Unit:3 SECONDARY MARKET
Secondary market-functions, Bombay Stock Exchange, National Stock Exchange -trading
practices, security market indicators. Return - Risk - kinds. Role of SEBI.
Secondary market
The secondary market refers to the
financial market where previously
0ssued securities and financial
instruments such as stocks, bonds, and
derivatives are bought and sold by
investors. It enables investors to trade
these securities after their initial
issuance, providing liquidity and price
discovery.
The secondary market serves several
functions:
1. Liquidity: It provides liquidity to
investors by allowing them to buy and
sell securities without needing to wait
for their maturity or until the issuer
offers them for sale again.
2. Price Discovery: Prices in the
secondary market are determined by
supply and demand, reflecting
investors' perceptions of the value of
securities. This helps in establishing
fair market prices.
3. Risk Transfer: Investors can use the
secondary market to transfer risk by
selling their s rities to others who
are willing to assume that risk.
4. Capital Formation: The secondary
market can also facilitate capital
formation indirectly by increasing the
liquidity and attractiveness of primary
offerings. When investors know they
can sell theirsecurities in the
secondary market, they may be more
willing to participate in primary
offerings.
5. Efficiency: It enhances the efficiency
of the financial system by providing a
platform for continuous trading, which
helps in the allocation of capital to its
most productive uses.
6. Price Stability: Secondary market
activities can contribute toprice
stability byproviding continuous
trading and allowing investors to adjust
their portfolic iresponse to changing
The Bombay Stock Exchange (BSE) is
one of the oldest and largest stock
exchanges in Asia. It is located in
Mumbai, India, and was established in
1875 as the Native Share &Stock
Brokers' Association. The BSE is now
formally known as the BSE Limited and
isthe world's 10th largest stock
exchange by market capitalization.
The BSE facilitates trading in equities,
derivatives, debt instruments, mutual
funds,and exchange-traded funds
(ETFS). It provides aplatform for
companies to raise capital by issuing
securities and for investors to buy and
sell these securities in a regulated
environment.
The National Stock Exchange of India
Limited (NSE) is the leading stock
exchange in India. It was established in
1992 and is headquartered in Mumbai.
The NSE was set up to bring
transparency, efficiency, and liquidity to
the Indian securities market.
The NSE offers trading in a wide range
of financial products, including equities,
derivatives,debt instruments, currency
derivatives, and exchange-traded funds
(ETFS). t operates a fully automated
electronic trading system,providing
investors with a transparent and
efficient platform for trading.
Trading practices in the secondary
market refer to the buying and selling of
previously issued securities among
investors, rather than directly from the
issuing company. These practices
include various methods such as
electronic trading platforms, over-the
counter (OTC) trading, and traditional
stock exchanges. They aim to facilitate
the efficient exchange of securities and
provide liquidity to investors.
Security market indicators
Security market indicators are metrics used to gauge the
performance, health, and sentiment financial markets.
Some common indicators include:
Stock Market Indices: Such as the S&P 500, Dow Jones
Industrial Average, and NASDAQ Composite, which track
the performance of a basket of stocks representing
different sectors.
Bond Yields: Such as the yield on the 10-year Treasury
bond, which reflects investor confidence and expectations
for interest rates and inflation.
Volatility Index (VIX): Measures market expectations of
near-ternm volatility conveyed by S&P 500 stock index
option prices.
Market Breadth: Examines the ratio of advancing to
declining stocks, indicating the overall health of the
market.
Market Sentiment Indicators: Including investor surveys,
put/call ratios, and short interest data, which provide
insights into investor sentiment and positioning.
Liquidity Indicators: Such as bid-ask spreads and
trading volumes, which assess the ease of buying and
selling securities.
Economic Indicators: Such as GDP growth,
unemployment rates, and consumer confidence, which
impact market performance.
These indicators help investors make informed decisions
by providing insights into market trends, risk levels, and
potential opportunities.
Sure, here are the key roles of SEBI in
points:
1. Regulation: SEBl regulates various
participants in the securities market,
including stock exchanges, brokers,
and other intermediaries.
2. Investor Protection: It aims to
safeguard the interests of investors by
ensuringfair practices, disclosure
norms, and transparency in the
securities market.
[Link] Development: SEBIWorks
towards the development of the
securities market by introducing new
products, facilitating innovations, and
encouraging broader participation.
4. Surveillance and Enforcement: SEBI
monitors market activities to detect
and prevent market abuses, insider
trading, and other fraudulent practices.
It takes enforcement actions against
violators to maintain market integrity.
5. Policy Formulation: SEBI formulates
policies and regulations to promote the
efficiency, integrity,and stability of the
securities market in India.
[Link] and Awareness: SEBI
conducts investor education programs
to enhance investors' understanding of
the market, risks, and investment
opportunities, thereby empowering
them to make informed decisions.
