a certain threshold, prompting the
broker to request additional funds or sell assets to cover the shortfall.
Short Selling:
Margin trading allows traders to engage in short selling, where they sell assets they don't own
with the expectation that the price will fall. They can later buy back the assets at a lower price
to cover their short position.
Interest Rates:
Traders typically pay interest on the borrowed funds. The interest rates can vary based on the
broker, the amount borrowed, and market conditions.
Risk Management:
Effective risk management is crucial in margin trading due to the amplified risks. Traders
need to set stop-loss orders and closely monitor their positions to avoid significant losses.
Regulatory Compliance:
Margin trading is subject to regulatory requirements and may have restrictions depending on
the jurisdiction. Brokers must comply with regulations to offer margin trading services.
Volatility Impact:
Margin trading is more susceptible to market volatility. Sudden price movements can lead to
rapid and substantial losses, especially if the market goes against the trader's position.
Assets Eligible for Margin:
Not all assets may be eligible for margin trading. Brokers often have a list of approved
securities or cryptocurrencies that can be traded on margin.
Initial Margin:
The initial margin is the amount of equity that must be deposited to open a margin position. It
is a percentage of the total value of the trade.

Benefits of MTF to Investors:

Margin trading, also known as leverage trading, allows investors to borrow funds to
increase their trading position beyond what their own capital would allow. Here are
some potential benefits of margin trading facilities to investors:

Increased Buying Power: One of the primary benefits of margin trading is the ability to
control a larger position size with a relatively smaller amount of capital. This can amplify
potential profits if the trade is successful.
Diversification: Margin trading enables investors to diversify their portfolios by taking
larger positions in multiple assets. This diversification can help spread risk across different
investments.
Short Selling Opportunities: Margin trading allows investors to sell short, i.e., bet against
the price of an asset. This can be advantageous in a declining market, as it allows investors to
profit from falling prices.
Hedging: Investors can use margin trading to hedge their existing positions. By taking
opposite positions, investors can offset potential losses in one part of their portfolio with
gains in another.
Profit from Small Market Movements: With margin trading, investors can profit from
small price fluctuations in the market. This is particularly beneficial for day traders or those
looking to capitalize on short-term market trends.
Liquidity: Margin trading can enhance liquidity in the market as it allows investors to trade
larger quantities without needing the full amount in cash. This increased liquidity can lead to
narrower bid-ask spreads.
Portfolio Rebalancing: Margin trading facilitates the adjustment of portfolio allocations
without the need to sell existing assets. Investors can use borrowed funds to rebalance their
portfolios efficiently.
Cost-Effective Financing: In some cases, the cost of borrowing funds through margin
trading may be lower than other forms of financing. This can be especially relevant for
investors seeking cost-effective ways to leverage their positions.

Clearing and Settlement procedures

The clearing and settlement process is a crucial aspect of the securities market, ensuring the
smooth and secure transfer of securities and funds between buyers and sellers. Here's an
overview of the clearing and settlement process:
Trade Execution:
The process begins with the execution of a trade when a buyer and a seller agree on the terms
of a transaction. This can occur on various trading platforms, including stock exchanges or
over-the-counter (OTC) markets.
Trade Confirmation:
Once the trade is executed, the involved parties receive trade confirmations detailing the
transaction details, including the security traded, price, quantity, and settlement date.
Trade Comparison:
The trade details are then sent to a clearinghouse or a central clearing counterparty (CCP),
where the information is matched and compared to ensure accuracy and eliminate
discrepancies.
Clearing:
The clearinghouse becomes the counterparty to both the buyer and the seller. It guarantees the
trade's performance and reduces counterparty risk. The clearinghouse also calculates the net
obligations of each participant, taking into account all their trades throughout the trading day.
Novation:
The clearinghouse novates the trade, meaning it becomes the legal counterparty to both the
buyer and the seller. This process helps streamline the settlement process and reduces the risk
of default.
Risk Management:
Clearinghouses implement risk management mechanisms, such as margin requirements, to
protect against potential defaults. Participants are often required to deposit collateral to cover
potential losses.

Settlement Process
Settlement involves the actual transfer of securities from the seller to the buyer and the
transfer of funds from the buyer to the seller. This process is facilitated by central securities
depositories (CSDs) and central banks.
Settlement Instruction:
After the trade is cleared, settlement instructions are generated, specifying the details of the
transaction. These instructions are sent to the respective participants and depositories.
Delivery vs. Payment (DVP):
Many securities markets use a DVP system, where the delivery of securities and the payment
of funds occur simultaneously. This minimizes counterparty risk by ensuring that the buyer
only pays once it receives the securities.
Book-Entry System:
In modern securities markets, transactions are often recorded electronically in a book-entry
system, eliminating the need for physical certificates. This enhances efficiency and reduces
the risk of loss or theft.
Finality of Settlement:
The settlement process concludes when all obligations are fulfilled, and the transfer of
securities and funds is finalized. This is known as the "finality of settlement.

T+2, or "Trade Date plus Two Business Days," refers to the standard settlement
cycle for securities transactions in many financial markets. In a T+2 settlement system, the
actual transfer of securities and funds occurs two business days after the trade date. This
settlement cycle is also known as a "rolling settlement."
Here's how the T+2 settlement process typically works:
Trade Execution (T): The trade is executed on a specific trade date (T).
Trade Confirmation: Trade details, including the security traded, price, quantity, and
settlement date, are confirmed between the buyer and the seller.
Clearing (T+1): The trade details are sent to a clearinghouse or central clearing counterparty
(CCP) for clearing. The clearinghouse becomes the counterparty to both the buyer and the
seller, ensuring the trade's performance and reducing counterparty risk. The clearing process
occurs on the first business day after the trade date (T+1).
Settlement Instruction (T+1): Settlement instructions, specifying the details of the
transaction, are generated and sent to the respective participants and depositories.
Settlement (T+2): The actual settlement.