New Financial Institutions:

(i) Venture Fund Institutions:Venture capital financing is a form of equity financing designed especially
for funding new and innovative project ideas. Venture capital funds bring into force the hi-technology
projects which are converted into commercial production. Many specialized financial institutions have
promoted their own venture capital funds. They include Risk Capital Foundation of IFCI, Venture Fund of
IDBI, SIDBI, Technology Development and Infrastructure Corporation of India (TDICI), and others.

(ii) Mutual Funds:Financial institutions that provide facilities for channeling savings of small investors
into avenues of productive investments are called ‘Mutual Funds’. A mutual fund company invests the
funds pooled from shareholders and gives them the benefit of diversified investment portfolio and a
reasonable return.

(iii) Factoring Institutions:“Factoring” is an arrangement whereby a financial institution provides

financial accommodation on the basis of assignment/ sale of account receivables. The factoring
institutions collect the book debts for and on behalf of its clients.

(iv) Over the Counter Exchange of India (OTCEI):The OTCEI was set up by a premier financial institution
to allow the trading of securities across the electronic counters throughout the country. It addresses
some specific problems of both investors and medium-size companies. Some of the greatest strengths of
OTCEI are transparency of transactions, quick deals, faster settlements and better liquidity.

(v) National Stock Exchange of India Limited (NSEI)NSEI was established in 1992 to function as a model
stock exchange. The Exchange aims at providing the advantage of nation-wide electronic screen based
“scripless” and “floorless” trading system in securities. The institution is expected to allow for an
efficient and transparent system of securities trading.

(vi) National Clearance and Depository System (NCDS):Under the scripless trading system, settlement of
transactions relating to securities takes place through a book entry. The entire scripless trading system
comprises the following three segments:

a. National Trade Comparison and Reporting System which prescribes the terms and conditions of
contract for the securities market.

b. National Clearing System which aims at determining the net cash and stock liability of each broker on
a settlement date

c. National Depository System which arranges to provide for the transfer of ownership of securities in
exchange on payment by book entry on electronic ledgers without any physical movement of transfer
deed

(vii) National Securities Depositories Limited

The NSDL was set up in the year 1996 for achieving a time bound dematerialization as well as
rematerialization of shares. The establishment of NSDL is expected to alleviate the problems of post
trade transactions in the secondary market.

(viii) Stock Holding Corporation of India Limited (SHCIL)

Stock Holding Corporation of India Limited (SHCIL) aims at serving as a central securities depository in
respect of transactions on stock exchanges. The Corporation also takes up the administration of clearing
functions at a national level.

Foreign Exchange Market:

The foreign exchange market abets the foreign exchange trading. It is the largest, most liquid market in
the world with an average traded value of more than $5 trillion per day. It includes all of the currencies
in the world and any individual, company or country can participate in it.

New Financial Instruments:

1. Equity Instruments (Stocks)

Stocks are shares of a company. When you purchase a stock, you buy a piece of that company, making
you a shareholder. This means you own a fraction of the company’s assets and earnings.

Types:

Common Stocks: Holders of common stocks have the right to vote on company matters, such as electing
the board of directors. However, in the event of liquidation, they are the last to receive any remaining
company assets.

Preferred Stocks: These stockholders typically don’t have voting rights. However, they receive dividends
(a portion of the company’s profits) before common stockholders and have a priority claim on assets if
the company goes under.

2. Debt Instruments (Bonds)

What are they? Bonds are like IOUs. When you purchase a bond, you’re lending money to the issuer. In
return, the issuer promises to pay you periodic interest and return the principal amount at maturity.

Types:

Government Bonds: These are issued by national governments and are often seen as safe investments
because they are backed by the government's full faith and credit.

Corporate Bonds: These are issued by businesses. Their risk varies based on the company’s financial
health and the bond terms.
Municipal Bonds: These are issued by local governments or municipalities. They often fund public
projects like schools or infrastructure.

3. Derivatives

Derivatives are financial contracts whose value is tied to the performance of an underlying asset, like
stocks, bonds, or commodities. They can be used for hedging (protection) or speculation (profit-making).

Types:

Options: These contracts give the holder the right (but not the obligation) to buy or sell an asset at a
predetermined price within a specific timeframe.

Futures: These are agreements to buy or sell an asset at a set price on a specific future date, regardless
of the market price.

Swaps: These involve exchanging cash flows or other financial variables between two parties based on
certain conditions or assets.

4. Money Market Instruments:

These are short-term financial instruments, typically with maturities of less than a year. Companies and
governments often use them to meet short-term liquidity needs.

Types:

Treasury Bills: National governments issue Treasury bills, which are short-term debt obligations backed
by the government’s credit.

Commercial Paper: Commercial paper are short-term unsecured loans issued by corporations, typically
to finance day-to-day operations.

Certificates of Deposit (CDs): Banks offer these time-bound deposits, which pay interest and return the
principal at maturity.

Mutual Funds :

Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or
other assets. Professional fund managers manage them.

6. Exchange-Traded Funds (ETFs):

ETFs are similar to mutual funds but are traded on stock exchanges. They track indexes, sectors, or
commodities.

7. Foreign Exchange (Forex):

The forex market is where currencies are traded. It’s the largest financial market in the world.
8. Commodities

Commodities are basic goods, either raw materials like metals or agricultural products like grains.

Types:

Hard: These include metals like gold and energy sources like oil.

Soft: These are agricultural products like coffee, sugar, and wheat.

Investor Protection:

Investor protection refers to measures that safeguard investors from losses due to fraud or other
reasons. It includes insurance, guarantees, and regulatory measures.

Investor protection achieved:

Investor Protection Funds: These funds compensate investors when a defaulter's account doesn't have
enough money to pay a claim.

Regulatory measures: These include laws and regulations that prevent fraud and malpractice.

Investor education: This includes promoting awareness of fair and transparent trading practices.

Stock Exchange:

. It is a secure place where trading is done in a systematic way. Here, the securities are bought and sold
as per well-structured rules and regulations. Securities mentioned here includes debenture and share
issued by a public company that is correctly listed at the stock exchange, debenture and bonds issued by
the government bodies, municipal and public bodies.

Functions:

Following are some of the most important functions that are performed by stock exchange:

 Role of an Economic Barometer: Stock exchange serves as an economic barometer that is

indicative of the state of the economy. It records all the major and minor changes in the share
prices. It is rightly said to be the pulse of the economy, which reflects the state of the economy.
 Valuation of Securities: Stock market helps in the valuation of securities based on the factors of
supply and demand. The securities offered by companies that are profitable and growth-
oriented tend to be valued higher. Valuation of securities helps creditors, investors and
government in performing their respective functions.
 Transactional Safety: Transactional safety is ensured as the securities that are traded in the
stock exchange are listed, and the listing of securities is done after verifying the company’s
position. All companies listed have to adhere to the rules and regulations as laid out by the
governing body.
 Contributor to Economic Growth: Stock exchange offers a platform for trading of securities of
the various companies. This process of trading involves continuous disinvestment and
reinvestment, which offers opportunities for capital formation and subsequently, growth of the
economy.
 Making the public aware of equity investment: Stock exchange helps in providing information
about investing in equity markets and by rolling out new issues to encourage people to invest in
securities.
 Offers scope for speculation: By permitting healthy speculation of the traded securities, the
stock exchange ensures demand and supply of securities and liquidity.
 Facilitates liquidity: The most important role of the stock exchange is in ensuring a ready
platform for the sale and purchase of securities. This gives investors the confidence that the
existing investments can be converted into cash, or in other words, stock exchange offers
liquidity in terms of investment.
 Better Capital Allocation: Profit-making companies will have their shares traded actively, and so
such companies are able to raise fresh capital from the equity market. Stock market helps in
better allocation of capital for the investors so that maximum profit can be earned.
 Encourages investment and savings: Stock market serves as an important source of investment
in various securities which offer greater returns. Investing in the stock market makes for a better
investment option than gold and silver.
Features of Stock Exchange:
 Regulation: Stock exchanges are governed by strict rules to ensure fair trading.
 Security: Only licensed brokers can facilitate trades, making the process secure.
 Economic barometer: Stock exchanges reflect the state of the economy by recording
changes in share prices.
 Valuation: Stock exchanges help value securities based on supply and demand.
 Trading: Stock exchanges function as "continuous auction" markets where traders can buy
and sell securities electronically.
 Listing: Companies must meet specific standards to be allowed to list their shares on the
exchange.
 Public awareness: Stock exchanges provide information about investing in equity markets.
 Speculation: Stock exchanges permit healthy speculation of traded securities.
 Capital formation: Stock exchanges contribute to economic growth by allowing for capital
formation through disinvestment and reinvestment.
 Transactional safety: Stock exchanges ensure transactional safety by listing securities after
verifying the company's position.
Stock Exchange Trader:
A stock trader is a person who attempts to profit from the purchase and sale of securities
such as stock shares. Stock traders can be professionals trading on behalf of a financial
company or individuals trading on behalf of themselves.
Swing traders: Buy and hold stocks for a few days or a week to profit from short-term trends
Momentum traders: Focus on assets that have recently performed well, believing that
trends will continue
 Algorithmic traders: Use high-frequency trading algorithms to complete trades at any time
Fundamental traders: Analyze a company's financial health to determine a stock's value
Technical traders: Use historical trading data to make predictions
Contrarian traders: Take the opposite side of the prevailing market consensus
Noise traders: Make investment decisions without using finance fundamentals
Stock Market Regulations:
SEBI regulates Capital Markets through certain measures it takes.

 Protects the interests of traders and investors, thereby, promoting fairness in the stock
exchange.
 regulates how the security markets and stock exchanges function.
 regulates how transfer agents, stock brokers, merchant bankers, etc, function.
 handles the registration activity of new brokers, financial advisors, etc.
 encourages the formation of Self-regulatory Organizations.
 promotes investor learning opportunities.
 makes rules to prevent malpractice.
 manages and controls a ‘complaints’ division
 It regulates mutual funds, both government and private-sector-related

Depository:

A depository is an organization or place that holds and manages securities or assets.

Depositories can be financial institutions, buildings, or warehouses.
Types of depositories:
 Depository for securities: An organization that holds securities like shares, bonds,
and mutual fund units in an electronic form
 National Academic Depository: A repository that stores and digitizes academic
awards like certificates, diplomas, and degrees
 Night depository: A bank that is used to deposit government funds
Depository services
 Depositories provide services related to transactions in securities
 Depositories maintain investors' accounts, similar to bank accounts
 Depositories enable individuals and businesses to deposit valuable assets for
safekeeping
 Depositories provide liquidity in the exchange market by investing the money
deposited into other securities and lending to others
Depository participants :
Depositories interface with investors through Depository Participants
Depository Participants maintain investors' accounts (Demat accounts)
SEBI:
 SEBI stands for Securities and Exchange Board of India. It is a statutory regulatory body
that was established by the Government of India in 1992 for protecting the interests of
investors investing in securities along with regulating the securities market. SEBI also
regulates how the stock market and mutual funds function.
Regulatory Function: Regulatory functions involve establishment of rules and
regulations for the financial intermediaries along with corporates that helps in efficient
management of the market.

The following are some of the regulatory functions.

a. SEBI has defined the rules and regulations and formed guidelines and code of
conduct that should be followed by the corporates as well as the financial intermediaries.

b. Regulating the process of taking over of a company.

c. Conducting inquiries and audit of stock exchanges.

d. Regulates the working of stock brokers, merchant brokers.

Developmental Function: Developmental function refers to the steps taken by SEBI in order to provide
the investors with a knowledge of the trading and market function. The following activities are included
as part of developmental function.

1. Training of intermediaries who are a part of the security market.

2. Introduction of trading through electronic means or through the internet by the help of registered
stock brokers.

3. By making the underwriting an optional system in order to reduce cost of issue.

Structure of SEBI

SEBI board comprises nine members. The Board consists of the following members.

 One Chairman of the board who is appointed by the Central Government of India
 One Board member who is appointed by the Central Bank, that is, the RBI
 Two Board members who are hailing from the Union Ministry of Finance
 Five Board members who are elected by the Central Government of India