Page 72 - DCOM507_STOCK_MARKET_OPERATIONS

Unit 3: Primary Market and Secondary Market

Green-shoe Option: An option of allocation of shares in excess of the shares included in the Notes
public issue and operating a post-listing price stabilizing mechanism through a Stabilizing
Agent (SA).
Maintenance Margin: The required proportion of your equity to the total value of the stock. It
protects the broker if the stock price declines.

Margin Call: If the percentage margin falls below the maintenance margin, the broker issues a
margin call requiring the investor to add new cash or securities to the margin account.
Margin Trading: It occurs when investors who purchase stocks on margin borrow part of the
purchase price of the stock from their brokers, and leave purchased stocks with the brokerage
firm in street name because the securities are used as collateral for the loan.

Merchant Banker: Any person who is engaged in the business of issue management either by
making arrangements regarding selling, buying or subscribing to securities or acting as manager,
consultant, advisor or rendering corporate advisory service in relation to such ‘issue
management’.
Odd-lot Dealer: He/she specializes in buying and selling in amounts which are less than present
trading units.
Percentage Margin: The ratio of the net worth, or “equity value” of the account to the market
value of the securities.
Qualified Institutional Bidders: Under this method, bidders will be free to bid at any price
above the floor price and allotment would be at differential prices against the current practice of
bidding within a price band.
Secondary Market: A market for already existing long-term securities of governments, semi-
governments and corporate enterprise.
Security Dealer: This dealer specializes in trading in government securities.
Short Sale: Investors can sell shares they do not own.
Stock Exchange: This is the term commonly used for a secondary market, which provide a place
where different types of existing securities such as shares, debentures and bonds.

3.10 Review Questions

1. Outline major functions of the primary market in India.

2. Discuss, in brief, about the agencies associated with activities of primary market in India.
3. What are the various methods used in India for selling securities?
4. What is book-building?
5. Define stock exchange and explain its functions.
6. Explain the importance of stock exchanges from the points of view of companies and
investors.
7. Explain the role played by SEBI in protecting investors’ interests and controlling the
business at stock exchange.
8. Discuss the role and objectives of NSCCL.
9. Write a brief note on the key members of the stock exchanges.
10. What do you mean by margin trading? Explain with the help of suitable examples.

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