Unit II
Unit II
Unit II
Financial
market
Capital Money
market market
Primary Secondary
market market
Concept of capital market
Capital market is a financial market in which long-term debt or
equity-backed securities are bought and sold, in contrast to a money
market where short-term is bought and sold.
Types of capital market
I. Primary market; is the market for new shares and securities
ll. Secondary market; it deals with the exchange of
prevailing or previously- issued securities among
investors.
Differences between primary and secondary market
Primary market Secondary market
Publicly traded companies can issue new shares in what is called a primary
issue of the debt or stock.
Primary issues are used by companies for the purpose of setting up new
business or for expanding or modernizing the existing business
Public Issue
Public issue is a method to raise share capital by selling securities
to the public at large.
In Bhutan public issue are governed by Company Registrar Division
in accordance to REGULATIONS FOR PUBLIC ISSUE OF SHARES,
2015.
The issue of Public issue follows an elaborate process which can be
seen in REGULATIONS FOR PUBLIC ISSUE OF SHARES, 2015.
Right issue
A right issue involves selling securities in the primary market by
issuing rights to the existing shareholders only.
When a company issue additional equity capital, it has to be offered
in the first instance to the existing shareholders on a pro rata basis
(According to the shares they hold).
Case A
Lets say a company wants to make a public issue. What are the
requirement for the company to make public issue.
Issue to more than 50 person
Should have minimum paid up capital of 20 million before IPO
Debt to equity ratio should be maintained at 2:1
The company should get permission from securities exchange to
list its shares
Private Placement of Shares
Private Placement of shares
Private placement means selling its securities privately to a selected group
of investors not exceeding 200 persons.
Investors usually includes friends, exclusive investors and institutional
investors.
Not issued at general public.
Less regulatory requirements, reduced cost and time
Company only offers to known people of the company
Shares offered maybe fully paid or partly paid-up and the amount to be paid
by investors should be by cheque, demand draft or electronic transfer, but
not in cash.
Existing shareholder have to approve it in general meeting.
A company can make private placement in two
ways;
a. Right Issue: the right given to Existing
equity shareholders to invest in the shares
b. Preferential allotment: issues securities
to a select group of people, it is known as
preferential.
18
Investment Banker
Is an individual who often works a part of financial
institution and is primarily concerned with raising
capital for corporations, government or other entities.
Responsibilities;
a) Raising capital
b) Underwriting
c) Conduct research
d) Mergers and Acquisitions
e) Financial Advice.
19
Differences between Investment Bank and merchant
Bank
Basis Merchant Bank Investment Bank
Main International financing and Underwriting and issuance of
activity trade activity securities
scope Deals with medium, small Deals with large companies
companies and HNI clients. and HNIs.
Merger and Such service are provided on a Provide such services from a
Acquisition lower scale longer time.
Direct Raise funds through equity. Do not make any direct
investment investment.
Clients Institutional investors, Companies and high net worth
government, and corporations. individuals.
20
Commodity Market
Is a marketplace for buying, selling and trading of raw
materials or primary products.
Types of Commodities
1. Hard commodities
• It includes natural resources that must be mined or
extracted.
• It is classified into two categories:
i. Metal- Gold, silver, zinc, copper, platinum
ii. Energy- Natural gas, crude oil, gasoline, heating oil
21
2. Soft commodities
•It includes agricultural products or livestock that are grown
and cared.
•It is classified into two categories:
i. Agriculture- Rice, corn, wheat, cotton, soybean, coffee,
salt, sugar
ii. Livestock and meat- Feeder cattle, live cattle, egg
22
Debt Market
The debt market is the marketplace where debt
instruments are traded.
These financial instruments are fixed-income securities,
giving fixed returns to the investors.
The issuer of these securities can be local bodies,
municipalities, state government, corporate, etc.
Major debt market securities are bonds, government bonds,
debentures, treasury bills, certificates of deposits,
commercial papers, etc.
23
In debt market:
1. Inflation
2. Fixed interest rate return
24
Regulatory Framework
Introduction
- Systematic arrangement of laws and institutions for
the control, regulation and as well as the
development of an economy.
- Every Country has evolved its own regulatory
system to ensure smooth functioning of the financial
sector.
26
Governing Laws:
Statutes:
-Companies Act, 2016
• Delegated Legislations:
• Corporate Bond Regulations, 2012
• Public Issue of Shares (IPO)Regulation, 2015
• Guidelines for Issue of Commercial Papers, 2018
- Financial Service Act, 2011
• Delegated Legislations:
• Listing/ exchange rules
• Regulations for Securities Brokers
• Guidelines for CD
- AML/CFT Act,2018
28
Regulatory Framework
RMA/RSEB
• Money Market
• Capital - Secondary Market
ROC
• Corporate Regulation
• Capital – Primary Market
29
Definition
Listing: means the grant of a listing of, and
permission to deal in, securities on the exchange and
“listed” shall be construed accordingly.
OR
Listing means the formal admission of securities of a
company to the trading platform of the exchange.
34
1. Equity Securities
Incorporated under Companies Act
Suitable for listing
Profitability for Two years
Face value
35
2. Debt Securities
Incorporated under Companies Act
Suitable for listing
Audited account for 3 financial year
Negotiable
36
Listing Procedures
Listing Application
Listing Particulars
Listing Undertaking
37
Listing Committee
1. One member from the board of RSEB as chairman
2. Royal Monetary Authority of Bhutan
3. Ministry of Economic Affairs
4. Bhutan Chambers of Commerce and Industries
5. Two representatives from Exchange
6. One independent representative
7. One representative from Academia
38