Page 307 - DMGT207_MANAGEMENT_OF_FINANCES

Management of Finances

Notes Self Assessment

Fill in the blanks:
1. The main role of the ……………… is to facilitate the ‘transfer of resources’ from the savers
to users.

2. The sale of securities to the ultimate investors is referred to as ……………… .
3. The sale of securities with an offer for sale method is done in ……………… stages.
4. The underwriters in India may broadly be classified into the following ………………
types.
5. ……………… is the process used by companies raising capital through Public Offerings-
both Initial Public Offers (IPOs) or Follow-on Public Offers ( FPOs).

6. ……………… refers to the work of investigation and analysis and processing of new
proposals.
7. The primary market is that part of the ……………… markets that deals with the issuance
of new securities.

14.3 Secondary Market

Secondary market essentially comprises of stock exchanges which provide platform for purchase
and sale of securities by investors. In India, apart from the regional stock exchanges established
in different centers, there are exchanges like the national stock exchange and over the counter
exchange of India who provide nation wide reading facilities with terminals all over the country.
The trading platform of stock exchanges is accessible only through brokers and trading of
securities is confined only to stock exchanges.
Thus, the securities market has two independent, inseparable segments, the new issues market
and the stock market. The primary market provides channel for sale of new securities while the
secondary market deals in securities previously issued. The issuer of securities sells the securities
to the primary market to raise funds for investment or to discharge some obligations. The
secondary market enables them who hold securities to adjust their assessment of risk and
return. They also sell securities for cash to meet their liquidity needs.
14.3.1 Trading System in Stock Market

Trading on stock exchanges is done through brokers and dealers. All members can act as brokers
and for this purpose they have to maintain security deposits. Brokers act as agents, buying and
selling or others for which they receive brokerage commission at stipulated rates. Dealers act as
principals and sell securities on their own accounts.
However, members cannot enter into contract with any person other than a member without
prior permission the governing body. Given below are the key members of the stock exchanges:
1. Commission Broker: The commission broker executes buying and selling on the floor of
the stock exchange.
2. Floor Broker: Floor brokers are not many. They execute orders for fellow members and
receives a share brokerage commission charged by a commission broker to his/her
constituent.
3. Tataniwala: He/she is a jobber or specialist in selected shares he/she ‘makes the market’
i.e. brings continuity to dealings. They specialize in stocks which are traded inactively.

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