02 Financial Market
02 Financial Market
02 Financial Market
Kiran Thapa
Financial market
The place where financial assets (stock and
bond ) are traded.
Example: Nepal Stock Exchange (NEPSE),
Bombay Stock Exchange (BSE), National
Stock Exchange (NSE), New York Stock
Exchange (NYSE).
Classification of financial market
Money and capital market
• Money market
It is the market for short term
in this market.
Features of money market
Features of money market includes
low default risk
high liquidity
short maturity
low transaction costs.
Low return
Contd.
Instruments traded in this market are
• Treasury bills
• Commercial paper
• Banker’s acceptance
• certificate of deposits (CD)
• Eurodollars
• Repurchase agreements (Repo)
• Federal funds or LIBOR or interbank loan.
LIBOR = London interbank offered rate
Contd.
Participants in the money markets are
• commercial banks
• central bank
• securities dealers
• corporations
• money market mutual funds
• insurance companies
• individuals.
Purpose for money market
Raising funds
Supplying funds
Meet daily expenditures
Raising and investing temporary funds
Synchronize cash inflows & cash outflows
Types of money market
• Primary market
Primary is the market where first hand
manager.
- Investment bankers are neither investors nor
bankers.
They purchase primary issues from security
Company Decision
Appointment of Issue Manager
Prospectus preparation
Filing with SEBON
review by the Prospectus Vetting Committee
of SEBON
Clarification/update
Prospectus approval by SEBON
Issue open and issue close
Allotment and Released
Listing for the Secondary Trading
Book building method of IPO
- SEBON issued Book Building Directive
2077.
Requirements:
investor
Determine the cut off price
Issue securities to the public
Demat account
- Demat account is an account that is used to hold
securities in an electronic form.
- The full form of Demat account is a
dematerialization account.
- Demat account provides facility of holding shares
and securities in electronic format.
- During online trading, shares are bought and held
in a Demat account, thus facilitating easy trade for
the users.
- The purpose of dematerialization is to eliminate
the need for the investor to hold physical share
certificates and facilitating a seamless tracking and
monitoring of holdings.
Features of Demat
-Easy share transfers
-Easy conversion
-Pledging securities and provide loan
-Freezing Demat accounts
-Multiple accessing options
-SPEED E-Facility
-Corporate benefits & actions
Demat a/c opening process
Shortlist a depository participant (DP) that offers demat
related services.
Fill up the application form along with the KYC and has
to present an attested copy of Nepali citizenship
certificate and a passport size photograph for the
form.
The individual has to also present their bank account
details mandatorily to open an account.
In the case of an institution, the institution has to
submit their registration certificate of incorporation,
PAN/ VAT details, minutes of the BoD to open a demat
account, a copy of citizenship certificate and a
passport size photograph authorized by the BoD to
operate the demat account.
Contd.
The DP will take one working day to open
the demat account and provide the
Beneficial Owner Identification Number
(BOID).
The account holder after opening the
demat account will receive a Debit
Instruction Slip (DIS) from the respective DP
for future share transactions. The DIS acts
as a medium to allow the shareholder to
sell their shares.
Demat process
Fill the dematerialization request form (DRF
and deposited along with physical share
certificates to be converted into the electronic
form. On each share certificate, 'Surrendered
for Dematerialization' needs to be mentioned
by the respective DP and it shall be forwarded
to the respective Registrar to the Shares (RTS)
for dematerilization process.
Once the request is approved, the share
certificates in the physical form will be
destroyed and a confirmation of
dematerialization will be sent to the DP.
Contd.
The RTS will then confirm the
dematerialization of shares to the
respective DP.
Once this is done, the shares will be
credited in the shareholders demat account
and the holding of shares will reflect in the
investor's Demat account electronically.
This process shall takes few days from the
submission of dematerialization request
Rematerialization
The process of converting electronic holdings of
securities into physical form (certificates) is known as
rematerialisation.
Procedure of Rematerialisation
1.Fill-up a remat request form (RRF) & submit it to DP
2.After verifying the request, the DP forwards it to the
depository.
3.The depository (CDSC) then confirms this request to
the company’s Share Transfer Agents.
4. RTS prints these certificates and dispatches to the
holder & send a confirmation to the depository.
5.The DP sends a rematerialisation intimation to the
account holder.
Contd.
Advantages
-Lower Risks
-Easy Holding
-Odd Lots
-Reduced Costs
-Reduced time
Disadvantages
-Annual maintenance charges
-Tech savvy
-High frequency of share trading
CRN
The full form of CRN is Centralized
Applications Supported by Blocked Amount (C-
ASBA) Registration number.
It is the special number provided by a bank to
its client for the share related activities
(applying for IPO,FPO,NFO, right share).
CRN has to be provided while applying as a
confirmation on the bank account of the
investor.
The bank then holds the said amount as
application for IPO, FPO, NFO, Right share
issue
Contd.
Once the shares are allotted the investor’s
applied amount will be deducted from the
account and if not allotted it will release the
blocked amount from the account.
If any company provides bonus shares or
cash dividend, the bonus shares will be
deposited in the demat account and the
cash dividend will be deposited in the bank
account provided by the client at the time
of demat account opening.
Factors to be considered while investing in primary
markets
Debt instruments
- Corporate bonds
- Government bonds (Development bond, National saving,
Citizen savings bond, Foreign employment bond)
Contd.
•Institutions
(1) SEBON
• NEPSE – 1
• CDSC - 1
• Listed Co. – 243
• Merchant banker – 30
• Mutual fund – 14
• Stock broker – 50
• Stock dealer – 1
• Credit rating agency: ICRA and Care rating (2)
•Depository participant (DP) = 81
• C-ASBA member - 64
Contd.
• Nepal Rastra Bank
- Commercial bank – 27
- Development bank – 20
- Finance company – 21
Micro finance – 84
Cont.
• Insurance Board of Nepal
- Reinsurance co – 1 + 1
Life insurance co – 19
Non-life insurance co. 20
Total insurance companies = 41
Contd.
• Non-Banking government corporation
- Employee provident fund -1
Citizen Investment Trust -1
Deposit and Credit Guarantee fund -1
Nepal Infrastructure Bank Ltd. - 1
Contd.
• Department of Cooperative
- Cooperatives – around 34,000
Role and importance (Primary market)
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Any questions?